Strategies

How Stock Traders Use a Bracketed Buy Order

A bracketed buy order is the use of three orders placed simultaneously to take a long position on a stock. The three components of a bracketed buy order include: (1) an initial long position (2) a limit sell order and (3) a stop market loss order. Each component is set at a price [...]

An Active Investing Strategy

An active investing strategy refers to the buying and selling of stocks or other securities in an effort to exploit short-term market conditions for profit. Active investors are those who tend to continuously monitor and adjust their holdings, rather than take a long-term approach to investing. While active investing can be highly profitable, [...]

What is the Difference Between Market Arbitrage and Risk Arbitrage?

Arbitrage or “market arbitrage” is the practice of simultaneous buying and selling in two or more different markets to exploit a price differential between them. The profit for the arbitrageur is the difference between the market prices. For example, an arbitrageur might short-sell a stock at the higher price and buy at the [...]

How a “Buy the Dips” Stock Investing Strategy Works

Under a “buy the dips” strategy, investors look to purchase a stock or index that has seen a recent price decline. The idea behind the strategy is to exploit market fluctuations with the belief that, as long as the investment remains sound, the price should eventually rise again. Like a value investing strategy, [...]

A Pairs Trading Stock Investing Strategy

Pairs trading or “statistical arbitrage” is a stock trading strategy through which the investor simultaneously buys and sells two (normally) correlated stocks when they diverge from their typical pattern with the expectation of capturing a profit when the pattern returns to normal. Pairs trading is a market neutral position that enables the investor to [...]

Inverse Exchange-Traded Funds (ETFs) for Portfolio Downside Protection

An Inverse ETF (exchange-traded fund) is a type of ETF that is built using various derivatives and assets to take advantage of the declining value of its underlying index. Inverse ETFs are traded on public exchanges and can provide investors with many of the same benefits as short-selling without all of the downside risk. [...]

Understand and Profit from a Short Squeeze

The term short squeeze is used to describe a rapid increase in a stock’s price due to the combination of short supply for the stock and excess demand. A short squeeze results when short sellers rush to buy a stock to cover their short positions and minimize their losses; as the price of the [...]

Advantages and Disadvantages of a Mechanical Investing Strategy

Mechanical investing is the buying and selling of stocks (or other securities) by following a pre-determined, objective set of rules that determine which stocks to buy and, under some approaches, when to sell them. Mechanical investing strategies often employ the use of stock screeners or technical indicators to take the emotional element of the [...]

Six Different Ways to Invest in the Stock Market

As new stock investors soon learn, there are many different stock investing strategies and approaches that can be employed. In most cases, people invest in the stock market by buying shares of companies they believe in with the hope and expectation that the stock’s price will rise over time. Investors may also enjoy [...]

Stock Market Capitulation and the Opportunity it Creates

Stock market capitulation refers to investors “giving up” on stocks or the market in general in favor of a move to less risky investments. Capitulation is actually a military term for surrender but is applied to stock investor behavior when a severe downturn in prices leads to high-volume panic selling. Margin calls often play [...]