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4 Types of Trades

4type

Stock trading consists of 4 major types of trades.

The range-bound trade: the stock is tied in a range and will remain there until there is a significant change in the supply/demand dynamics. For this trade you fade any move to the boundaries of the range with a tight stop a little bit below/above the range. If the range is broken, you will lose small amount. It is good for scalpers with shorter trading horizon.

The breakout trade: in order to break from a range, a stock needs to experience a major shift in supply/demand. A dramatic occurrence. News or expectation of news. The news doesn’t have to be connected with the individual stock. It might be something that impacts the whole industry or market. Sudden change in participants’ confidence. Not every breakout will be caused by clear news. Often it will happen at no news at all. In any case, volume should be your tell how genuine the move is. Buy several cents above the range with a stop several cents into the range. (more…)