When you trade stocks or any other instrument for that matter, it is imperative that you have a solid system. There are many strategies for trading stocks out there. Some are fantastic, others not so good. You could of course make your own trading strategy.
A popular belief is that a trading system needs to have a very high win ratio in order to be successful. This could not be further away from the truth.
This is where the risk and reward ratio comes into play. For example let’s say that a stock is price 100. And we are aiming for 120. But we use a stop at say 90. In this scenario, there would be a risk/reward ratio of 2:1.
If the risk/reward ratio is 2:1, you only need to win a third of stock trades to break even. If you won half of your trades with this risk/reward ratio, you would make a very return good return.
There are a good number of different stock trading strategies to choose from. A good number traders like to trade long term. This is commonly known as long term buy and hold investing.
Many traders prefer to trade near term. Short term traders are often referred to as day traders. If they trade very small time frames, they are often known as as scalpers.
Other traders like to keep their positions open for a few days to a few weeks. These are known as swing traders.
The type of trading strategy that suits you is likely to be dependent on the amount of cash you have to trade and the amount of spare time that you have.
For those with busy lives, a long term buy and hold strategy may be the most suitable option as this trading strategy requires very little time.
There are plenty of stock trading systems on sale on the net. Many of them are useless and best avoided. If these systems were really decent, the author would be trading with them, not trying to flog them online.
