Did you know that there are trading strategies that can help you learn about the financial markets and dramatically improve your trading performance as well as making trading decisions?
You will also have the opportunity to explore different strategic methods and examples of trading strategies. At the end, you will be able to test the best strategies on a demo account in order to choose the most suitable strategy for your trading style.
Trading Strategy – Definition
A trading strategy represents the course of action that a trader uses for all his trades in the financial markets. It is essential for any investor, whether beginner or professional, so that any trading decision is informed and in line with a rigorous plan.
When trading in the financial markets, an investor is responsible for making the decision to buy or sell an asset or not to touch the asset concerned. The many tools available to traders make these decisions difficult and complicated because they can include many aspects of technical or fundamental analysis.
Trading strategies create a set of rules or methodology to facilitate the process of making trading decisions.
Components of Investment Strategies
In general, any trading strategy includes the following elements:
The type of trading: there are a variety of strategies suitable for scalping, day trading or swing trading
Time Unit: There are trading methods that are very effective for short-term trading, as well as strategies that work best in long-term trading.
The traded product : it is essential that you choose a trading strategy adapted to the instrument you wish to trade, whether it is a currency pair, a stock market index, a commodity or a share.
Since trading strategies are usually customized according to investors’ needs, they can also have other specific components:
the occurrence of fundamental data (economic news)
specific trading indicators that can help make a buy or sell decision etc.
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The Best Markets To Apply A Trading Strategy
Before looking at some of the different types of strategies you can use, you may have already thought about the best markets to trade in. Since these trading methods simply represent a sum of rules and conditions that help in making a trading decision, they can be customized to the specific market concerned.
Although there are various financial products that can be used to trade in these markets, one of the most popular methods is trading CFDs (ie contracts for difference). By using this financial instrument, traders can speculate on rising and falling prices, without owning the underlying asset.
The 6 Methods Depending On The Trading Style
There are several techniques and methods to choose the most suitable trading strategy. Although the sheer number of these trading methods may seem daunting to beginners, the charm of the financial markets is just the fact that there is usually something for everyone!
Depending on the time horizon over which they are trading, investors can choose between the following strategies:
Day Trading Strategies
Day trading is a style in which traders buy and sell multiple financial assets in a single trading session, often closing their position until the end of the day. In fact, it’s an extremely rare occurrence for active traders to hold positions overnight.
The most common time frames used in day trading strategies are four hours, one hour, thirty minutes, and fifteen minutes.
How to Create an Intraday Strategy
Although day trading is a significant challenge, it is possible to learn intraday trading techniques and implement a strategy until it is mastered. Whether it’s day trading in stocks, Forex, or other markets, such as the commodity market, there are a few key elements to developing an intraday strategy, such as:
What markets are you going to trade in? Many traders use day trading for stocks, but this style of trading can be used in all financial markets. Since day-traders place a lot of orders during a day, it is essential that they choose markets that offer them competitive spreads and low commissions.
What time scale are you going to use? There are several timeframes used in intraday trading. We suggest that you opt for a ladder that suits your availability, so that you can familiarize yourself with how it works.
What trading indicators are you going to use? You will have at your disposal a multitude of trading indicators. Focus on one or at most two indicators that you fully understand.
What is the risk you take on each trade? Trading and risk management systems are very important. You don’t want to risk too much for every trade you place because you will eventually face a series of failures in your trading career.
Here is an example of an intraday trading strategy:
Disclaimer: Charts with financial instruments in this article are for illustrative purposes only and do not constitute investment advice or a solicitation to buy or sell any financial instrument provided by Admirals (CFDs, ETFs or Shares). Past performance is not necessarily an indication of future performance.
The chart above shows the price action of a particular market over two days. Having a Day Trading strategy is a very important aspect, as the day trader is faced with many random price movements that form multiple market conditions and trends (upward, downward and/or sideways price movements) . Each of these situations requires different day trading techniques.