Updated: December 23, 2017
Do you trade stocks or currencies? Then here are four of the most popular strategies that traders use.
These four are also the basic trading principles from which other strategies are based from. And as a trader, it’s good that you understand them.
Knowing so will help you discover which one suits your personality, which is important for trading success.
Again, there are numerous trading strategies out there. And finding the right one involves working out what kind of investor you are, what kind of trading you want to do, and what you want to get out of your trades.
Each strategy works in a different way, so it’s important to do some research to work out which one provides the kind of results you’re looking for.
Below are four popular trading strategies for active trading.
Unlike buy-and-hold investors who prefer investing in shares for the longer-term, active traders look at income opportunities in the short-term.
This can mean buying and selling in a day, several days, or several weeks, following trends, and making quick profits.
1. Day Trading
Day trading is one of the best-known styles of active trading. As you might expect, day trading involves buying and selling shares within the same day, and no shares are held overnight.
Day trading involves a good knowledge of the market and current trends.
Day trading was traditionally the stronghold of professional traders, given the amount of short-term trading done each day. However online share trading has made it easier and more affordable for regular investors to get involved too.
2. Position Trading
Position trading relies on the trader understanding trends in the share market. A position trader needs to analyze longer-term charts to determine what trends are forming and where the market is heading.
These trades will usually last somewhere between a few days and a few weeks, depending on the trend the trader is following.
To determine a trend, the investor must look for successive higher highs or lower highs. Doing this correctly will allow the them to ride trends up and down, getting involved usually after a trend has established itself.
Once the trend breaks, the investor will usually sell. Bear in mind this can be a tricky strategy when the market is volatile.
3. Swing Trading
Unlike position traders who usually sell when the trend breaks, swing traders wait for that break before they get involved.
When a trend breaks, there is usually some price instability. Swing traders use that instability to buy or sell. To make swing trading successful, the market needs to move up or down – a sideways market makes swing trading tricky.
Following trends and swing trading involves technical analysis, analyzing price movement of a stock to try to predict price movement in the future.
And also, fundamental analysis, which involves analyzing company information, company management and the economy to make investment choices.
Together, technical and fundamental analysis helps them determine when to buy and sell stock.
Scalping is a short-term active trading strategy that involves buying at the bid price and selling at the ask price, and taking advantage of price gaps in the spread.
Because scalping is a short-term trading strategy, the risk can be less than that involved in other types of active trading.
Traders who use scalping strategies generally won’t trade in large volumes or large moves, but instead will rely on taking advantage of small moves more often.
This can result in smaller profit levels, which means many scalpers choose to invest in more liquid markets like the currency market.
As a beginner, try each strategy and see which one works with you best. You can also do combined variations of these, like trading on the daily trend, which works good in forex.
Lastly, because stock and currency trading is high risk. It is advised that you practice first on a demo account, and move only to a live account with real money once you have established a trading strategy that works best for you.
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