Trading has grown in trend again all thanks to the introduction of cryptocurrencies and other new forms of trade and investment across the various stock markets.
Many people learn that trading is an effective way to build a source of passive income, but it begs to question, how do you trade without worrying about losing money? Is there a specific trading strategy that minimizes risks while still allowing for some room to gain a reasonable profit?
What is Trading and how is it different from investing?
Trading, in general, is the buying and selling of products and services. The stock market, in essence, is the buying and selling of company shares in order to raise capital.
Many people choose to go through specific stockbrokers and brokerage firms since they have direct access to the stock markets. To many people, trading sounds like a risky gamble, but not all forms of trading hold the same level of risks.
A few types of trading often seen in exchange markets
- Stock trading:
One of the most recognized forms of trading, even for none traders and beginners alike. This is the trading of various company shares on the stock markets (NASDAQ, New York Stock Exchange, and AMEX).
- Forex trading:
This is the buying and selling of currency. You are buying and selling other countries paper money. Currency trading fluctuates depending on many factors ranging from internal affairs of a nation to foreign wars and how each country is involved.
One of the biggest examples of forex trading is with the US dollar. Most of the world’s major currencies get support from U.S. foreign obligations, the US dollar itself, or limited resources such as oil and gold.
Another form of currency trading that has developed with more backing is cryptocurrency. This is digital internet currency and has its own stock market.
- Options trading:
This is a type of derivative trading. This means you trade contracts that allow you certain rights, without obligations, to buy and sell an underlying asset. The contracts typically require you to sell or buy the asset for a predetermined price as dictated by the traded contract.
- Binary options trading:
Experts call this all-or-nothing trading. Traders expect to earn a predetermined payout or nothing at all based on a market prediction of a specific market event. This form of trading tends to be the riskiest for obvious reasons.
Why people use strategies in trading
People use a variety of trading strategies to help them navigate the different stock markets and make money. These trading strategies also help minimize risks in relation to their trades and other investments.
Some strategies are based on mathematics and probability while others are based on patterns of stock fluctuations, and/or faith in a stock/share.
How you can use other systems to develop your own trading strategy
Since there are many strategies to choose from, you have many opportunities to see how a trading strategy works. Each trading strategy has a slightly different approach to the various exchange markets. Some strategies, however, are very adaptable, used interchangeably between several types of trade markets.
How is investing different from trading?
Investing is a little slower than trading, but the overall principles are the same. You buy and sell stocks on the market. However, instead of rapid changeover of stocks, you would instead invest time and wait for the stock’s value to grow exponentially. Depending on which types of stocks you buy, this can be one of the safest ways to invest money or one of the riskiest strategies.
RSI 80-20 Trading Strategy
To show you an example of what a trading strategy looks like and how it works, we give you the RSI trading strategy. RSI (relative strength indicator) is a type of trading strategy that is popular among stockbrokers and used in all trading markets. What makes this trading strategy so useful is how it applies data on overbought and oversold stocks and gives you a number that will help you decide if a stock is worth trading or not.
Day Trading Strategy
If the RSI trading strategy was too confusing for you, don’t worry! There are many trading strategies you can use to help find buyable and sellable shares. The day trading strategy is a little simpler for beginning traders to use, but this strategy requires more work in order for it to work. It requires you to work daily and for many hours throughout the day. You will be tracking various stock values to decide which stocks to buy, sell or pass on.
Using data analytics to compare trade strategies and calculate statistical probability
There are endless ways a person can use the stock market to gain a profit. But not all trading strategies work nor are they all reliable for long-term trades or short-term trades. Often, you will be developing your own personal style or set of trading strategies to help you succeed in the exchange markets.
Cross tabulation, also known as a contingency table can help you figure out any trends you may see in the market and offer you a statistical analysis of this data. Knowing where the stock market is trending and growing and where it is failing and dying is how you can navigate while minimizing monetary risks.
So instead of making your trades and investments based on faith, you can make trading decisions based on high statistical probability instead!
Cross tabulation is also different from other trading data tools in that instead of using candlesticks to figure out a stock’s buy/sell risk factor it used other techniques to find hidden relationships and other data trends.
Now that you understand some of the basics of trading, stocks markets, trading strategies and so on you can now begin to trade or invest. Remember there are no guarantees on the stock market! When it comes to trading and investing make sure you exercise caution and rely on expert advice for buying and selling in different markets.