What Is a Trading Strategy? A trading strategy is a methodical approach to buying and selling securities in the market. It is built around predefined rules and criteria used to make trading decisions. A trading strategy can be simple or complex and considers factors such as investment style, market cap, technical indicators, fundamental analysis, industry sector, portfolio diversification level, time horizon or holding period, risk tolerance, leverage, tax considerations, and more. Main Active Trading Strategies
Day Trading
The most well-known active trading style is probably day trading. It’s frequently used as an alias for active trading. Day trading, as the name suggests, involves buying and selling securities on the same day. Positions are closed out the same day they are taken, and no position is held overnight.
Position Trading
Some people regard position trading as a buy-and-hold strategy rather than active trading. However, when done by an experienced trader, it can be considered active trading. Position trading employs longer-term charts ranging from daily to monthly in conjunction with other methods to determine the current market trend. Depending on the trend, this type of trade can last several days to several weeks, or even longer.
Swing Trading
Swing traders typically enter the market when a trend breaks. Price volatility is common at the end of a trend as the new trend attempts to establish itself. Swing traders buy or sell when price volatility occurs. Swing trades are typically held longer than a day but for a shorter period than trend trades. Swing traders frequently develop a set of trading rules based on technical or fundamental analysis.
Scalping
Scalping is one of the most rapid strategies used by active traders. It entails identifying and exploiting bid-ask spreads that are slightly wider or narrower than normal due to temporary supply and demand imbalances. A scalper does not attempt to capitalize on large moves or transact in large volumes. Instead, they seek to profit from small, frequent moves with measured transaction volumes.