Different types of Trading Strategies

Trading has picked up in this bull market. If you too wish to understand trading, different trading strategies and wish to know the best trading method – read the article below.

Contents

Trading Strategies- Crypto and Stocks

Trading means, in most cases, looking at charts and judging people’s behaviour in the past. When you trade, you expect people to perform similarly in the future.

Stocks and Crypto, therefore, can both be dealt with the same techniques, to a certain extent.

Three questions arise now: 

  1. How many trading strategies are there? 
  2. What is the most successful of these? 
  3. What is the strategy meant for me? 

Different Trading Strategies

Mentioned below are 4 major strategies – they have been distinguished basis the time frame in place—further, their applicants, medium of difficulty, and main philosophy behind their application. 

1. Scalping

This strategy has an extremely short time frame. The strategy involves placing and completing orders(squaring off) within seconds. 

Scalping is done mainly by Quant Traders. Quant Traders employ mathematical formulas to find patterns and place bids on stocks. These bids can be as short as a couple of milliseconds and these managers make huge profits because they trade in bulk. 

Scalping is not a strategy we would recommend to the general public. 

A very famous fund that does this is called Renaissance Technologies. To know more about the fund and its founder, Jim Simmons – we recommend the book ‘The Man who Solved the Market.’  

2. Day Trading Strategy

The time horizon, on a relative basis, is much longer. As the same suggests, day trading involves squaring the deal-off within a day. 

Day trading allows you to make remarkable gains as your work on margin, taking leverage. However, the rewards must be risk-adjusted. A plan must be meticulously formed.

 If a trade goes wrong, even a minimal loss in percentage terms can cause you abnormal losses. 

Even though beginners practice this, in our opinion, only experienced traders should perform day trading or scalping. Day Trading requires quick and bold thinking – something that beginners lack. 

3. Swing Trading Strategy

This is something that beginners should practice. 

Swing trading and Trend trading are reasonably similar. The period here can extend to months here and maybe even longer. 

Swing trading involves buying a stock when the overall sector shows signs of upward movement.

The tricky part here is to quit the stock at the right time.   

4. Position Trading Strategy

This is the closest you’ll come to investing as a trader. 

In some aspects, it can be compared to Graham’s teachings of “Cigar-Butt Investing”.

We say so because the idea of Position Trading is based on Mean Reversion. 

Your position can stretch from months to years in this case. 

This is a trading strategy for beginners as it is much lower in risk, but it requires an extreme level of conviction and patience. 

Different Trading Strategies

Trading Methods

1. Using Momentum

Momentum Trading

Yes, we have not included moving averages, and hindsight has a role to play, but the snapshot effectively proves a point. 

The stock has seen movement upwards with minor interruptions. Purchasing it at any price would have led to making profits(As to date).

Using a strategy like this and exiting it in time leads to profits.

Using momentum is simple.

Momentum is beginner-friendly. 

Most importantly, it’s self-reinforcing and therefore, you are more likely to lose money because of your greed than incorrect analysis. 

2. News-Based Trading

This part will cover trend-based trading as well. 

News-Based trading is buying or selling a stock basis the news about a company/sector. 

Such a kind of trading is a simple and effective strategy for beginners. 

The tricky part here is to ensure that the news has not already been factored into the price. 

Example: The news of Aditya Puri selling his shares. It was quite a memorable moment as investors and traders alike panicked. 

Another example was the ethanol announcement that caused a rally in sugar stocks. 

In a digitized world where news reaches quick, News-Based trading requires quick decision-making skills that, at most times, need to be conservative. 

The Best Trading Strategies

Unfortunately, there is no ‘best’ trading strategy. If there were, others wouldn’t exist. 

Trading much like investing is extremely personal. 

You can know everything about Rakesh Jhunjhunwala and you still won’t be able to make trades like him.

“The best trading strategy” is YOUR favourite strategy. The technique you find easiest to implement and refine. 

Buffett buys high-quality companies with competitive advantages.

Jhunjhunwala’s trades are based on short-term sectoral movements that focus on long-term national growth. 

Both strategies are poles apart and yet both gentlemen make money. 

Some people make money using the basic support and resistance strategy, others fail to do so even after using Fibonacci retracement. 

If somebody sells you “The best Trading method” – beware; there is no such thing. 

The best strategy is one you find easy to understand, implement and refine. 

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