The trading strategy is a plan designed to achieve a profitable return. Four main strategies are day, position, trend and swing.
Day Trading is the method of buying and selling assets on the same day. No position is held overnight, minimizing risks associated with overnight movements in the market.
The main objective of day trading is the quick benefits from small price movements. The disadvantages of day trading is that time-consuming and only suitable for full-time traders. To profit from small rises and dips you need to monitor the markets constantly and be prepared to make decisions fast if conditions turn.
This involves buying and holding an asset for several days or weeks sometimes longer, in the hope the price will increase. Position traders tend to expect a higher profit per position than day traders. But they also take on greater risk due to the length of time the assets are held for, which means they tend to place fewer trades.
As the name suggests, this strategy involves analyzing if a market is in an uptrend or a downtrend. You go long if the market is trending up, short, if trending down. Trend traders remain long or short until they believe the trend has reversed, regardless of time frame, which means the strategy can be used for short, medium or long-term trades.
This style of trading focuses on charts and technical analysis to look for short-term price momentum. Swing traders aren’t necessarily interested in the fundamental or intrinsic value of the asset. Instead, they look for trends and patterns in the price. Positions are usually held from one to several days longer than day trades, but generally shorter than position trading. Unlike trend trading, swing traders will often take a position against the overall trend.
So, those are the four main types of trading strategy. To work out which is best for you, consider your own trading style. Do you like to make quick decisions, place lots of trades, and keep on top of the latest price movements? Or do you prefer doing all your research beforehand, making careful, informed choices, happy to wait weeks or even months before seeing the results?
Perhaps you feel comfortable only trading with the overall market direction? Or maybe you’re eager to identify opportunities using charts and technical indicators. Whichever you choose, remember, assets can fall in value as well as rise. So it’s important to use risk management tools where appropriate.