Stock trading (also known as day trading or swing trading) follows the idea of buy low, sell high, hopefully in short periods of time. The shorter the better. Stock traders watch stocks, and try to make small profits by buying a stock, and then selling the stock after it has gone up a little bit. Then repeat the whole process again. There are many different systems for deciding what and when to buy and sell. Technical Analyisis seems to be popular in stock trading. Technical Analyisis is the art (it is definately not a science) of looking at the chart of a stock’s price history, and seeing patterns that indicate what the stock will do in the future.
Stock trading may also include selling short. Selling short is selling stock that you don’t actually own, hoping that the price will drop, and then you can replace it at a cheaper price. Imagine borrowing your neighbor’s lawnmower, selling it, waiting a while hoping to find a replacement lawnmower for a cheaper price which you return to your nieghbor while you pocket the price difference. Of course if you can only find more expensive lawnmowers, then you lose money. A good demonstration of selling short is in the movie Trading Places. Dan Ackroyd and Eddie Murphy short sell frozen orange juice concentrate, and then after the crop report comes out and the price drops, they buy it back.
There are many software tools for stock traders. They track stocks, and filter data in many different ways depending on the flavor of the stock trading that the operator does.
Stock trading can run up transaction fees. So the stock trader needs to be aware of how much they are spending to buy and sell the stocks to make sure the price difference covers the transaction costs. Every transaction needs to be documented for tax time. Since the stocks are held for less than a year, the tax rate on the profits is higher, instead of being the lower rate for long term capital gains.
Personally, I don’t trade stocks. I invest in stocks for the long term. Even now I am slowly moving away from even buying stocks, lean to buy more funds. My ETF’s and mutual funds are doing way better than my individual stock holdings.