Trading Strategies are used to manage the decisions you make around the trades you make and when you make them. There are four main styles of trading at the heart of online trading strategies: Position trading; Swing trading; Day trading and Scalping. The trading strategy you choose will determine how often you trade, how long to hold a position and when to enter or exit the market.
Every online trader needs a plan of action. This plan will help them to make logical decisions that work to achieve their long-term trading goals and this is where trading strategies come in.
When building your trading strategy, you should:
- Be realistic and learn how to handle loss
- Learn trades that work for you based on your appetite for risk, how much time you have and
- money available to invest.
- Know the markets you operate in
- Know what you can and can’t control in trading
- Learn your trading psychology
- Find a good teacher to show you the ropes
As experienced and trusted online trading educators, the team here at Trade Room Plus helps new online traders learn, understand and execute the best trading strategies based on their goals.
If you’re brand new to trading or are considering reviewing your current trading strategy, read on for an overview of common trading strategies to discover which ones are best suited to you and your trading goals.
What Is A Trading Strategy
A trading strategy is simply a method of buying and selling in the markets you operate in based on predefined rules that are used to make trading decisions. The decisions you make in line with your trading strategy should move you closer to meeting your financial goals. Trading strategies are based on fundamental or technical analysis, or both to predict price movements.
Every trader’s trading strategy will be unique to them but there are four commonly used trading styles within a strategy; Position trading, Swing trading, Day trading and Scalping.
Trading Strategy – Your big picture and methodology for defining when you enter and exit trades
Trading style – Your plan for how often you will trade and how long to keep positions open for.
Each of the trading styles above lend themself to different investment sizes, how much time is needed to manage trade, trader personality and attitude to risk. We will cover each style in more detail in the next section of this article.
Four Trading Strategy Styles Explained
|Trading Style||Timeframe||Common Holding Period|
|Position Trading||Long term||Months to years|
|Swing Trading||Short to medium term||Days to weeks|
|Day Trading||Short term||Intraday only|
|Scalp Trading||Very short term||Seconds to minutes|
Overview of Position Trading
Position trading takes place over months to years and unlike day trading or scalping, traders look to make profits from long term trends rather than short term fluctuations. This approach means that traders aren’t so concerned with short term fluctuations as they are hopeful that over time their investment will ride out any dips and eventually go up.
Position Trading in Action
Position traders may open fewer trades than those operating different trading styles but the positions will tend to be of higher value to increase the potential for profit. Some actually consider position trading to be a buy-and-hold strategy and not active trading and you should be aware that the high value trades pose a significant risk of loss and should not be taken lightly.
Traders opting for a position trading strategy will need patience and have the ability to stick to their trading rules in order to decide when to close and when to keep trades open over a long period of time. Position traders often rely on technical analysis using tools such as a Fibonacci retracement to identity periods of support and resistance.
Overview of Swing Trading
Swing trading is all about capitalising on short term trends and generally takes place over one to several days. Technical analysis is used to spot short term price momentum and swing traders will pay particular attention to patterns and trends in the market over the price of the stock market.
Swing Trading in Action
Swing traders aim to spot trends and capitalise on the peaks and dips by entering and leaving the market at the right time. They use fundamental analysis to identify two types of market movement, a swing high and a swing low. When the market swings high, prices move upwards and when the market swings low, market prices decline.
Swing trading lasts as long as the trend does but is usually a trading style more suited to those who don’t want to spend all day monitoring markets or waiting years for long term positions. Swing traders need a healthy appetite for risk as they can often be found in volatile markets as this is where market swings are most likely to occur.
Overview of Day Trading
Day trading, like the name suggests, is all about buying and selling within a single day as no position is held overnight. Traders will hold positions over minutes to hours and many day traders use leverage to increase the potential gains from small price movements. Day traders need to make significant returns to break even due to the level of costs involved as well as needing enough capital to withstand sudden and, possibly, larger-than-expected losses.
Day Trading In Action
Intraday trading requires a rock-solid trading strategy and time due to the number of trades involved in any given day. By executing a large number of trades for relatively small profits with stops and limits traders can mitigate their risk of losses. Traditionally, day trading is executed by professional traders due to the level of expertise required but with the right trading education, novice traders can enter this market too.
NB: Swing trading and scalping can also fall into the category of day trading as they often involve opening and closing positions in a single day.
Overview Of Scalping
Scalping, also referred to as micro trading, is all about making very small profits over and over again that look to take advantage of small quick movements in the markets over a matter of seconds or minutes. Traders implementing scalping strategies may place between 10-100 trades a day.
Scalping in Action
The idea of scalping is to open and exit trades as soon as the market moves in your favour. This enables you to take small but frequent profits. It is an intense form of day trading and not for beginners as traders need to focus on liquid markets with strong trends and dedicate a lot of time to monitoring and understanding the market they trade in.
Fundamental and Technical Analysis Explained
Within their trading strategies, online traders use fundamental and technical analysis of the markets to determine what stock to buy and at what price by researching and forecasting trends in stock prices.
Fundamental analysis in a method of evaluating securities by attempting to measure the intrinsic value of a stock to establish if they think it is undervalued or overvalued and therefore how it is likely to move in relation to others.
Traders adopt fundamental analysis by studying everything from the overall economy and industry conditions, to the financial condition and management of companies. Earnings, expenses, assets, and liabilities are all important characteristics to fundamental analysts.
Technical analysis in online trading is when traders review historical trends and recent behaviour in stocks price and volume in order to predict future price movement and market sentiment. This is based on the assumption that market movements are ultimately determined by supply, demand and mass market psychology meaning individual prices of securities don’t need to be studied specifically.
How Do I Build A Trading Strategy
When building a trading strategy we advocate taking a systematic approach to ensure you have a plan that will effectively govern the rules, objectives, risk tolerance and time-frame of the trades you will make. The end result should be a strategy that gives you all the tools you need to know when and how to buy or sell securities.
Consider These 10 Things Building Your Trading Strategy
- Understand your reason for trading. Is it for financial gain, the thrill of taking risks, a hobby to fill your evenings? Once you know why you want to trade, then figure out why you think trading can be the answer.
- Know your numbers and set your targets. Know how much you are willing to invest, how much you can afford to lose in order to set realistic profit targets and risk/reward ratios.
- Learn as much as you can. You can never know too much about trading and the markets you operate in and online trading educators like Trade Room Plus can be an invaluable resource for those new to trading.
- Choose which market you want to trade in. This could be Forex, Index, Equity, Options or Futures. Each is different so do your research and choose one to start with then learn as much as you can about it to stand a chance of being successful.
- The time you can devote to trading. The time you have will lead you towards different trading styles. Will you be monitoring the markets daily in the hope of trading to be your main source of income or are you trading as a hobby in the evening? Learning trades that work for you is important to long term success.
- Use trading tools. Find a tool to help you judge if the market you operate in is trending up or down. Price action tools like swing pivots and trend lines, or technical indicators like moving averages and MACD, are a good place to start.
- Define your objective entry and exit triggers. This will ensure you know when to enter the market and trade and when to exit if things go wrong. This is where your fundamental and or technical analysis will come into play.
- Know your attitude to risk and how to minimise risk when trading. Find out more about the risks of trading and how to manage them here.
- Back-test your strategy. When you think you have your trading strategy nailed, test it and test it again before putting it to work in the real world with your cold hard cash. Use historical data and simulators to conduct trades in the manner you have set out in your strategy without any risk of losing money.
- Review and adjust your strategy based on your testing. It’s unlikely your first strategy will be a roaring success but you can continue to tweak and refine until you have found what works for you to use as a reference when deciding how to move when you’re trading.
What Style of Trading Should I Choose?
As you can see from the brief overviews above, the style of trading that you engage in will largely be dependent on how much time you have to devote, what instruments you want to trade in, your appetite for risk and how large your account size is.
Whichever trading style and trading strategy you choose, remember that the only thing you can control is when you buy or sell, so always focus on learning the specifics of the markets you trade in so you can execute disciplined and timely trades.
Which Trading Strategy Is Right for Me?
The best trading strategy will always be the one that aligns with your trading personality, works to meet your trading goals, works for the markets you operate in, and fits around your life.
A successful and profitable strategy for one trader can be a poor and heavy loss strategy for another trader even if they are trading it on the same market at the same time as there is no one size fits all. You should have trading strategies for different markets that you operate in and never try to shoehorn your trades into strategies where the market conditions don’t support them.
At Trade Room Plus we focus on teaching the Support and Resistance trading strategy to our members because this is the best trading strategy for nearly all Spread Bet and CFD broker platforms. If however you work full time and just want to trade in the evening without holding trades overnight then consider learning the The Algo Yank Strategy that has been designed specifically for evening trading the Wall Street Index – the DOW. Click here for details.
Do I Need A Trading Strategy?
If you are entering the world of online trading it is imperative you take the time to build and define your online trading strategy. There is no better way to learn how to build a trading strategy than from trading educators who have been there, done that and can prove they know what they’re doing.
Where Can I Learn More About Trading Strategies?
Trade Room Plus is a professional live trade room and trading educator that can show you how to build a trading strategy in order to trade Forex & Index markets on spread bet and CFD broker platforms. We conduct live trades in front of our members and thousands of aspiring traders every single day and it’s a brilliant way to learn how to build a trading strategy that works for you. Have a look at our live trade room and our membership options if you want to take courses, see live trading in action and receive our profitable trade signals.
To keep learning how to make trades work for you, we have plenty more guides available including; learn how to trade profitably and how our live trade room teaches you to trade profitably.
Whether you are brand new to online trading or have been trading for a while but want to refine your approach with a new strategy, we hope this article has given you an overview of the key things to consider when it comes to trading strategies and making them work for you.
When planning or working within your strategy remember that “The goal of a successful trader is to make the best trades. Money is secondary.” This is a reminder to always take the time to build and refine the best trading strategy for you in order to make the best trades possible.
With plenty of variations of strategies at the disposal of traders it may be beneficial to become familiar with several trading strategies to ensure you have options in changing market conditions.
To recap, trading strategies manage the decisions you take around the trades you make and when you make them. There are four main styles of trading at the heart of online trading; Position trading, Swing trading, Day trading and Scalping. The trading strategy you choose will determine how often you trade, how long to hold a position and when to enter or exit the market.
At Trade Room Plus we have been showing our customers how to trade Forex, Index and Crypto markets on spread bet and CFD broker platforms since 2013 and we offer a comprehensive but accessible way to learn how to trade forex, start day trading, understand when to enter and exit a trade and how to improve your profitability.