Oh baby! If you stuck around get ready to get learnt(right?) I’m so excited! Most of the money I have today is in large part due to the things I will include in the following posts throughout this week! If you think making a couple hundred dollars through Mturk added to your portfolio is impressive, well you will love me after this. Nothing is 100% sure in the stock market but you can pretty much guarantee a relatively decent income throughout the year swing or day trading. While I fully advocate for long term holding onto stocks(and you will learn that as well), I do believe what I teach you can become a treasure chest full of information that may or may not help you in your goal to financial independence and freedom.
So while there is many trader types for the stock market I want to highlight only the major catalysts. Think of these as chess pieces on a board. Every move every player makes effects how the board changes. The market is ever changing and any strategy you employ now will in fact change over time. You have to adapt and over come if you wanna beat the other players. You have to find ways to not put yourself on the same board as hedge funds algorithms or bot traders. This isn’t always so easy but trust me when I say there is an advantage to being a retail trader(small traders like me and you) in the market!
Bulls and Bears
I know we already talked about this but it is important to mention them as traders because shorts and longs can directly affect the price of a stock. For example, if you have a bunch of shorts(people who are borrowing the stock hoping it goes down in price) on a stock it can be rather terrible for the shorts themselves. The reason? Well, imagine you have 2 billion dollars shorted on a single stock quoted at 20$ per share through multiple companies. Imagine that the longs come in and start raising the price by buying the stock. All of a sudden the share price is 25$, the 2 billion dollars of shorted shares instantly becomes worth 1.5 billion dollars (technically when you short a stock your losses are infinite, risky business). So, now all the shorts start selling because they don’t want to lose their shares, which in turn, sky rockets the price. Before you know it, the stock is now worth 100$ because of the larger price per share due to such a small amount of shares being sold too quickly(meaning very high share prices). This is called a short squeeze and it actually happens quite a bit(pretty cool). Bears and Bulls will fight as long as there is shorts and sellers available on the market. Think of them as never aging step siblings fighting for your mom and dads love, there will always be a push where there is a pull.
Retail traders are people like you and me <3. By that I mean retail traders are people that are usually trading in a taxed accounts with less than a couple million in cash and sweeping vehicles. If you are buying more than a couple million dollars worth of stock it becomes harder to trade because you have to find people who will buy your trades and those usually come with the downside of a premium price for stock.
Hedge Funds usually represent banks, brokerages or corporations and believe it or not, these people are probably involved in managing your retirement account if you have any ETF’s or MTF’s(which is smart). The only problem is that for these hedge fund managers, to stay competitive, have to do some shady things to make the most profit in order to bring in the most dough. This is purely because if you want to buy an ETF that is actively managed you want the best return right? You pay a premium to have that account managed so they better have a return worth it. Supply and demand boys and girls. It puts a lot of day and swing traders at a disadvantage because they can manipulate the market which is where they get their name Market Manipulators(you will commonly see it labeled MM).
Most or all of day traders are going to be retail traders because it simply would be too hard for the hedge funds to move billions of dollars a day, back and fourth, multiple times. Day traders, as the name would indicate, trade within the day. If a day trader holds a trade for any longer they would be considered either a swing trader or long term holder. If you want to intra day trade more than 3 times within a weeks span, you need $25,000 in your account, which is not including any leverage. Day traders do not generally get an advantage from the huge hedge fund transfers which happen quite a bit before market even opens or after it closes. The strategies employed by day traders is rather easy buy low and sell high or short high and buy low. However, this is the most competitive field of traders and understanding where they invest, how they see signals, what their reason for buying or shorting is and when to take profits isn’t always clear. Remember every time one of these guys wins big someone else loses bad as well. Welcome to The Street baby!
Woohoo! Yeah, I love this portion! A swing trader is defined as someone who holds trades overnight and possibly for up to a couple months. If you intra day trade or hold longer than 3 months you are not considered a swing trader. A big benefit for most beginners is that there is no minimum monetary requirement to swing trade. However, to have a leveraged account(borrowing money from the brokerage to leverage your trades) you need a minimum of $2,000. When you think about the most convenient way to become a trader with the highest profit margin above all others, it is swing trading. Now, obviously this isn’t a guaranteed profit but it is rather simple to understand why these traders make the most. Strategy and skill are rather simple. The 2% rule(will talk later about this), momentum trades, bubble trades, situational trades, political trades are all great strategies for traders in this field aside from charting and technical analyses. Besides that, swing traders have to compete with algorithms and hedge fund managers but wow oh wow, is it easy to ride a glacier or only take a small scrape from it.
Traditional Traders or Buy-and-Hold Traders
If you really don’t want much to do with the market this is the strategy for you. This category is really easy to understand. You buy and hold trades for long periods of time on undervalued stocks. If you would have taken my advice and bought AAL(American Airlines) that I gave out when AAL was 12$ back 4-5 months ago you would have already made about 75% return this Thursday. If you had invest 10,000$ it would have turned into $17,500 or if you would have invested $100,000 you would have $175,000. NO FLEX ZONE…jk. But seriously this is how Warren Buffet made most of his fortune, it was in value investing and timing.
Options trading is rather complicated but it involves contracts that expire over time. There is a price below or above depending on what type of options contracts you buy. If your contract hits this set price it breaks even, if it goes above that price you make money and if it goes below the set price you will lose money. If you don’t sell your contract before it expires it becomes worthless (yikes!) This doesn’t directly effect the market but it does make speculations rather different. In my opinion this is way more of a gamble than traditional investing because stocks don’t expire and there is no set time period where you lose all the value.
Skimmers are usually day or swing traders who take very small profit margins to ensure they make a profit. This is a very simple strategy but requires a lot of precision. It also requires a lot of money because if you want to make good money on .5% movement you need a lot of money. The only drawback is that if you lose 2% you lost a week or two’s worth of a profit :(.
This is just a general ideology of types of traders. There is probably hundreds of different types of traders but most of them can be categorized under these general characteristics.
If the different types of traders are the pieces on a chess board than Brokerages are the refs. They decide, aside from SEC rules, how you can trade and how much they’ll let you leverage. There is also different advantages to different brokerages. I’ll try to list them here.
This is a really okay brokerage to start with. They offer free, non-commission trades(industry standard) and a simple platform to buy and sell stocks. However, the downsides are plentiful if you are a serious trader including: no post-market or pre-market trading, no short options, un-reliable service and a host of other problems. I do like this for beginners but once you start becoming a real trader try to acclimate or migrate to another brokerage.
TD has a really good track record as far as I am concerned. They have 0 commission fees and so many tools to use. The best part is that you can decide if you want to use a more complex platform, such as their think or swim platform, or their more traditional platform. Their Think or Swim platform has a plentiful array of technical, analytical, charting and news analysis. The downside is that they sometimes have glitches in the system as well as their Think or Swim platform might take a month or two to get adjusted to because of all the tools on it (yeah its that big).
This platform gained a lot of notoriety during the Robinhood crash during the pandemic. 0 commission fees (starting to see a pattern?) Yes there was a Robinhood crash during the COVID-19 outbreak. During that time a lot of platforms, including TD Ameritrade and Webull, were offering free transfer of portfolio from Robinhood. Even then it crashed 2 more days in a row…. they still decided to not give out any freebies to their big traders. Needless to say, Reddit was hilarious at the moment. Let that be a cautionary tale. Anyways, this platform has so many good insights on it for free just like TD Ameritrade’s Think or Swim platform. It’s a very good platform for active day and swing traders because of all the tools it provides to its customers.
At the end of the day it is up to you which brokerage you want to use and there is plenty of other platforms you can choose from. Each platform has their own advantages! But, one of my favorite sites for beginners to see their options is https://www.stockbrokers.com/compare. Make sure to look over all the options and decide which one suits you best!
Well that is a wrap for today but don’t worry, we are barely scratching the surface, see you tomorrow for the third portion of our adventure!