Top 9 Trading Strategies You Should Know as a Trader
Trading strategies vary depending on traders' preferences and aims. If you want to start trading the right way, without getting lost in the unpredictable atmosphere of trading, you need to decide on your trading strategy. In this article, we're going to go through the nine top trading strategies. Without further do, let's start!
Day Trading
Day trading, also known as intraday trading relies on short-term price movements. Day traders open and close positions within the same trading day, so the positions don't get carried over the next day. It is one of the best trading strategies for traders who like to keep a close eye on the markets actively throughout the day.
Advantages
- Earning quick profits within a day.
- Minimal overnight market risks.
- Reduced long-term risks.
Disadvantages
- Requires time commitment.
- Flat trades that don't move within the day.
Swing Trading
Swing trading is a strategy that requires holding a position a bit longer, such as a few days or weeks. In swing trading, traders aim to catch the swings or price changes during strong trends. Swing traders are also known as trend-following traders.
Advantages
- Less time consuming than day trading.
- Larger price movements with medium term trading.
- Using technical analysis in advance to simplify trading.
Disadvantages
- Requires patience to wait for favorable swing points.
- Inherent market risks during the holding period.
Position Trading
Position trading is a long-term strategy. Position traders hold positions for weeks, months, or even years based on fundamental analysis. Following market trends is a crucial part of position trading along with historical patterns.
Advantages
- Less time consuming and fewer transactions.
- Potential to earn high profits.
- A less stressful strategy thanks to being long-term.
Disadvantages
- Long-term positions are vulnerable to market fluctuations.
- Risky in terms of trend changes.
- Higher brokerage swaps.
Scalping
Scalpers aim to profit from small price changes in a very small amount of time. Traders using the scalping strategy often target minimal profit margins in a high-frequency trading environment. Scalpers must have a solid exit strategy to prevent high losses.
Advantages
- Quick profits.
- Multiple transactions in a small amount of time.
- Minimal overnight market risks.
Disadvantages
- Requires intense focus and quick decision making.
- May experience high transaction costs.
- Risk of high losses.
Momentum Trading
Traders using the momentum trading strategy follow trends and enter positions as assets gain momentum in value, and exit as soon as they start dropping. Momentum traders must have good predictions about the assets they're following.
Advantages
- Capitalizes on existing market trends.
- Potential for high profits.
- Can be used as a trading technique.
Disadvantages
- Hard to follow the right entry and exit points.
- Prone to sudden reversals.
Range Trading
Range trading consists of understanding the price movements within the range of support and resistance levels, and then trading in the range. Range traders should be able to identify key support and resistance levels.
Advantages
- Well suited for stable markets.
- Clear entry and exit points.
- A more controlled risk management.
Disadvantages
- Requires good technical analysis.
- Limited profit potential in volatile markets.
Trend Trading
Trend trading involves trading in the direction of market trends. Trend traders follow the prevailing market trends by going long in uptrends and short in downtrends. It's usually considered as a medium-term strategy.
Advantages
- Potential high profits in strong trends.
- Capitalized on sustained market movements.
Disadvantages
- Risk of trend reversals.
- Unpredictable trends.
News Trading
News trading is a short-term strategy used by traders who leverage breaking news and economic trends to make quick trading decisions. News moves around quickly, that's why news traders need to follow them and develop a strategy.
Advantages
- High profits with significant news releases.
- High volatility and large price movements.
- Rapid response to market moving events.
Disadvantages
- Volatility can lead to unpredictable outcomes.
- Risks of timing and misinformation.
Algorithmic Trading
Algorithmic or automated trading involves using computer programs to execute trades based on pre-defined criteria. Using this trading technique can save traders from decision processes.
Advantages
- Fast and automated transactions.
- Removes emotional biases from trading decisions.
Disadvantages
- Incorrect outcomes due to technical errors.
- Potential errors during rapid changes in the market.
Choosing the Best Trading Strategy
We have gone through the top nine trading strategies with their advantages and disadvantages. Now, it's time to choose the best trading strategy for your purposes. Keep in mind that there is no only one way to approach. Here is a list of what you need to consider when choosing the best trading strategy for your purposes:
- Financial Goals
- Risk Tolerance
- Time Commitment
- Market Knowledge
- Capital Size
Financial Goals
You have to define your financial goals first and choose a strategy that fits them. Are you going for a short-term or long-term? If you're going for a short-term trading method, you can consider day trading strategies along with scalping.
If you're looking for a medium or long-term strategy, you can consider swing trading and position trading for example.
Risk Tolerance
Risk tolerance is crucial when deciding your trading strategy. If you're new to trading or don't want to take high risks, you can consider starting with position trading, which is one of the safer strategies in terms of risks. You can also go with swing trading, which offers a more relaxed approach to day trading.
If you can read the trading indicators and are good with technical analysis, you can go for strategies with more moderate and high risk tolerances such as day trading, scalping, momentum trading, and algorithmic trading.
Time Commitment
Decide on how much time you would spend on trading. Some strategies such as day trading demand active monitoring. Evaluate your time and financial goals to choose from the trading strategies we have mentioned above.
Market Knowledge
Market knowledge is an important determinant of trading strategies. Consider your understanding of the financial markets. If you have limited knowledge or just getting into the trading business, you can consider algorithmic trading and some day trading with a little training. If you are well aware of the financial markets, then you can consider other strategies as well.
Capital Size
Consider the amount of capital you have available for trading. Some strategies, like algorithmic trading, may require substantial initial investment or technical expertise. Ensure your chosen strategy aligns with your capital size and risk management principles.
Trading Strategies in Short
We have covered the nine top trading strategies. All have their advantages and disadvantages. If you're looking for trading ideas, you have many options to choose from. Take your financial goals, risk tolerance, time commitment, market knowledge, and capital size into consideration and decide on your trading system.
Keep in mind that there is not only one good strategy. Evaluate your purposes and consider different techniques for different types of trading. It's best to learn more about the market and turn knowledge into practice. You can open a demo account on ZForex to start learning and improve your strategies.
FAQ
What is the best trading strategy?
There is no trading strategy we can say that this is it. It depends on your preferences and considerations when selecting a strategy. Like we have mentioned in the article, consider your financial goals, risk tolerance, time commitment, market knowledge, and capital size.
Is day trading haram in Islam?
Although many trading strategies are not found appropriate within the laws of Islam, swap-free trading is considered halal and practiced by religious followers of Islam.
Which trading is the most successful?
It is possible to get a successful outcome from all trading strategies. What's important is your adaptability to the strategy. Again, evaluate your preferences and considerations and choose the strategy that can work best for you.
Which trading is Halal?
If you're looking for an appropriate trading approach in terms of Islamic rules, you can consider swap-free trading. As seen from its name, there is no swap payment in this strategy.
How can I start trading?
Starting to trading has never been easier with ZForex. You can easily open a trading account and start trading. You can also open a demo account to see what it's like before jumping into the real stuff.