You may come across several trading strategies when trading in the financial market. It is, however, your personal trading style that determines which one suits you the most.
This is a quick run-down of the six most prevalent trading strategies that you must explore.
1. Day Trading Strategy
Otherwise known as intra-day trading strategy is suited for traders who would trade actively during the daytime as a full-time profession. Price fluctuations in-between the market opening and closing hours (one such use-case is Forex Trading) are the prime drive for day traders.
Day traders often hold multiple positions in day, but do not leave positions open overnight in order to minimise the risk of overnight market volatility. A key point to note is that due to the fast market movements though, traders may have to swiftly adapt to the appropriate situations.
2. Swing Trading Strategy
This refers to trading both sides on the movements of any financial market. Swing traders always look to ‘buy’ a security when they suspect that the market will rise. Otherwise, they can ‘sell’ an asset when they suspect a fall in price.
Length and duration of each swing is to be keenly interpreted by swing traders to make the most out of this strategy. They take advantage of these “swings” that prices go through by analysing markets, individual movements and by studying charts. This style of trading is more suitable for people with limited time in their hands. But it requires some research to understand how oscillation patterns work.
3. End-Of-Day Trading Strategy
The end-of-day trading involves waiting until it’s almost closing time for markets. Traders using this strategy become active when it becomes clear that the price is going to ‘settle’ or close. This style of trading requires comparatively lesser time commitment as it only needs the chart to be studied at opening and closing times.
Comparing price movements of the previous day with price action is important in this style of trading. End-of-day traders can then speculate how the price could move based on the price action and decide on any indicators that they are using in their system. To reduce overnight risk, it is a good advice to create a set of risk management orders such as limit-order and stop-loss order.
4. News Trading Strategy
Trading based on observations and analysis taken from news around the world and market expectations is known as news trading. This type may be quite challenging, since it needs the trader to acquire news / information as quick as possible to make a quick judgement based on those news.
Understanding how the market correlates with news is crucial succeed in news trading. It is also vital that the trader is aware of how markets operate. Markets need energy to move and this comes from information flow such as news releases. Therefore, the ability to predict the market’s response in accordance with news announcements is key to news trading.
5. Trend Trading Strategy
‘The trend is your friend’ is a famous motto in the trading world. Trend trading is about analysing a trend technically to make a pre-meditated decision on the said trend. To make this a successful trading strategy, you need to have and accurate system to firstly determine, and then follow trends.
Trend traders need to stay on their toes since trends are one of the quickest things to change. Trend trades are often open several days. This is to say that these are more susceptible to overnight risks than other strategies. Although there are overnight risks and a risk of market reversals, they can be mitigated with a trailing stop-loss order.
6. Scalping Trading Strategy
Scalping is all about chipping away small profits from small, short-term trades to make the profits accumulate over time. Scalpers generally operate on a risk/reward ratio of 1:1 and hence, it is common that they don’t make a large profit from any given trade. They are instead focused of increasing their total number of smaller profits in trades. This can be a great Forex trading strategy.
However, scalping requires impeccable discipline and patience in order to make it a viable trading strategy.
What is the best trading strategy?
This question can quickly become subjective as every trading strategy can perform well under specific market condition. It is a good advice to introspect your availability, risk tolerance, personality type, level of discipline and various other personal factors, and then to pick one based on these factors. You can do it all with a demo trading account from WesternFX.
It is also worth mentioning that you don’t have to necessarily pick just one or stick with the one you chose. Learning about every trading type and combining different approaches is key to achieve high adaptability of individuals in any given market. Nevertheless, remember not to become disheartened if you encounter initial losses on your capital. Patience is key when learning to become a successful trader, and mistakes and losses are inevitable in order to grow and develop your trading skills.
Successful traders often track their profits and losses, which helps to maintain their consistency and discipline across all trades. Experts at WesternFX help you learn all the significant practices and strategies in all the major trading markets. Call us @ +1-646-736-7401 today to get started!