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There are numerous types of trading in the stock market, as well as:

Various types of Instruments, timeframe and how to trade?

All these aspects make trading a very flexible and diversified field of expertise.

In this blog, we will discuss the various types of share market trading and which type of trading you might be interested in based on your trading expectations.

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Table of Contents

• 1.Types of Trading in Stock Market : Based On Instruments
• 2. Types of Trading in Stock Market: Based On Timeframe
• 3. Types Of Share Market Trading : Based On Methods
• Which Type Of Share Market Trading Is More Profitable?

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Trading can be classified in following domains

• Types of trading based on Instruments to trade

• Types of trading based on Timeframe to trade

• Types of trading based on Methods to trade 

1.Types of Trading in Stock Market : Based On Instruments

FOREX TRADING

All currency pairs that are available for trading come under forex trading.

Forex is the largest financial market of the world.

According to the 2019 Triennial Central Bank Survey of FX and OTC derivatives markets-

Volume of forex trading per day is almost equals to $6.6 trillion.

You can either trade currency futures or options, both types are usually available to trade.

Check the currency pairs available in India for trading 

Examples of currency pairs :  GBPUSD , USDINR , EURUSD

COMMODITIES TRADING

Traders also utilize commodities as active trading instruments.

Also the oldest trading assets in history of trading.

Trading both futures and options offers great flexibility to traders, below are some examples of commodities:-

Base Metals Gold, silver, copper, aluminum, lead, zinc

Energy Crude oil, natural gas, 

Agri Commodities Cotton, Mentha oil, palm oil, rubber

Livestock live kettle, pork bellies , meat

[ Read Also : How to Start Commodity Trading]

STOCK TRADING

Stocks are traded either in primary markets or in secondary markets with derivatives like futures and options.

Some traders also use a combination of both for hedging.

(Hedging is taking opposite positions in primary and secondary markets for risk control)

CRYPTOCURRENCY TRADING

In recent times cryptocurrency trading has significantly increased.

Development of web 3.0 and decentralized finance possibilities has made cryptocurrency another great asset to trade.

Another advantage cryptocurrency trading offers is the possibility of trading 24/7.

Along with cryptocurrency, some other digital assets are also coming into picture like NFT’s ( non fungible tokens)

2. Types of Trading in Stock Market: Based On Timeframe

Positional Trading 

Positional trading is a longer time frame trading in which traders can open a position and hold it for a few days to few months, holding time may depend on a number of factors like system or based on technical picture.

Objective of positional trading is to take profit from longer price swings as a result position trading requires less decision making and also offers less signals to trade.

Pros : Less Screen time, easy managing positions, slightly better probability of profits, low brokerage 

Cons: Overnight position risk, high price swings, less number of signals, comparatively high capital requirements

Intraday Trading

Intraday trading is opening position and closing position on the same day, Intraday trading which also refers to day trading is widely popular trading among traders, objective of intraday trading is to get benefit of daily swings and reduce overnight risk by squaring off the position same day.

Pros: Eliminated overnight risk, Quick profit booking, Higher opportunities to trade, low capital required for trading

Cons: More Screen time, Positions have to be managed more often, high brokerage due to more number of positions.

Scalping

Scalping is a term used for very short durations trades, which are usually closed within minutes of opening.

The Objective of scalping is to quickly book profit from a sudden momentum in price, scalping requires quick decision making and often requires more skill and experience to get a profitable outcome regularly.

Pros: Less risk per position, no overnight risk, Quickest profit booking, low capital requirement

Cons: Difficult to manage, high brokerage due to high frequency of trades, high slippage 

3. Types Of Share Market Trading : Based On Methods

Discretionary Trading

Discretionary trading method is trading without any technical analysis or system, discretionary traders can make trading decisions based on several sources as listed below:-

• News 
• Events
• Tips 
• Fundamentals 

Some traders also believe in astrology and hence they make decisions based on their astrology and predictions ( believe me it’s not very uncommon practice), they are however also part of the discretionary trading.

Another prominent example of discretionary trading is Random trading.

Random trading is the most commonly used trading method by beginners in trading, since without having proper knowledge about trading their decisions of buy and sell often comes from random thoughts, tips or anonymous suggestions and results in losses.

You might have heard about trading being a gambling, so random trading can be considered as one.

System Trading

As the name suggests, system trading is based on a well defined system, here system can refer to a set of rules, indicators, price patterns or formulas.

System trading removes the subjectivity of trading elements, it also removes the trading issues created due to emotional inconsistency.

Describing each type of systems for trading is a comprehensive topic, however for reference below are the main examples of system trading

• Mechanical System Trading
• Trend Following
• Countertrend 
• Pattern Recognition
• Price action trading

There are many more types of system trading methods, basically any method which allows trader to take decisions of Buy and Sell based on confirmation by a set of defined rules comes under system trading

Arbitrage Trading

When a trader takes advantage of price differences of same stock, commodity or currency in two or more different markets based on principle that eventually prices should match is called arbitrage trading.

Arbitrage trading is low risk low reward trading, the profit potential of a trade in arbitrage trading is the difference between prices of same stock in two different markets

For example, if the stock price of Apple on the New York Stock Exchange is $100 and the stock price on the Hong Kong Stock Exchange is $105, a trader can buy Apple stock on the New York Stock Exchange and sell it on the Hong Kong Stock Exchange for a $5 profit.

Which Type Of Share Market Trading Is More Profitable?

Trading is really a game of endless possibilities, there is no specific method which is the only way to make money in trading, the further you learn about trading and start trading in live markets, the sooner you know that- at the very core of a successful trading is a Trading plan which is customized to your needs.

Let us say you don’t have enough time to look into the screen all day, this filters out two other timeframe based methods of scalping and intraday trading.

Don’t get overwhelmed by types of trading in stock market, give yourself time to understand each type of trading and practice as much as you can to find out what works best for you.

Similarly after trading for a while you start to notice a consistent issue of not booking your losses early, turning them into big losses, you might want to turn into system trading and specifically to a mechanical one which will eliminate the emotional decision of holding bad trades.

From a wide range of options available you might want to trade only less volatile instruments for emotional stability and tight stop losses, and hence choose which instruments to trade.

This kind of filtering out process will take some time but you will figure out what is working for you and which types of trading might suit you- that is the ‘aha’ moment of realizing this type is more profitable.

Also See:- What is Technical analysis?

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Author is Senior Trading Analyst
At Bulls Arena Trading
info@bullsarenatrading
New Delhi
India

BULLS ARENA TRADING