Trading Strategy: Understanding the Trader’s Winning Methods | Hacker Noon

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Trading is the activity of speculating in the financial markets. The goal is to take advantage of market fluctuations to pocket substantial sums between the time of purchasing an asset and its resale. The reverse operation is also possible because it is possible in trading to sell assets that one does not have. Trading can be done both on a market of shares (stock market), the currency market (Forex trading), or cryptocurrencies. The most important thing is knowing which trading strategies to apply to make money.

Below we have selected 6 major trading strategies that can be used by professional traders as well as by individuals. The advantages and disadvantages of each method are explained to you simply for beginners. And for each strategy, an expert video gives you practical advice to quickly implement it and start making money!

Day Trading Strategy: A Very Quick Investment Tactic

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Day trading or intraday trading is a strategy that falls under the “directional trading” box. The latter is based on a very short unit of time that begins when the stock markets open and ends when the latter closes. This allows investors to avoid the additional risk and cost of holding a position over several days.

The general idea behind this strategy is to carry out a large number of transactions per day at a low cost and over a very short period of time (from 5 to 15 minutes per transaction). For this, it is important that the investor carefully follows the various changes in the market. This allows him to make continuous analyses that will allow him to quickly rake in profits.

There are two rules with the day trading strategy. The first is to continuously monitor the market so as not to miss any interesting movement. The second is to invest very little money in its positions. For this, it is advisable to use stops and limits. Concretely, it is a question of setting amounts not to be exceeded so as not to end up with big losses.

If you aspire to become a full-time private trader, you can easily opt for this type of trading.

The Position Trading Method: Aim for Long-Term Positions

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Position trading (or news trading) can be thought of as the opposite form of day trading. The goal here is to keep an asset or maintain a position for a very long time. In some cases, you may need to keep your assets for weeks, months, or even years! This is not a strategy made for short-term visions. Thus, an investor who opts for this strategy must ignore the changes in the market. Short-term asset declines also should not be of concern to him. All he needs to look for is when the market is most favorable to him and his actions.

Compared to one who opts for day trading, the position trader does not trade a lot. Better, his operations have more value than those of the day trader. The consequence of this state of affairs is that the position trader is exposed to greater losses but also large gains. The idea is to invest in safe stocks which have stable growth over time. We can cite the large CAC40 companies, luxury players, or investing in Google shares or other GAFA players such as Facebook or Amazon.

Two main rules to position trading help you know when to sell or when to buy. The first is the one that relies on the moving average. When the price of the asset is above the moving average, the investor can order a buy. Whereas if the price of the asset is lower than the moving average, the investor must order a sale. The second rule develops around an indicator called MACD. It allows you to follow the general trend of an asset. Thus, selling an asset is only recommended for a MACD less than zero and buying an asset for a MACD greater than zero.

The MACD indicator and the moving average are parameters that can be easily found on online trading sites. You have to take those related to your asset and make the decisions at the right time.

Swing Trading: A Medium-Term Speculation Strategy

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While position trading and day trading are strategies that are based on fixed time scales, swing trading is based on another paradigm. As its name suggests, this is a strategy that primarily targets “swings,” which in French means “fluctuations.” This method aims at a unit of time in the medium-term oriented on taking low profits, as constantly as possible.

Swing trading is a strategy that primarily aims to speculate on fluctuations in the price of an asset. This is why we talk about “swing high” and “swing low.” The swing high refers to the moment when the price of an asset goes up. On the other hand, the swing low determines the moment when the price of an asset takes lower values.

Swing trading is a type of trading that typically spans a period of two days to a week. During this period, the trader makes sure to quickly find a trend to position himself on it. To do this, it waits for periods of decline in the asset to buy it and periods when the asset is increasing to sell it. This trading strategy is often recommended for markets where assets are the most volatile. With these, there is a better chance of quickly profiting from a price fluctuation.

In addition, the swing trader relies a lot on intrinsic value. The latter designates the real price of an asset and not its price at a given time on the market. For this, the trader must first have an idea of the intrinsic value of the asset. He then buys the asset when its market value is lower than its intrinsic value and sells it when the asset returns to its normal course.

Automatic Trading: Set up Robots that Manage your Actions

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Automatic trading (also called algorithmic) is the archetype of automated trading. It is also referred to as black-box trading or trading via robots. It is mainly based on computer programs. They make the decisions to buy and sell an asset for you. Everything is, therefore, automated. It is enough for the trader to put in place a certain number of rules and conditions for the computer program to follow his preferences to the letter.

This type of strategy aims to take maximum advantage of small price fluctuations by relying on high trading frequencies. The main advantage of algorithmic trading is that it allows you to continue trading in a market without necessarily being connected to it. However, it is very difficult to get rich with this type of trading. Unless you have an algorithm that works very well, there is a good chance that you will lose out. This is because the machine always lacks flexibility, unlike a human.

Furthermore, algorithmic trading can prove to be a powerful tool when combined with other trading strategies. Indeed, a machine can scan potential markets in real-time. With the results obtained, it will be easier for you to make your own decisions according to one of the techniques mentioned above.

Trend Trading: Bet on Reliable and Constant Trend

Over time, this type of strategy can be used in the short, medium, or long term. As the name suggests, it is based on general trends in a stock market value. Trend trading is based on the assumption that a trend is reliable and constant.

This trading strategy is applied in three different phases:

The first is called the accumulation phase. This is a phase in which investors massively sell or buy a stock market value in reaction to an event. This is often an event that directly or indirectly influences said market value. At this stage, the general public does not or does very little trade in security. So, the traffic is often very low.

The second phase is that of absorption. The latter is the stage during which the general public invests In masse on the asset. Result of the races, a strong increase in traffic is observed as well as a strong increase or a sharp fall in prices.

The third phase is that of distribution. During this stage, investors who followed the trend from the start get down to selling or repurchasing assets. This by doing the exact opposite of what the general public does. At the same time, this general public continues to repeat the first operation without realizing that the trend has already changed. As a result, the asset sees its price drop drastically or increase sharply concerning its real value.

You will understand, the most important phase with this trading system is the first phase. On the other hand, the latter requires a good mastery of the market and mastery of a certain number of technical analysis tools allowing rapid identification of trends in a market.

Scalping or Micro Trading: The Most Aggressive Stock Market Technique!

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Scalping (also known as micro trading) is a short-term strategy par excellence. Very aggressive, it allows you to buy and sell securities over very short periods. This stock market technique consists of constantly going back and forth to buy and sell in a few minutes or even seconds to take advantage of the variation in prices. The most representative examples are scalping on CFDs and futures (futures contracts).

The method aims to get a few pips for profit. Moreover, it is important to understand the concept of pip. Pip, or “percentage in point,” is defined as a tiny measure of change for a price. It makes it possible to determine over a period whether there has been a loss or a gain.

Given the aggressiveness of this method, it is crucial to concentrate as much as possible so as not to suffer from losses. The strength of this strategy lies in the numbers. Indeed, the trader using scalping positions himself on a multitude of sales and purchases. Each of these positions taken separately yields very little.

However, the gains can easily increase when you add it all up, especially if the number of positive results is significant. This is surely the fastest trading strategy of all. The gains can fall in a very short period of time. On the other hand, this strategy requires powerful equipment as well as a very fast connection and especially a total commitment!

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