# 6 Top stock trading methods in 2021 ![](https://i.imgur.com/ZPy8gka.jpg) Do you want to know the best way to trade stocks? There are many ways to trade stocks, and very different by the way. I have my favorite, but it does not have to coincide with that of others. Also I have my favourite trading platform: https://dotbig.com/. In fact, there is great competition in those ways of how to trade in the big world stock markets. Besides, I confess something: stocks are my favorite market for trading. It took me a few years to realize this, mostly because it is not easy to figure out which trading style suits you best. The latter becomes even more difficult in today's world with so many options and many advertisements pushing us to do a certain thing. Let's take a look at the 6 most popular stock trading styles, although we have a world within each of them. ## 6 methods for stock trading Because in the end, it is the one that would suit many people, especially those who do not have the time or talent to trade these markets. ### 1. Buy and Hold This first way of trading stocks is known as "[buy and hold](https://www.investopedia.com/terms/b/buyandhold.asp)" in Anglo-Saxon stock exchange circles. It is about investing for the long term, which is different from pure stock trading, but because of its popularity and efficiency, we have to consider it. Within this "buy and hold," we have a variety of sub-systems. We have investment by value, by dividends, by momentum, by index. All these variants have their advocates and detractors. But what is certain is that they all behave under the same principle: investing for the long term. Depending on the [long-term stock market cycles](https://www.mfs.com/content/dam/mfs-enterprise/mfscom/sales-tools/sales-ideas/mfsb_fmkt_fly.pdf), some strategies will work a little better than others, but there will be no significant differences in the end. In general, if you are a more conservative investor, a dividend strategy will work well for you. On the other hand, if you are a more adventurous investor, you could try to look for momentum stocks, which tend to be among the hottest and most popular stocks at the moment. Depending on when we buy or sell, we will have a great variety in long-term returns. This does not mean that investor B's strategy will always work because, on many occasions, when "investor A" buys, the share price continues to rise non-stop for years. Well, as we can see, this way of buying stocks for long-term investment is straightforward. We choose our preferred stocks; we decide if it is the right time to buy, and if we do, we keep the investment for a period that usually lasts for years. A good way to put your savings in the long term, no doubt. ### 2. Position trading This second way is a hybrid between investment (which we have just seen) and short-term trading. In this case, we hold the position for weeks, months, or even years, depending on each particular case. These types of trades do not require trading very often. This is ideal for most traders. In particular, it is a strategy that I like very much and that I apply often. However, I do not recommend it to those who have no experience in the markets because we have to know well what we are doing regarding overall risk and position. **Why do I like it?** Well, because in this strategy, we have to really pay attention to the long-term charts, which means that we will try to trade the big stock market trends. That makes us become more patient and think carefully about what we are going to do. For this style, we can use both fundamental analysis and technical analysis. Some people prefer the former and others, like me, prefer the latter. I find it easier to trade based on price action. But I do not fail to recognize that the great scholars of fundamental analysis can get interesting results. Both models require one thing: hard work. Don't think that because it is a simple trading method to implement, it will be easy. ### 3. Overnight or after-hours trading Without being a way of trading different from the others in itself, I want to commend it because it is another strategy that some people use, especially in the North American markets. The characteristic of this type of trading is that traders start trading when the market is closed. As we should already know, stock markets usually open in the morning and close in the afternoon. In the case of New York, that time is from 9:30 to 4:00 pm. As you can see, it is not many hours to trade. Just 6 and a half hours. Hence it is not surprising that many people try to trade at times when the main market is closed. In fact, those times are usually when there are more economical and company announcements, with sometimes wild movements. To this end, in the United States, this trade is offered from 4 to 8:00 pm (after-hours) and from 7:00 to 9:30 am (pre-market). Some people prefer this type of trading because they can trade those economic announcements or find special opportunities. Also, many U.S. traders work during the day, so they cannot trade during normal hours. This way, they can trade after they get home from work. There are also disadvantages to consider: low liquidity and high spreads, volatility. It is not a system that I like personally, and I do not use it in my strategies, but it is there for those who want to use it. ### 4. Day trading Here we come to the real monster of online trading. Undoubtedly, the most popular way of trading globally does not mean that it is the best, at least for our pockets. Why do I say this? Because it is in this style, it can be said that "95% of traders lose", so well known. In Buy and Hold, it is difficult to lose in the long term, although it is difficult to win a lot. It is possible to lose in positional trading, but even if you do it very badly, it takes a long time to do it. However, in day trading, it is not difficult to lose your shirt in a few trading sessions. It is also true that it is easier to make money quickly. But the question here is whether we can maintain these profit ratios over the long term. The stock day trading market, as I said, is trendy. However, in my opinion, it is not as efficient as futures or even Forex or index [CFD](https://en.wikipedia.org/wiki/Contract_for_difference)s could be. Those markets offer volatility and trading costs much more suitable for day traders. Stocks have more problems in offering optimal conditions for day trading, as they sometimes do not move enough to justify the costs we pay, especially for small speculators. If we are big, then there is not much of a problem, but we are not all big, are we? We can do day trading with real shares and also with CFDs. With real stocks, some brokers offer leverage of 2 or even 4:1 (with certain conditions). In these cases, you will have to study well if it is worth buying a certain volume for the cost that it will suppose, besides studying well the volatility of the market in question. In the case of CFDs, the leverage is usually 5:1, but in this case, the trading conditions are usually somewhat worse, at least in most brokers. In fact, I do not recommend day trading CFDs on stocks, at least in most cases. As for day trading strategies for these assets, there is a whole world of them. They are innumerable and will depend on the system we study. Needless to say that here the technical analysis reaches its full importance. I think no intraday trader does not use at least one measure of this type to choose their operations. Therefore if you want to specialize in this way of trading, study this analysis well. ### 5. Scalping This way would be one of the variants of day trading, but as it is so popular, I put it separately. Within the intraday, this scalping would be extremely short-term trading. The fundamental characteristic of this type of trading is that operations usually last seconds or minutes. Needless to say that we are talking about a very specialized type of operation and requires an exquisite technique. Do not think that you are ready to become a professional scalper by learning the concept and watching two youtube videos. If only it were that easy. As in the previous case, with intraday, I think this style is better suited to the futures markets or even Forex. This is because of the cost of trading, both spread, and commission. The key is to buy the stock at the right time, usually when the price is moving clearly in one direction, and close shortly after when we have accumulated a few profit points. Many so-called industry experts try to attract the attention of interested parties with typical claims that they can make $500 or $1,000 in a minute. Unfortunately, most of those who make these claims are usually scammers looking to take advantage of inexperienced traders who believe these fairy tales. They don't tell you that there is also a high probability that the price will turn around and move a few pips against you so that you would lose that $500 or $1,000 plus commission (and spread). Really, to win in this style of trading, you need to be a real expert. A good way to try to learn to the scalp is in the Forex market; with micro-lots of 1,000 units, we can make operations of 5 or 7 pips of a few minutes and see if the system is as easy as it seems. That way, you would only lose 0.5 euros or dollars per trade, and it would not be as disastrous as losing 500. Better yet, do it in demo mode, and then you risk nothing. However, there is nothing like doing it with real money, of course. ### 6. Swing trading Finally, we come to the last mode of stock trading. Yes, I admit that this is my favorite way to trade these markets. Although sometimes I use a mixture of swing trading and positional trading, this concept would be a kind of variation of the first. Anyway, what is swing trading? Well, it is the trading method that is between day trading and long-term investment. That means that the positions will last for days, weeks, or months. In many cases, I can close even on the same day, and in many others, I let the operation run for months. The advantage of this system? Above all, it allows you to take advantage of long-term market trends, both bullish and bearish. This isn't easy to achieve in day trading. On the contrary, long-term investment is the best to find these trends. Still, if a value is very volatile, we will be losing many opportunities, which does not happen with swing trading, which always allows us to re-enter operations when the price moves to one side of the market significantly. As for leverage is a system in which we can use as much power as day trading, as I myself do not hesitate to use almost up to 5:1 at times. Something we cannot do in long-term investment, where we have to go with leverage of 1:1. Another advantage, especially with day trading, is that the trading costs are less important because we are looking for large movements, 5, 10, 15% or more. If the total cost of the operation is 0.2%, it is not significant if we are looking for movements of 10%. However, if we do day trading and are looking for a movement of 1%, that 0.2% becomes terribly significant, and in the long run, it will weigh like a burden on our trading. ### How can we trade stocks in swing style? We can bet in favor of the trend, or we can bet against the trend ending. I'm telling you, you'd better go for the main trend, either bullish or bearish. Going against the market is usually expensive in the long term. To swing trade, the opposite, one has to be a very experienced speculator with a refined technique. It is hard to achieve. But when you do, it is worth it. What are the best stocks for day trading? This is an easy question to answer: the most liquid and popular ones in the market, almost always the same. Some of the same as of today would be (beware that this will change in the future): * Apple * Amazon * Facebook * Microsoft * Alphabet (Nvidia) * Tesla Motors * Netflix That's for the United States. For Spain, we would have: * Inditex * Iberdrola * Santander * Cellnex * Siemens Gamesa If we want to day trade stocks, it is best to concentrate on the stocks that show the most strength in their movements and market depth. In the case of tiny traders, there should not be many problems with most of the large stocks of the S&P500 or IBEX35, but as the size of the trader's account increases, it is better to try to trade only stocks with great market depth for day trading. Undoubtedly, the most prominent for this are the major US stocks, some of which have more market capitalization alone than many entire stock exchanges in other countries. For example, Apple or Amazon. This is in terms of day trading, where liquidity takes precedence. Best stocks for swing trading If we want to do swing trading, with operations that last weeks or months, we can choose between a greater number of shares with a guarantee. In this case, the main parameter will be volatility, although we should not forget that we should not choose stocks with almost any liquidity. For example, in 2020, Solaria and Siemens Gamesa had a lot of volatility, but the latter was better for day trading, as it had 10 times more liquidity. Gamesa outperformed the larger one in terms of volatility to have been better for swing trading. Advantages and disadvantages of trading stocks ✔️ It is ideal for swing trading strategies due to the amplitude of movements (volatility) and the very marked trends. ✔️ It is a market that offers thousands of assets worldwide, mostly in The United States and Europe, although there are also compelling markets in Asia. This means that there is always the possibility of finding hot stocks. ✔️ It is a market that is very diversified by sector. This means that we will be able to invest or trade in stocks that represent the entirety of global economic sectors. If the social media sector is strong, then there will be stocks in that sector to trade. This goes for energy, financials, construction companies, and any sector and sub-sector we can think of. ✔️ It also allows diversification by country. This means that if there is a scorching country, we can focus our operations on the country's shares, whether Japan or Australia, to give two examples. All that is needed for this is a broker with an international offering. ✔️ It is a very professionalized market globally, and there are plenty of resources where to follow commentaries and all kinds of interesting news, in addition to macroeconomic announcements of all kinds. ✔️ Ideal market to operate with a medium to long-term view. We can extend it to create investment portfolios, with the benefits that this brings: dividends and possible capital appreciation. It may not be the most suitable market for novice traders because it requires learning before mastering it with more or less guarantee of not losing. I'm not saying to win a lot, but not to lose, which is the first thing we should expect to reach. When we are so good at trading that we don't lose, we can start thinking about obtaining consistent positive returns. ❌ Intraday trading costs can be quite high at certain stock brokers. It is best to study the volatility of the assets and the associated costs and see if this type of trading is possible or worthwhile. It is usually trading dominated by professionals and dealers (like the rest). ❌ They do not usually offer leverage, although there are brokers that can allow using credit, as some in Spain, or a margin of 25% as Interactive Brokers, although in this case to trade with those conditions in the US market, you must have a minimum balance of $25,000. ❌ Huge gap-type events can occur in the market with more than 20% (or rises), making this trading very dangerous, especially if you use some leverage. Efficient stock swing trading requires the trader to be experienced and clear on risk management concepts in a diverse stock portfolio, and even then, it is not easy. Conclusion - stock trading opinions broker's opinions we have seen, we have these six ways, but in reality, we can reduce them to 3, which are the main ones and from which the others derive: * Long-term investment * Swing trading * Day trading The first is measured in years, the second in days, weeks, or months, and the third in hours or minutes. Which one is your favorite? In my case, I have been clear: swing trading or positional trading, or rather a mix of both. In some cases, I use a strategy that we could consider more positional, while in other cases, my operations last a little less time. It doesn't matter which way it is. In the end, the important thing is to win in the long run and adopt the strategy that best suits our circumstances. Honestly, the best thing that most of us could do is to dedicate ourselves to long-term investment. For swing trading, we will have to be more finely tuned and dedicate a lot of time to it. Now, if you like trading, it is a fantastic method. Day trading; here, things get more complicated. If you are going to do it or try it, please be very cautious and study the market well before applying the techniques. The end of the first part.