A trading strategy is an approach for longing or shorting financial markets with the aim to earn a profit as consistently as possible. There are lots of different approaches for trading that depend on a trader’s objectives:
- Scalping – Trading small price movements.
- Day trading – Positions are entered and exited within the same trading day
- Swing trading – Identifying upward or downward trends and staying in trades for as long as the trend continues, can take a few days for trends to fully play out.
- News trading – Entering and exiting trades based on positive or negative news surrounding an asset. Bullish news, for example, could be the announcement of a development milestone, so a trader could try to long the asset before the rest of the market and then sell when increased trading volume pushes up price.
- Social trading – Using a platform that allows traders to “copy” the trading behaviours of other successful traders.
The trading strategies outlined above are typically used with technical indicators. In addition the chosen strategy is often chosen depending on a trader’s objectives, which is influenced by the amount of capital a trader has and how much time they can dedicate to analysing the market. Risk management techniques are also used to help minimise losses, which is an important component for mitigating against human error and emotional decision making.