Being a Saturday, I thought I would post something totally different.
Hopefully this is the sort of question that forces you to think a lot about how you trade and why you trade that way - and hopefully, this introspection will help you (and others, if you post about it).
I will try to broadly classify the trading styles I can think of - please post if you fit any of those styles, or if you have some other style to add to the list.
- Intraday swing trader - plays the momentum game, gets in if he sees market going in one direction and hopes to profit as it continues to move in that direction.
- Reversal player - enters at a point where current move is likely to see resistance, and hopes for reversal.
- Covered Calls - basically hedge your long stocks with short call options - so that even if stock goes down, you make some premium.
- Long options - take a bet on direction, lose premium if you are wrong about direction or speed - and stand to make money if you are right on both counts.
- Short options - sell options to capture the premium, and in case the stock moves against you, try to move strikes away (or move to next expiry). Usually plays both puts and calls, so that one side is definitely profitable, and hopefully will offset some of the potential losses on other side.
- Trade on tips by market experts - usually from CNBC or other TV channels, or some favorite poster traderji!
- Trade around rumors - maybe Rakesh Jhunjhunwala is entering this stock, or someone will acquire this company, whatever.
- Medium term directional bet - usually buy enter when you think market has fallen too much, or sell when you think market has risen too fast (rare). Might be hedged with covered calls, but usually naked bets.
- Long term directional - buy futures and keep rolling. Could be hedged with covered calls that are way out of the money, to capture some small premium.
- Average down - got stuck in a trade that went wrong, so try to buy more stock so that average price is lower.
- Strict Stop Loss - Very strict about stop losses - moment SL is hit, get out.
- Fundamental Long term positions - more longer term trades with expectations of significant returns as the idea plays out. Mostly stock is picked because of company specific factors. Like buying Reliance today on hope that BWA initiative will kick off in major way.
- Macro/Demographic bets - again long term, but based on Macro/Demographic factors. Stock is picked based not on Company specific factors. Like buying FMCG companies in hope that rising income levels will move consumers to buy more FMCG products as opposed to using home solutions, etc.
- Trade around news flow or events. Either make a bet before the announcement, or immediately after the announcement.
- Results/Earnings based trading - similar to News Flow, but totally around Earnings.
- Trade around market events - Could be Expiry, Index Rebalances, etc.
- Buy Penny Stocks and hope for a big move either because of fundamental reasons, or because of operator manipulation.
Quite obviously, you will fit into more than one style. And hopefully, just from doing this exercise, you will get some sense of "ah - maybe I should not be doing this" or "I should start doing things this way".
Hopefully this is the sort of question that forces you to think a lot about how you trade and why you trade that way - and hopefully, this introspection will help you (and others, if you post about it).
I will try to broadly classify the trading styles I can think of - please post if you fit any of those styles, or if you have some other style to add to the list.
- Intraday swing trader - plays the momentum game, gets in if he sees market going in one direction and hopes to profit as it continues to move in that direction.
- Reversal player - enters at a point where current move is likely to see resistance, and hopes for reversal.
- Covered Calls - basically hedge your long stocks with short call options - so that even if stock goes down, you make some premium.
- Long options - take a bet on direction, lose premium if you are wrong about direction or speed - and stand to make money if you are right on both counts.
- Short options - sell options to capture the premium, and in case the stock moves against you, try to move strikes away (or move to next expiry). Usually plays both puts and calls, so that one side is definitely profitable, and hopefully will offset some of the potential losses on other side.
- Trade on tips by market experts - usually from CNBC or other TV channels, or some favorite poster traderji!
- Trade around rumors - maybe Rakesh Jhunjhunwala is entering this stock, or someone will acquire this company, whatever.
- Medium term directional bet - usually buy enter when you think market has fallen too much, or sell when you think market has risen too fast (rare). Might be hedged with covered calls, but usually naked bets.
- Long term directional - buy futures and keep rolling. Could be hedged with covered calls that are way out of the money, to capture some small premium.
- Average down - got stuck in a trade that went wrong, so try to buy more stock so that average price is lower.
- Strict Stop Loss - Very strict about stop losses - moment SL is hit, get out.
- Fundamental Long term positions - more longer term trades with expectations of significant returns as the idea plays out. Mostly stock is picked because of company specific factors. Like buying Reliance today on hope that BWA initiative will kick off in major way.
- Macro/Demographic bets - again long term, but based on Macro/Demographic factors. Stock is picked based not on Company specific factors. Like buying FMCG companies in hope that rising income levels will move consumers to buy more FMCG products as opposed to using home solutions, etc.
- Trade around news flow or events. Either make a bet before the announcement, or immediately after the announcement.
- Results/Earnings based trading - similar to News Flow, but totally around Earnings.
- Trade around market events - Could be Expiry, Index Rebalances, etc.
- Buy Penny Stocks and hope for a big move either because of fundamental reasons, or because of operator manipulation.
Quite obviously, you will fit into more than one style. And hopefully, just from doing this exercise, you will get some sense of "ah - maybe I should not be doing this" or "I should start doing things this way".
