What Is a Trading Strategy?
A trading strategy is a methodical approach
to buying and selling securities in the
market. A trading strategy is built around
predefined rules and criteria that are used
to make trading decisions. A trading
strategy can be simple or complex, and it
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 so on.
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, is the practice of
buying and selling securities on the same
day. Positions are closed out the same day
they are taken in day trading, and no
position is held overnight.
Position Trading
Some people regard position trading as a
buy-and-hold strategy rather than active
trading. Position trading, on the other
hand, when done by an experienced trader,
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 break. 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
of time than trend trades. Swing traders
frequently develop a set of trading rules
that are based on technical or fundamental
analysis.
Scalping
Scalping is one of the most rapid strategies
used by active traders. It essentially
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. Rather, they seek
to profit from small, frequent moves with
measured transaction volumes.