Depending on how much risk they are willing to take, traders most of the times focus on three areas involving growth, value or income building.
Involves buying stock in companies that are poised to grow and expand their profits.
This type of trading might focus on investing in new companies, which offer rapid growth potential.
As a company grows, the value of its stock will rise, bringing the stock trader profits.
Growth trading sometimes includes risky ventures like buying into a business IPO - Initial Public Offering.
IPOs are a good example of how growth trading can potentially bring great rewards; but it also carries a high risk of failure.
Traders who pursue a growth trading strategy must have the confidence to trust their own instincts rather than seeking reassurance from sure facts.
Traders are on the lookout for underpriced stocks at companies that have the potential to perform better than their stock price seems to indicate.
They try to find companies that have significantly lower stock prices than that of their major competitors.
It is important to ensure that the company in question has not manipulated its dealings to make the stock price fall instead of rise.
Once honesty and integrity are established, along with the fact that the company’s share price is under-valued, the value trader is now in a position of less risk.
Is the most conservative of common stock trading strategies.
In income trading, the target is on capital preservation, with low price fluctuations being of the utmost importance.
Since a steady income is the objective, an income-oriented investing style will focus on the biggest and best-known companies, those that dominate their particular market segment and can be counted upon for steady growth and profit.
The emphasis is always on acquiring blue chip stocks.
This lower risk can be established by using bonds and time deposits as well as targeted investments in selected equities.
Income traders usually end up focusing on older, more established firms with good market positions, established management teams and good cash flow.