Stock trading involves buying and selling shares in the short term. In this case, we consider Indonesian Stock Exchange (BEI) shares to be similar to products sold on the market.
Buy when prices are cheap and sell when prices rise. Quoting an article from M-Trade, stock trading is divided into three types depending on the time, and each has a different strategy.
Types of Stock Trading
Based on the time frame, stock trading is divided into three types:
- Scalping: Buying and selling stocks within a single day or even in minutes or hours.
- Swing Trading: Buying and selling stocks within less than one month.
- Super Trading/Trend Following: Buying and selling stocks within a period of one month to one year.
So what should beginners prepare in preparation to become a reliable stock trader?
Understanding the Objectives of Stock Trading
Stock investing and stock trading have different goals. Stock investment aims to increase wealth and achieve long-term goals by holding shares for a long period. While stock trading, on the other hand, focuses on generating income by taking advantage of short-term price fluctuations.
Example:
Let’s say you work as an employee with a monthly income of IDR 5 million. Through successful stock trading, you might potentially earn additional income each month. However, it’s important to remember that trading involves risk.
Mastering Technical Analysis
Technical analysis is a tool used by traders to identify profitable trading opportunities by studying historical price charts and trading volumes. This analysis helps them understand supply and demand dynamics for specific stocks.
Here’s how it works:
- By analyzing historical charts, traders can potentially estimate and predict future price movements.
- Technical analysis also helps identify stocks where demand exceeds supply, potentially leading to price appreciation.
- Traders can then take a “long position” on these stocks, aiming to profit when the price rises.
Understanding Risk Management in Trading
Risk management is crucial for successful trading. Without proper risk management strategies, trades can result in significant losses. Here are some key aspects:
-
Stop Loss:
- A stop-loss order helps protect your capital from large losses. Ideally, you should plan your stop-loss level before initiating a trade.
- Rules for setting a stop-loss can vary:
- You can set it at a specific price point, like if the stock falls 5-10%.
- Another option is to set it at a technical support level (a price level where the stock tends to find buying interest).
- Remember, these are just examples, and you can adapt these rules to your financial situation.
-
Use Cold Cash:
- Never use money needed for short-term needs like bills, debts, or children’s school fees. If you’re forced to cut losses unexpectedly, using “cold cash” (money not earmarked for immediate expenses) minimizes the impact on your financial well-being.
-
Diversification:
- Similar to investing, diversifying your portfolio is essential in trading. Avoid putting all your eggs in one basket by investing in various stocks from different sectors. Ideally, limit yourself to a maximum of two stocks from the same sector if you choose to invest in multiple issuers within a single sector.
By understanding these key concepts and implementing sound strategies, you can increase your chances of success in stock trading. However, remember that trading involves inherent risk, and you should always prioritize responsible financial management.
