First thing you need to determine is your style of investing, this is probably the most important thing you need to do.
Ask youself: Are you an Investor or a trader? They have very different time frames for holding stocks, so you must determine your style based upon your personality. You can make money with either but you will have a much easier time if you match your investing personality with the service you are going to use.
The three types of trading/investing are:
A day trader seeks to capture the intra day swings in a stock, usually going long but can go short as well. The day trader’s time frame is typically minutes to a few hours and seeks to be “flat” meaning no positions at the end of the day. The day trader will typically put on a few trades a day. The image of a day trader putting on traders all day long is usually false and will usually only generate commissions for the broker.
A swing trader usually is considered a “momentum” trader, he/she looks for stocks that are in a uptrend(or downtrend to go short) and seeks to buy on small consolidations or pullbacks looking for the momentum to continue. The swing trader will not sit through long draw downs and will usually sell as soon as the stock starts to retrace or consolidates.
The investor buys to the “long hall” meaning he/she will buy a stock and will hold the stock for months or years. The investor knows that there will be periods of time that the stock goes no where or retraces, giving back a large part of the gains. To be an investor you must be very patient and ignore the daily ups and downs of the market.
Based on your personality you must decide which is the best fit for you. It is best not to try and force a style, it will create undo stress on yourself trying to adopt a style that is not you. Mostly likely you will fail if you try and adopt a style that is counter to your personality type.
The second major factor that will determine how you should invest is how much free time you do have and do you have time during the day to follow the market?
If you are working full time at an office during market hours, then day trading is most likely not for you and you will need to look into swing trading or become an investor. If you however have time during the day to devote attention to the market then swing trading and day trading are available to you.
To be a day trader you will pretty much need to be in front of your computer most of the day. If that is not you, then swing trading and investing will be your only options. The other main consideration is if you are able to handle the stress of being a day trader. Day trading is significantly more stressful as you will be watching positions during the day and watching your gains and losses real time.
Swing trading is a bit of a hybrid that is suitable for most people. You don’t need to be watching the market all day but it can provide the quick profits that makes swing trading appealing. If you are not sure then the best thing to do is try each one and see what works for you. There are stock picking services that will work for each style of trading.
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– Robert Walsh