A short-term approach that seeks to profit from stocks moving strongly in one direction, assuming these price trends will continue. Momentum traders often rely on technical indicators (like moving averages or volume spikes) to quickly identify and enter trades. Because momentum can reverse suddenly, strict risk management and stop-loss orders are key.
Pros:
- Rapid gains if trend continues
- Clear signals
- Potential for significant profits in bull markets
Cons:
- High volatility risk
- False breakouts
- Requires quick decision making
A longer-term strategy that focuses on buying stocks believed to be trading below their intrinsic worth. Value investors analyze fundamental metrics (like P/E ratios, dividend yields, or cash flow) to find undervalued companies and wait patiently for the market to correct the mispricing. This approach can require a strong stomach for short-term volatility and thorough research into company fundamentals.
Pros:
- Potential to buy quality assets at a discount
- Longer-term stability
- Less affected by market volatility
Cons:
- Stocks can stay undervalued for a long time
- Requires patience
- Extensive research needed
A medium-term method aiming to capture price "swings" in a stock over a few days to several weeks. Swing traders combine technical analysis (support/resistance levels, candlestick patterns) and sometimes news events to time entries and exits. While less intense than day trading, swing trading still demands consistent monitoring of positions and disciplined stop-losses to manage risk.
Pros:
- Capitalize on short-term volatility
- Less stress than day trading
- Flexible time commitment
Cons:
- Requires consistent monitoring
- Risk of overnight news impacting price
- Can miss longer-term trends
The practice of buying or selling contracts that give the right (but not obligation) to buy (call) or sell (put) a stock at a specific price before expiration. Options can amplify gains if the underlying stock moves favorably, or hedge against losses if used strategically. However, they add complexity—time decay, implied volatility, and the Greeks (Delta, Gamma, Theta, Vega) all influence potential outcomes, so careful risk management is essential.
Pros:
- Leverage, hedging, flexible strategies
- Limited downside risk (for buyers)
- Potential for high returns
Cons:
- Complex mechanics (time decay, implied volatility)
- Can expire worthless
- Requires advanced knowledge