There are many trading strategies. It is all but impossible to discuss all of them in one article. So, let’s focus on the top 5 trading strategies.
Do you know what the difference between a trading strategy and a trading style is?
Let’s start with a trading strategy. It is a plan that employs analysis in order to spot concrete market conditions as well as price levels. As a reminder, it is possible to use fundamental analysis in order to predict price movements. However, the vast majority of trading strategies focus on concrete technical indicators.
It isn’t too hard to distinguish between ‘style’ and ‘strategy.’ Don’t worry; we are here to help you.
While a trading style is a comprehensive plan for how often you will trade and how long you will keep positions open for. What about a trading strategy? It is a concrete methodology for deciding at which price points you will enter and exit trades.
Let’s take a look at the top 5 trading strategies.
Trend trading strategy and its importance
We need to mention a trend trading strategy when it comes to trading strategies that work. The above-mentioned strategy depends on utilizing technical analysis in order to spot the direction of market momentum.
Interestingly, it is a medium-term strategy. Importantly, it is suitable for swing traders and position traders.
It is worth noting that derivative, as well as leveraged products, are popular choices for trend-following strategies, as derivative and leveraged products enable traders to go both long and short.
Traders, more specifically trend traders, will utilize indicators throughout the trend in order to spot potential retracements. In many cases, traders will take little notice of retracements; however, it is vital to verify it is a temporary move and not a complete reversal.
Trading strategies that work part two
We also need to mention range trading when it comes to the top 5 trading strategies.
First of all, it is a strategy that seeks to take profit from consolidating markets.
The above-mentioned strategy is quite popular among very short-term traders. Interestingly, the strategy mentioned above is quite popular among very short-term traders as the above-mentioned strategy focuses on short-term profit taking.
Trend traders focus on the overall trend. However, range traders focus on short-term oscillations in price. Notably, range traders will open long positions when the price is moving between two clear levels and isn’t breaking above or below two clear levels. Without exaggeration, range trading is a quite popular forex trading strategy.
Now, let’s switch to breakout trading. What can we say about the strategy mentioned earlier?
The above-mentioned strategy is commonly used by day traders as well as swing traders. This strategy profits from short to medium-term market movements.
The list of top 5 trading strategies would be incomplete without gap trading.
Now, let’s focus on gap trading. To put it mildly, a gap happens when no trading activity has taken place.
Have you heard about the momentum trading strategy?
The strategy mentioned above is based on price trends as well as the direction the price trends are taking. This occurs when there is heavy price movement (or momentum), and traders are selling and buying assets for a period of time. As soon as the price changes, the momentum changes in a different direction.
What do you need to know about diversification?
What do you think about diversification? It is an investing strategy used to manage risk. Investors invest in various companies, industries as well as asset classes.
It is a good idea to invest in various companies and asset classes in order to reduce risk.
Inexperienced investors might find it hard to understand the importance of diversification. To make a long story short, you need diversification in order to reduce risk factors. As we all know, the future is highly uncertain. It is desirable to diversify your investments among different companies as well as assets that aren’t exposed to the same risks.
The purpose of diversification isn’t to maximize returns. At any given time, an investor who concentrates capital in a small number of investments may outperform an investor who has a diversified portfolio. Over time, a well-diversified portfolio, in most cases, outperforms the vast majority of less diversified portfolios. As you can see, it isn’t easy to find a perfect balance.
Without exaggeration, one key to diversification is owning investments that perform variously in similar markets.
As a reminder, stocks, as well as bonds represent two of the leading asset classes. In the case of diversification, it is important to find a balance between stocks and bonds.
You need to remember that bonds are less volatile, but growth is generally less impressive compared to stocks.
Important details about diversification
We need to mention that diversification doesn’t eliminate investment risk.
It serves as a risk management strategy. However, diversification doesn’t eliminate investment risk completely. You need to remember that investing is inherently risky.
Yes, it is possible to reduce risk factors. Nevertheless, it is impossible to eliminate risk factors totally. For example, political instability and inflation rates are some of the common, inevitable events.
Warren Buffet is one of the most famous investors in the world. However, even Buffett isn’t immune from risk factors. As a reminder, one of the most well-known investors in the world lost billions of dollars in the financial crisis of 2008.
In conclusion, the purpose of this article is to help people learn more about the top 5 trading strategies. As stated earlier, there are many trading strategies. So, it makes sense to read about various strategies in order to find trading strategies that work for you.