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4 Best Trading Strategies
Creating a strategy for success involves study and preparation.
The dictionary defines “strategy” as the set of planned or formulated activities whose objective is to achieve a predefined general goal.
“Investment” is defined as the allocation of assets (usually money) with the expectation of obtaining a profit (usually a profit) in return.
Therefore, an investment strategy is a planned set of activities that involve setting aside money (step 1) in the hope of making a profit (penultimate step).
Between the preamble and the end, there are several intermediate steps, one of which involves the “where”, which usually focuses on an investment or trading account opened with a broker.
The “how” is somewhat more complicated.
Here we come across a large number of investment strategies (generally long-term) and operations (generally short-term), which, in and of themselves, are a subset of actions with which we want to make a profit.
All trading strategies include 3 main essential elements: WHEN TO OPEN a transaction WHEN TO CLOSE that transaction, and HOW TO MANAGE IT.
The latter usually refers to monetary management (that is, how much money to allocate).
This is not only important in regards to maintaining a healthy lifespan for your account; It is also essential to avoid a stop-out, which occurs when you invest too much and leverage too much so that your used margin could grow exponentially without you noticing.
WHEN TO CLOSE that transaction and HOW TO MANAGE IT.
- Price action trades
The study of past patterns and the search for future iterations of these patterns.
- Range trading strategy
Trade within an identified range, located between support and resistance.
- Trend Trading strategy
Operate within the limits of an increasing or decreasing trend that, generally, is defined higher highs and lows.
- Carry trade strategy
It is a mid-range trading strategy that exists between intraday trading and long-term buying and holding. A carry trader borrows a currency at a low-interest rate and invests it in another currency that offers a higher interest rate, thereby monetizing the relative change in interest rates.
4 Types of Short-term trading strategies
The following strategies refer mainly to traders who carry out intraday trades, as their trading term is shorter.
1. Day Trading
Position traders rely on technical or fundamental analysis, or a combination of these, along with general market trends and historical patterns.
Comparatively, this is usually a long-term strategy.
2. Scalping Trading
Speculation is the favorite strategy of traders who trade intraday.
It involves opening and closing positions for a very short period of time at the time they become profitable.
Key levels are identified (support, resistance, the width of a channel, etc.) and the asset is traded between these levels.
Speculation tends to involve the major currency pairs, as these lead to greater liquidity and, therefore, their trends are stronger and more determined.
In addition, due to the rapid nature of speculation, traders often automate their activities, especially with expert advisors, to open positions and close them with SL / TP orders.
3. Swing Trading
Swing trading is not really considered an intraday trading strategy; in fact, it is far from being a short-term activity.
Swing traders typically hold positions that last from several days to several months, although they are not as long as a buy and hold trade, which could last for years.
Strategically, it is similar to the range and trend trading; however, the trader will look for specific swing points that indicate a reversal (between action and retracement, and vice versa) within the general trend.
4. Position Trading
Intraday trading is often defined as a style rather than a strategy.
It involves closing all open positions at the end of the trading day in order to avoid gaps and overnight swaps.
Often, however, this involves following a specific strategy that involves opening a position when an asset exceeds its typically 8-period moving average and placing stop-loss and take-profit orders at equal distances from the entry point.
5 Best Complex Strategies
1. The Channel Strategy
Once a channel is identified, we await a breakout in the event of an accompanying uptrend, which would be the second bearish candle.
As soon as that candle is complete, we enter half its height by placing an SL above it at the same distance.
2. Breakout Trades
Trading breakouts, like trading a channel, depending on first identifying the overall trend and its support and resistance levels, most important of all.
The breakout should then be confirmed with generally fundamental data and/or rising volumes that solidify the new trend.
3. The Bullish and Bearish Crossover
Both strategies refer to a crossover in the MACD, in which it breaks above or below the 0 line, indicating the beginning of a bull or bear market, respectively.
The end of the trend will be seen when the MACD reverses direction.
4. The Fishing Line Strategy
The line strategy uses technical indicators, specifically the Bollinger bands.
Usually, a second unsuccessful attempt to break one of the bands will be limited to no more than 2 candles.
In this case, they both close below the lower band (above the upper band in the case of a sell).
The moment an asset crosses to the upper (or lower) band, we open a long position and place the take profit at the top of the upper band and the stop loss at the lower wick of the previous breakout candles.
5. The Fractals Strategy
The use of 2 or more indicators is always loaded with tension; however, confirmation is important.
Here, we open the rather esoteric fractal indicators of Bill Williams and the Alligator indicator.
The fractal indicators indicate sets of repeating patterns 5 candles long, while the Alligator indicator overlays 3 time-shifted moving averages across the chart.
When the 3 moving averages cross each other together with a fractal indicator that is narrower than the previous fractal, we can open a position at the resistance with a stop loss at the support.