What Are The Best Stock Trading Strategies Out There?
- The goal of a trading strategy is to bring profits
- Any trading strategy must be consistent with the trader’s personality and discipline
- Trading Strategy is a complete trader’s guide
- There are dozens of different strategies used in stock trading
Top Stock Trading Strategies Listed
Each trader chooses a trading strategy that suits his/her needs, trading style, and market conditions. Only under ideal conditions can various trading strategies bring success in the stock market.
Successful trading strategies can help investors spot profitable opportunities in the markets. By applying proven strategies, the average investor can take advantage of some of the techniques that professional traders use and take part in reaping these benefits. Even the most seasoned traders are aware that investment strategies can fail, however, certain techniques may work better than others under specific market conditions.
Trading On News
Trading on the news is one of the most popular strategies for both novice traders and those who already have some experience in the financial markets.
The essence of this method is to open deals during the period of publication of important macroeconomic statistics and place trades on the growing volatility and trend impulses that may form during this period.
Economic and political news are some of the most popular incentives for changes in financial markets. Reports of rising inflation, falling central bank interest rates, rising unemployment, litigation, or a worsening international situation always generate excitement among traders. A particularly strong reaction can be observed in the foreign exchange markets.
It would be surprising if a separate trading strategy did not arise on the basis of such a powerful factor.
In a news trading market strategy, the decision to buy or sell an asset is made in anticipation of the release of important economic information that improves or worsens an asset’s price and value. Basically, news trading is carried out in the Forex market, where the currency of the country from which the news is expected stands against the basis.
Trading on the news has certain advantages and a number of disadvantages. The popularity of the news trading strategy is due to the fact that it does not require preliminary preparation – you can start working almost from scratch.
Swing traders select instruments to trade based on a variety of factors – fundamental, news, and technical.
During stock picking, you should not go too deep into it, but rather focus on the technical picture.
Swing trading uses a variety of tools and strategies. But any strategy is based on the theory of market cycles. The essence of this approach is to understand that the movement of markets is not straightforward, but cyclical in nature.
The market is run by two forces: greed and fear. Rising prices awaken greed, distorting the real value of assets while falling prices awaken panic and fear. The ups and downs are replaced by periods of correction when the influence of instincts is replaced by the voice of reason.
Swing traders use the mood of the market crowd to predict the direction of further price movement, as price fluctuations clearly fit into the structure of the Cycle Pattern.
Quotes move in accordance with an increase or decrease in supply and demand. The balance between buyers and sellers leads to price consolidation in a certain range. Any imbalance causes the price to go beyond the consolidation zone and move upward or downward.
The stock exchange in terms of momentum trading has its own characteristics and differs from other markets.
As a general rule, momentum traders trade for the first hour after the opening of the session. It is at this time that the maximum volume is concentrated on exchanges around the world.
In such markets, traders can view the order book and the transaction tape, where they see the real dynamics taking place in a specific period of time.
Important news on the stock market also happens quite often, especially with regard to the payment of dividends and various quarterly earnings reports in a particular organization.
Momentum trading is one of the easiest and most effective ways to make a profit in the stock markets, Forex, and other exchanges. Traders who profit from impulses focus on highly active instruments that have the potential for large volume moves.
Momentum trading is a trade that involves opening trades during strong and active market movements. Such positions can be held for several minutes or throughout the entire trading session. It all depends on how strong the impulse is, and whether there are prerequisites for a reversal.
Trend Following Strategy
There is a conditional division of classical trading strategies into two fundamental classes: strategies for price return to the mean and strategies for following the trend. The effectiveness of the system, which can be attributed to one of the groups, depends primarily on the structure of the market and the properties of the trading instrument.
Thus, the instruments based on the “win-win” partnership model demonstrate an efficient market with a normal distribution of profitability. Rare surges have no persistence and are often false. As examples of such a model, one can cite the currency pairs EUR / CHF, USD / CAD, etc. The economies represented by these currencies are close trading partners and practically do not compete for market shares.
But there is a qualitatively different class of instruments, which is based on the “win-lose” competitive model. In addition to trade relations, the economies represented by these instruments are key competitors for capital markets, Asian regions, or other market sectors. This applies to the economies of the EU and the USA.
We can also imagine spreads that are specially designed based on competitors, such as the GOOGLE / APPLE stock spread. Such instruments are distinguished by the instability of the flat movement, which precedes the “price flights” and surges of volatility with the formation of long-term trends. This article is devoted to exactly these tools, competitive models, and ways to identify them.
Positional trading is long-term trend trading on charts with large time frames. In positional trading, fundamental analysis (it’s a macroeconomic part) and the technical forecasting method are very often used. This style of trading is used in literally all markets.
Positional traders can hold both long and short positions over the long term. In the latter case, they make money by making the asset cheaper. Positional short positions are very interesting during periods of financial and economic turmoil. For example, this style made it possible to make money during the crisis of 2008-2009, when many stock markets were marked by a significant drop in quotations.
The essence of positional trading is that a trader opens a position (long or short) in order to get the maximum profit from the main trend. Short-term price fluctuations and corrections are not important for position traders. Instead, they are interested in the main trend itself, which can last for weeks or even months.
This approach to trading has its advantages.
- One of them is that a trader does not have to spend all his free time on the computer. He does an analysis that can take from a few hours to a few days and then makes a key decision.
- Further, the open position is simply tracked from time to time depending on the events that take place in the market.
- Small price swings are not important to a positional trader. Accordingly, frequent market surveillance is not required.
Although these strategies are named as the best ones out there, it doesn’t mean they’re successful 100%. They don’t work for everybody, your trading style may not be compatible with these strategies. There are strategies that make a profit under certain market conditions (for example, almost everyone is able to make money on a strong trend), but there are no trading strategies that make a profit all the time. However, the development of the market, as well as the development of human history as a whole, goes in a spiral. This means that the market at a certain stage of its development again repeats certain features, allowing you to reapply old strategies to it.
Everyone has different expectations for this profit. Someone will be content with the fact that the profit is twice the level of income on an ordinary bank deposit and 20-30% per annum will be fine for him, while for others it is not enough even 100-200% per year.
For some reason, many beginners have an unshakable belief that every successful trader has some kind of secret strategy, thanks to which you can make money almost automatically, like a money machine.
Strange as it may seem is good, but many are falling for it. Although it is worth turning on the logic, it immediately becomes clear that a truly successful trader has no reason to share with anyone the goose that lays the golden eggs.
What Did We Learn From This Stock Trading Strategies Guide?
When buying a share, an investor can count on a return on capital and income through one of two mechanisms: dividends or price increases.
Trading the stock market is one of the most common (as well as profitable) ways of investing.
There are professional participants on the exchange – intermediaries between buyers and sellers.
It is better to start investing in small amounts. After completing several transactions, you can understand the features of the process.
Common Questions On Stock Trading Strategies
What Is The Best Trading Strategy For Stocks?
The best trading strategy does not exist for stocks. All investment strategies are united by a fundamental approach to market analysis. When choosing securities to buy, an investor studies the state of industries and companies gets acquainted with financial statements, and also takes into account general economic trends. The specific strategy for the selection of shares depends on the profit/risk ratio, investment objectives, as well as on the knowledge and experience of the investor. At the same time, almost all approaches involve diversification – the purchase of several securities to protect against risk.
What Is The Most Profitable Trading Strategy?
There isn’t one. The most profitable trading strategies do not exist. None of them would guarantee 100% income all the time. Furthermore, different strategies are used differently and while one could be useful for a person, it might be completely useless for the other one. Because of that, there is no such concept as the most profitable trading strategy that you will use frequently. Yes, some strategies might guarantee more income than others but everything comes down to preferences and particular traders – how they behave when it comes to trading.
What Strategies Do Day Traders Use?
Day trading is a common trading strategy in which a person buys and sells a financial instrument during the trading hours of one trading day, taking profits from small price movements.
Day trading is based on the assumption of where the price of a security is moving before the close of day trading. All positions are closed before the call for the end of trading. Day trading methods of day traders differ from those of long-term traders who usually use buy-and-hold strategies. Day traders typically trade stocks, currency pairs, indices, commodities, and cryptocurrencies.