Trading is a high-risk venture. One day of overtrading or one wrong move during an economic news release, and you’ll incur high losses. This is why having a tried-and-tested trading strategy is important.
A trading strategy helps you manage risk and capture opportunities amidst highly volatile market conditions. Here’s a closer look at five common and profitable trading strategies:
1. Day Trading
Day trading is pretty straightforward. You open and close trading positions within the same trading day. This doesn’t mean traders can only execute one trade per day. In fact, many experienced day traders buy and sell numerous times throughout the day.
Day trading is characterised by quick decisions and frequent transactions, aiming to capitalise on short-term price movements. Day traders utilise technical indicators, such as the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and Bollinger Bands.
Keep in mind that day trading requires emotional control and a significant time commitment.
2. Scalping
Many traders consider scalping a type of day trading — somewhat true. Scalping trading is a very short-term style that involves executing dozens and even hundreds of trades in a signal day. The reason? Capitalise on tiny price movements.
Scalpers buy and sell numerous securities, including:
- Stocks
- Forex
- Cryptocurrencies
Like day traders, scalpers also heavily rely on technical analysis tools and indicators to identify potential profit opportunities.
Pro tip? Focus on highly liquid markets to ensure quick entry and exit. This will also help you avoid adverse price movements.
3. Swing Trading
Swing trading is a speculative strategy that involves generating profits from short- to intermediate-term price movements. Typically, swing traders hold positions from a few days to 1-2 weeks. This is why swing trading lies somewhere between day trading and long-term investing.
Since traders capture price swings with trades, they can benefit from both upward and downward market movements. Many swing traders try to enter a trade at reversal points to increase their chances of earning a profit.
Unlike day trading or scalping, swing trading doesn’t demand constant attention throughout the day. That said, it is important to implement stop-loss orders to protect yourself from overnight price fluctuations.
4. Position Trading
Position trading is a long-term investment strategy. It involves holding onto a financial asset, hoping it will appreciate in value.
Position traders are less concerned with short-term market changes and price movements. Instead, they look at the overarching market trend. Position traders believe that if a trend has started and is showing continuous promise, it is likely to continue for a while.
Position trading doesn’t require constant attention, making it an attractive strategy for busy professionals. The aim is to catch major market trends and earn significant profits. Many position traders place fewer than 10 trades in a year.
5. Price Action Trading
As the name suggests, price action trading is all about making moves based on price data. Traders analyse candlestick patterns and market structure to determine entry and exit points. You can also utilise additional strategies to make an informed decision. This includes:
- Reversal pattern
- Breakout strategies
- Trend following
- Pin bar trading
As always, proceed with caution and demonstrate emotional discipline to ensure profits.
