Trading strategies are used to try to beat the markets having previous plans that allow making decisions according to an established script. There are many types, and they have to do with the asset, target, or investor profile, among other aspects.
Trading strategies are tools, decisions, and planning that we group to have clear investment plans. They help us decide when, how, and in what amount of money to enter or exit the market as investors.
What are trading strategies?
Trading strategies are the plans and tools used to outline a way of investing that responds to certain characteristics. Trading strategies are usually configured according to elements such as:
- The investor profile
- The temporality of the investments
- The market model
- The type of assets
Depending on the different strategies, one type of tool or another will be used, although the two key investment models are commonly used:
- Technical analysis
- Fundamental analysis
Why are trading strategies used?
Trading strategies are used to try to beat the markets. They are plans that seek to maximize the investor’s presence and enhance their profitability options. They could be defined as the decisions that will determine the behavior of our investments.
What are the best trading strategies?
There are a great number of investment strategies. Each user can come up with a plan. However, by volume of use and recognition, the following are some of the best:
Intraday Trading
Intraday trading is one of the most popular. It involves trading in the short term so as not to exceed the barrier of one trading day.
This strategy is based on taking advantage of the markets only with a one-day temporality to avoid the costs of keeping a trade open. Also, to take advantage of corrections and movements of the asset or assets.
Swing Trading
It is defined mainly as a style since it is not a strategy. This way of investing is based on taking advantage of trends and keeping open positions depending on the evolution of the market.
It may seem very similar to trading in long-term trends, but it usually works with patterns of more than one day, but not in the very long term. It looks for price changes greater than what can be obtained in daily operations.
Positional trading
It is a more complex strategy than the previous ones. It is based on keeping open positions during the necessary time to collect profits. They are usually low-volume operations to diversify.
It is a difficult model to put into practice since it requires not only market knowledge but also control of emotions since prices necessarily fluctuate in this type of investment model.
Would you be able to hold on if you see that a stock is still in free fall? Can you afford it? In this, as in other strategies, you must always take into account your real investment capacity and that it does not compromise other economic commitments or personal finances.
Algorithmic trading
It is not a strategy as such, but it is worth analyzing. Algorithmic trading automates a series of rules and norms in the mathematical formula that executes it.
However, as it can be adapted to different models, profiles, markets, and styles, it can be considered a strategy that tries to reduce the impact of the human factor in the decisions.
It can be effective both in the very short term, making automated decisions, and in the long time, avoiding emotional choices.
Scalping Trading
Scalping is an investment strategy that enjoys much fame and is widely used. At the same time, it is complex, and, on many occasions, it is used with little basis and investment knowledge.
Its acceptance comes from the fact that it is very simple from the operational point of view since it is based on opening small operations in very short periods, sometimes seconds, to try to take advantage of the volatility of the assets or their correction movements.
It has been a widely adopted model in Internet trading for the ease of being traded and investing adrenaline.