Common trading strategies that you need to know

09/12/2021

Investing your capital in the financial market could help you to reach your financial goals more effectively. However, successful trading requires extensive research and well-developed strategy. 

It may be easy to open a trade in assets like stocks, forex or commodities, but profiting on those positions and avoiding making significant losses, is more difficult. You’ll need to thoroughly understand the factors that could affect market prices, and be able to apply fundamental and technical analysis to your trades, to make well-informed predictions about future price movements.  

In order to execute an effective trading approach, it can be best practice to implement a trading strategy. A strategy will enable you to stay on track, keep focused and make consistent, informed decisions using the data that you choose to analyse. 

There’s no ‘one size fits all approach’, so rather than tell you which strategy you should use when trading in the financial market, this article will guide you through the most popular approaches, to help you decide which would suit you best. 

Day Trading

One of the most popular strategies among traders is day trading, which — as you would expect — requires you to open and close all of your trades within the space of a day. This particular style of trading best suits those who have the time to study the market and identify price movements throughout the day. 

Day traders tend to make lots of small trades over the course of the day. Therefore, as a day trader, you’ll need to respond to changes quickly to enable you to profit from short-term fluctuations. 

To minimise the chances of making significant losses, traders will implement tools like a ‘Close at Profit’ which ends the trade and protects all of the profits that you have made. A ‘Close at Loss’ closes your trade at a loss level that you specify. 

Day trading can be time consuming as it requires you to dedicate a significant amount of time to analysing the market, so you’ll need to decide whether this would suit you and your lifestyle. 

Position Trading

Position trading is a medium-term strategy. This means that your position in the market could last anywhere from a number of days to months. 

Position trading requires you to follow market trends, which means that if a financial instrument’s value has surged, the trader would typically assume that this appreciation would continue, opening a position. 

A position trader will keep up to date with the news and use fundamental analysis in conjunction with an economic calendar to predict when a trend is likely to emerge. 

Position trading can be an attractive strategy if you don’t want to dedicate long periods of time watching the market and analysis data. However, if you’re a complete trading beginner, it might not be the best choice for you, since it will require you to have a good understanding of fundamental data and good trading instincts. 

Swing Trading

Swing trading is all about identifying patterns in the market, and opening or closing your position, depending on the direction of that trend. To find these upward or downward trends, you’ll need to examine fundamental analysis. 

You can also use this strategy for contract for difference (CFD) trading, and start CFD trading with Skilling, for example, speculating on the price movements of some of the most actively traded financial instruments.  

If you choose to adopt a swing trading strategy, you would typically aim to hold a position in the market for days or weeks, taking advantage of short-term swings in the market. 

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Before you can decide which strategy will best suit you, you’ll have to decide how much time you are willing, and able to dedicate to trading and figure out your trading style.

Of course, the best way to understand your style is to start trading. So, do your research and ensure that you understand the factors that can affect market prices, and you’ll be ready to open a position on an online trading platform.

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