Five Trading Strategies
5 Trading Strategies Every Trader Should Know
The secret to success in the stock market largely depends on the trading strategy one adopts to move forward. This is of utmost importance as stock market investments are a bit technical and not everyone has a proper understanding of them. However, in general, as a trader or investor, you may across different types of trading strategies but which one matches best to your investment goals is something hard to ascertain.
Eventually, it’s up to you to decide which is the best trading strategy for you. Some crucial factors to keep in mind are your personality type, lifestyle and available sources. In this post, we run through some of the most widely preferred trading strategies that could stimulate you to come up with your own trading plan, try fresh trading techniques or even work upon your existing trading strategy.
So, whether you are looking for the best trading platform in India or want to take your best step forward towards stock market investments, you can’t afford to miss this post. So, let’s find out some of the widely preferred trading strategies that every trader should know.
1. End-of-day Trading Strategy
The end-of-day trading strategy refers to trading near the closing of markets. End-of-day traders are found to become operational when it becomes evident that the price is all set to ‘settle’ or close.
This strategy involves the examination of price action as compared to the previous day’s price changes. End-of-day traders can then gamble how the price would fluctuate based on the price movement and decide on any signs that they are using in their system. Traders should prepare a group of risk management orders including a limit order, a stop-loss order and a take-profit order to limit any sudden risk.
This trading pattern needs less time commitment as compared to other trading strategies. This is due to the fact there is only a requirement to scan charts at their market opening and closing times.
Benefits of end-of-day trading strategy
It’s ideal for most traders. End-of-day trading can be a great option for beginners, as there is no need to enter diverse positions.
Less time commitment. Traders can read charts and place market orders either in the morning or at night, so it can be considerably less time eating in comparison to other strategies.
Consequences of end-of-day trading
· Overnight risk. Overnight placements can carry more risks, but this can be reduced if you put a stop loss order. Certain stop-losses are even more worthy to limit risks.
2. News Trading Strategy
A news trading strategy refers to stock trading on the basis of news and market prospects, both before and following news statements. Trading on news declarations asks for a proficient mindset as news can travel extremely rapidly on digital media. Traders are supposed to examine the news instantly after it’s unconfined and make a rapid decision on how to trade it. Some major points to consider are:
Is the news already completely factored into the worth of a channel or just moderately priced in?
Does the news cater to market expectations?
Getting to know such differences in market outlooks is important to success when utilizing a news trading strategy.
Pros of News Trading Strategy
· A fixed entry and exit strategy. Entering and exiting a trade is done on the basis of how the market understands the news, which is generally delineated in a trader’s plan.
· Several trade opportunities. Regularly, there are various news events and economic statements that can furnish trading opportunities.
Cons of News Trading Strategy
· Requires expert skills. Beginners need to ascertain how specific announcements will influence their positions and the broader financial market. In addition, they need to be able to grasp news from a market viewpoint and not only individually.
3. Swing Trading Strategy
Here ‘swing trading’ means trading both sides on the changes of any financial market. Swing traders are set to ‘buy’ security when they think that the market will go up. Else, they can ‘sell’ an asset when they doubt that the price will slump. Swing traders take benefit of the market’s variations as the price swings back and forth, from an overbought to overvalued condition. Swing trading is entirely a technical method to reading markets, attained through perusing charts and analyzing the separate movements that encompass a wider picture trend.
This type of trading rests heavily on the understanding of the length and duration of each swing, as these mean crucial support and confrontation levels. Nonetheless, swing traders are supposed to identify trends where the markets face augmented levels of supply or demand. Traders of top 10 stock brokers in India also think if trend is going up or decreasing within each swing while examining trades.
Benefits of Swing Trading
It can be pursued as a hobby. Swing trading can be more apt for people with time limitations in comparison to other strategies. However, it does need some level of research to comprehend how oscillation trends perform.
Numerous trade opportunities. Swing trading includes trading ‘both end’ of the market, so traders can go long and short across various securities.
Cons of Swing Trading Strategy
· Overnight risk. Some trades will take place overnight, carrying external risks, but this can be controlled by placing a stop-loss order on your positions.
· Needs sufficient research. A lot of research is needed to comprehend how to analyze markets, as technical analysis is made up of a wide range of technical pointers and patterns.
4. Day Trading Strategy
Day trading or intraday trading is found to be appropriate for traders who prefer to trade actively in the daytime, typically as a full-time job. Day traders take the benefit of price variations in-between the market opening and closing sessions. Day traders often carry multiple positions open in a day but do not leave positions open overnight in order to reduce the risk of immediate market change. It’s suggested that day traders follow an organized trading plan that can rapidly adapt to fast market movements.
Pros of Day Trading Strategy
· Zero overnight risk. Technically, intra-day trading needs no trade is saved open overnight.
· Reduced intra-day risk. A day trader only runs short-term trades that typically endure nearly 1 to 4 hours, which minimizes the chance of risks that may prevail in longer-term trades.
· Time adjustable trading. Day trading might suit people who desire flexibility with their trading. A day trader might enter 1 to 5 positions during the day and close all of them when objectives are matched or when they are paused.
· Diverse trade opportunities. A day trader can utilize local and international markets and can open and close several positions within the day, including taking benefit of 24/7 forex market sessions.
Cons of Day Trading Strategy
· Required discipline. Alike short-term strategies, day trading needs punctuality.
· Standard trades. This refers to a condition when some positions do not shift within the day, which is to be anticipated.
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5. Trend Trading Strategy
This refers to when traders do a technical analysis to determine a trend and only trade in the movement of the pre-set trend.
The secret to success in trend trading can be termed by getting a precise system to initially determine and then pursue trends. However, it’s important to stay cautious and flexible as the trend tend to change rapidly. Trend traders need to be aware of the risks of market reversals, those which can be mitigated with a following stop-loss order.
Pros of Trend Trading
· Easy to follow practice. It is apt for individuals with lesser time availability once their trend identification is done.
· Numerous opportunities. A running trend may provide numerous opportunities in regard to entering and exiting a trade. In addition, trend trading may include dealing with ‘both sides’ of the market.
Cons of Trend Trading
· Overnight risk. Trend trades are sometimes open over multiple days so they may carry more overnight threats as compared to other strategies. However, this can be reduced by placing stop-loss orders.