A trading strategy outlines the trader’s goals, such as long-term and short-term financial objectives, risk tolerance, time horizons, and tax implications. After researching the current market and its trends, we can devise a trading strategy that includes a fixed plan for buying and selling to generate profits on the investment.
Here are 4 main active Trading strategies:
Scalp Trading
Scalping involves profiting from small price movements in a security. Scalp traders hold their trading positions for a very short period, ranging from a few seconds to a few minutes. A crucial thing for every scalp trader to consider is transaction fees and bid-ask spreads due to the frequency of trades. This type of trading is considered aggressive as the trader has to decide quickly when to enter or exit from small price movements.
Day Trading
As the name suggests, this is a short-term trading strategy where all securities are bought and sold within the same day. This type of trading is high-risk and has high potential for profits.
Swing trading
This trading strategy involves buying and selling securities for a short period, usually a few days to a few months. The primary goal of this trading is to buy stocks at a lower price and sell them at a higher price. Swing traders may be exposed to sudden market movements that can pose risks to their securities.
Position Trading
This approach involves holding securities for an extended period, usually several months to even decades. The objective of this trading is to gain profits from major market trends rather than from short-term price fluctuations. Position traders generally follow fundamental analysis to identify securities that are under- or overvalued and hold the position for a longer period. They also use technical analysis to identify the entry and exit points.
Here’s a table differentiating between four active trading strategies: Scalping, Day Trading, Swing Trading, and Position Trading.
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