The number of existing trading strategies is enormous. Some of them work perfectly, while others demonstrate weak performance. Today we are taking a closer look at 5 most popular trading strategies that you should know and may consider in trading. Chances are, you will find an approach that fits your personal trading style.
Momentum Trading
The momentum method is one of the most popular trading strategies among day traders. It’s easy to understand but not always easy to implement. When following it, traders wait for the asset to demonstrate rapid movement and then open the deal. The move can be in either direction, as you can open both long and short positions.
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In order to manage risks, you may want to use stop-loss orders. If the price moves in an opposite direction, the deal will close automatically.
Scalping Strategy
Several small wins may be just as good as one major positive outcome. When trading in accordance with this strategy, traders decide on the potential buy and sell points before they open the deal and watch the price of the asset move in the desired direction.
When using the scalping method, deals may be as short as a few seconds. Scalpers should be prepared to act fast and make financially important decisions in an instant. It is worth saying that due to extremely short timeframes, there is no place for fundamental analysis in scalping; therefore trades should consider all risks involved as well.
Pullback Trading Strategy
This method may not be one the most popular trading strategies among day traders, but it undoubtedly has its advantages. Here is what pullback traders usually do. They find an asset (a company stock or an ETF) with an established positive trend and wait for it to move in the opposite direction. Notice that it should be a short-lived retracement, not an emerging negative trend.
You might consider opening a long position for example when the retracement is about to die out and the price action can be expected to go up once again. The same can be done on a negative trend. You might wait for a downward trend to demonstrate limited upward movement (again, not a full-fledged) and might consider opening a short position for instance when the price is at its local maximum. However, there is never 100% guarantee that this will work in your favour.
Breakout Trading
Do you remember support and resistance levels? This method aims to put them to good use. Usually when the asset price reaches a certain threshold that it is unable to surpass (called the resistance), it will retrace back and trade at lower levels.
However, as many technical experts believe, when the asset price goes above the resistance level, it may be expected to continue its upward rally. Notice that sometimes the price action can move above and below the resistance level freely and this method won’t work.
News Trading
Probably a top method for those interested in fundamental analysis. We all know that major news and events are critically important in the world of trading. Almost any asset, be it a national currency, a cryptocurrency, a stock or a commodity, can be moved by a major economic/political event.
Usually good news tends to move the asset price higher, bad news — lower. If everything is that simple, what’s so complicated about news trading? Predicting the news before it hits the market and making a correct forecast is hard. Sometimes markets behave illogically, and overall positive news triggers a price decrease. So, you have to be prepared for that.
Whatever the method you choose, there are several things to remember. No method is fail proof, all of them will demonstrate negative results from time to time. You may consider trying several of the most popular trading strategies and find the one that suits your trading style and master it.
Several losing deals in a row do not necessarily mean that the method doesn’t work. It probably means that you’ve experienced a losing streak. By constantly switching between the methods you may decrease your chances of positive outcomes. At the same time, don’t be afraid to quit a certain method should it really stop working for you.
