Trading the equity market or investing in shares is often considered as the big stock market trading game. There are plenty of players that are trying to use their money and win other people’s money. Yes it is about winning. Winners take money from losers in this huge money-making game.
3 basic stock trading terms
I have met a lot of traders and investors during my career. I have always been surprised when I have found that they only know how to buy stocks and that they trade only bullish type trades.
If a trader or active investor wants to achieve the best results of his market activities in this money making game then he must also be familiar with two other types of positions. He must know them to be a winner in this stock market trading game. Here I would like to describe all three main positions or trades that any trader could have open or could hold.
Bullish stock market strategies
Let’s start with the already-mentioned bullish type of strategy. This game strategy expects that stock price is going to rise. So a trader or investor is buying some shares at a defined price and expects that he will sell them later at a much higher price. This is bullish type of trading strategy. It is also know as “long” type of strategy. The term long has nothing to do with duration of the trade.
You can often hear that mutual funds are long-only investors. It means that they are only doing bullish trades. They are buying stocks and expect that their price will be higher some time in the future and they will be able to sell these shares for a profit.
Here is an example of such bullish market strategy.
Bearish stock market strategies
The second option to play this “game” is a bearish type of trade strategy. This strategy expects that stock price is going to decline in the future. This type of strategy is know as a bearish strategy and is called “short sell” . Traders or investors “short sell” of shares and expect that they will close the trade later when the price of shares will be much lower. The difference in price is his profit.
The closing of “short” trade is known as “cover” or “covering of trade”. The term “short” or “short sell” has nothing to do with duration of the trade. It is often possible to hear this term on financial TV where anchors mention that sellers are covering their short positions.
Here is an example of a possible short sell market strategy.
Neutral stock market strategies
The final, third, version of trading strategies is the “do nothing” strategy. It means that the trader or investor does not open any position. It is often mentioned also as “Sit on hands” mode or “staying in cash” mode. Yes “cash only” is also a type of position in this business.
When the situation is unclear to a trader or investors it is much better to be in this “cash only” mode and spend time just monitoring markets or better leave the computer and do something else for a day. The stock market is not an ideal situation every day that allows us to do trade based on the previous types of strategies.
And the main task of every trader and investor is to minimize risk and maintain his/her investing capital. Here is an example of a real stock market trading game situation when it was better to be in “sit on hands” mode.
Conclusion for electronic stock trading
You have to understand that you can use several different ways to play stock market trading game and win. There are many new investors and traders coming to trade the markets only to leave later without money.
Another issue you have to know is that the stock market changes its mood quite often, especially in last few years, and so it is good to know about all type of positions. And also to learn how to use them. It is the only way to be on winning side when playing this stock market trading game.