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In one of my training workshops , I asked five of my students to tell me about their dreams and their financial goals .
First Student said , he is from a middle class family so he wants to settle down in his life by buying a nice car and a beautiful home .
Second student said he is from an upper middle-class family so his dream is to take a world tour at a young age and buy a luxury car .
Other three people said different things like building passive income , buying commercial property , starting a business and so on .
All five people have different dreams and different family situations . So , everybody should have unique plans and a roadmap to achieve their dreams .
Similarly , In order for you to achieve your dream by making money from stock market trading , first you should know what are the different types of trading in the stock market and which one suits your current financial situation and your risk appetite .
You will only succeed in stock market trading if you learn and do the right trading type which will take you from your current level to your dream level .
In this article , I will help you select your trading style by discussing the different types of trading in the stock market . Also the pros and cons of each trading type in the stock market .
Stock market trading is broadly divided into four types based on the time frames and the time period you want to hold your stocks .
1. Positional Trading
Positional traders hold the trades from a few weeks to several months as well to make money from the stock market . The timeframe they use to analyze the charts are weekly and monthly time frames .
They tend to capture long term movements of the stock market . Successful traders are able to generate 20% to 30% Return on investment per year in positional trading .
Pros of Positional Trading
1. Positional trading is considered a very low risky trading type since the risk you own for the trade is very low .
2. It is very easy to learn and become profitable in this type of trading.Because In the long term , large cap stocks or indices value tend to grow in the nation thereby you make money by staying invested in it.
Cons of Positional Trading
1. You might miss all those short term money making opportunities provided by the stock market.
2. You might need huge capital for positional trading since no leverage is provided by the stock broker .
2. Swing Trading
Swing trading is the type of trading technique used to capture short term movements in the stock market . The timeframe they use to analyze are hourly and daily time frames .
Swing traders hold the trades from a few days to several weeks to take advantage of all the short swings in the stock market .
Swing trader can be considered successful if he / she is able to generate minimum 50% to 60% ROI per year .
Pros of Swing Trading
1. Swing trading can be done part time alongside your full time job or your business . Because you need to spend only a very few hours in front of a monitor to analyze charts for the execution of trades .
2. You will have to pay small charges to the stock broker for executing the trades there by getting all the profits you make through swing trading .
3. You will get leverage in derivatives to get more margin money for the trading.
4. You can short sell in the derivatives market to make money also during times when the market is falling .
Cons of Swing Trading
1. Swing traders should have overnight risk because of major economic events or natural disasters . Overnight risks are huge gap up and gap downs in the market which could make us more money than we allotted to that particular trade
2 You might miss some good trades because your money will be stuck inside your already taken trades .
3. Intraday trading
Intraday traders execute all their trades within a day to make money from the stock market . Intraday is about buying and selling the stocks in the market hours , closing all the trades before market closing .
The timeframes used to analyze the charts are minutes chart and hourly chart .Intraday trades take advantage of all the price movements which happen in a day .
All beginners are easily attracted to intraday trading because of its potential to generate high returns from the stock market . Successful intraday traders will generate minimum 10% to 20% ROI per month i.e they double their capital more than once in a year .
It is the most commonly used trading style by retail traders to make money from the stock market.
Pros of Intraday trading
1. In intraday you will get more leverage from brokers, thereby generating more profits in a day .
2. You can even do short sell in the cash market to make money on the bear side of the market as well .
3. The capital requirement is Low when compared to the above trading styles which we discussed .
4. You don’t have any overnight risk in intraday trading and you can execute all the good trades in a day if your risk management allows it to do it .
Cons of Intraday trading
1. You need to become a full time trader only then you can do intraday trading .Because you need to spend hours of time in live market as well as post market to backtest your trades and journal it .
2. It takes a long time to master intraday trading and make money consistently from the stock market. It’s very important to hire a profitable mentor to shorten your learning curve .
4.Scalping :
Scalpers make money by executing multiple trades in a day to capture very small price movement in the market . The time frame used to make entries is only on a minutes chart .
Successful scalpers can generate more than 30% ROI per month and so they can double their capital multiple times in a year.
Pros of scalping
1. Scalpers generate the highest ROI in a year compared to any other means of trading style .
2. Even scalpers can short sell to make money when the market falls .
3. There is no overnight risk involved in scalping .
Cons of scalping
1. You need to spend all your time in-front of the monitor screen to spot and execute the trades . Only full time traders can do scalping.
2. You need to pay huge charges to broker from your profits because you are executing many trades in day
Now you would have understood the different types of trading in the stock market . Next we will look at Different types of segments to trade in the Indian stock market .
1. What is Equity trading ?
Equity trading is buying and selling of stocks in the equity segment . Equity trading is also called stock trading .
In the Indian stock market , we have two major exchanges for stock trading such as NSE and BSE . Under the exchanges , 1300 stocks are listed under NSE and 3000 stocks are being traded in BSE exchange .These stocks are further classified into large cap , mid cap and small cap stocks based upon their market capitalization .
You can do equity trading during the live market timing from 9.15am to 3.25 pm .
2. What is Indices trading ?
Indices trading is buying and selling of indices in the stock market . In the Indian stock market , we have NIFTY 50 index for NSE and BANK NIFTY index for BSE .
Indices is the group of stocks combined together based on the market capitalization and given weightage to each stock . Nifty 50 have 50 large cap stocks and periodically those stocks are replaced based on their performance .
It is the most preferred type of trading , because it has good liquidity in it . you can buy and sell index through derivatives during the live market hours only
3. What is Commodity trading
Commodity trading is buying and selling of commodities such as gold , silver , crude oil etc from the stock exchange called mcx .
MCX is a multi commodity exchange of India . Those who want to do intraday trading while going to work , commodity trading is preferred . Because market timing for commodity trading is 9am to 11.30pm .
Conclusion :
Now that you have understood the different types of trading and its earning potential . Now you can choose one trading type from time frame based and select the segment to start learning from different resources
“Direction is more important than speed“
If you select the wrong trading type and put your dedicated time towards it ,then also most probably you are going to fail .So it is very important to choose the right style of trading which suits your personality , capital you are willing to invest and the risk appetite.
For example , if you want to earn 1Lakh per month consistently on stock market trading . Then different trading types require different trading capital . Let’s see this on a table
| Type of trading | ROI generated | Capital required to make 1lakh/month | Expertise and skill needed | Time required to master |
| Positional trading | 30%per year | 45 lakhs | easy | 6month |
| Swing trading | 50% per year | 25 lakhs | Medium | 1year to 2year |
| Intraday trading | 120% per year | 10 lakhs | Hard | 2year to 3 year |
| Scalping | 240% per year | 5 lakhs | Tough | More than 3years |
From the above table , you can understand the capital required for different types of trading in the stock market . Not only capital , you also need knowledge and skills to generate this kind of returns .
Your future self is going to be very proud of you , if you learn the very high income skill called stock trading . so start learning and take actions right now to achieve your dream life irrespective of your current financial state or wherever you come from . .
If you are still confused on which trading type will suit you , I’m conducting an exclusive one on one free consultation call to guide you in the journey of stock trading . Consultation is only for serious people who want to achieve their dreams and upgrade their current state of life.
Why are you waiting now , go ahead and comment why you need free consultation in the comment box along with your mail id . Our team will contact you and provide free personal video consultation for you on how to make money consistently from the stock market .
Happy trading .