Key components of a trading strategy
Risk tolerance
Risk tolerance is the degree of risk which the investor is ready to work with. The regular risk assessment is a key issue of any stock trading strategy and of any trading strategy. It might be of great necessity in periods of high volatility when the world is changing so rapidly and the market gives strong reactions. Risk tolerance depends on the terms of trade. Traditionally long-term investments can accommodate higher levels of risk in comparison to short-term deals.
Investment objectives
These are one's aims: safety, income, capital growth - actually a mixture of these ingredients. An investor should just decide what he wants more. There are trading strategies depending on the object: equity trading strategies, derivatives trading strategies, cryptocurrency trading strategies and others. The combination of objectives may vary depending on the objects of trade. They have much in common, but still, require some knowledge of the particularities of the objects.
Technical analysis
Technical analysis strengthens trading strategies but requires much specific knowledge. One must (or at least might) take into consideration such indicators as on-balance volume (OBV), accumulation/distribution line (A/D line), average directional index (ADI), Aroon oscillator, moving average convergence divergence (MACD), relative strength index (RSI), stochastic oscillator.
This all seems to require a lot of time and knowledge, so if one is not ready to study patiently, it might be a good idea to leave it to professionals and consider such possibilities as copy trading.
What are the different types of trading strategies?
There are four of the most common trading strategies.
Day Trading
The name speaks for itself. This strategy implies purchase and sale deals within one day. It is for those who dedicate much time to market assessment and ready risk on a daily basis. Day traders are not interested in keeping objectives, they gain from small price movements.
Position Trading (Buy&Hold)
That is actually a strategy, which is the opposite of day trading. Strategy trades are performed less than 10 times a year. Assets are bought with an expectation for a sustainable raise of price, so investors pay no attention to small fluctuations of a price. This trade is usually based on a low-risk approach.
Swing Trading
Swing trading is a trading strategy which aims at capturing short- to medium-term gains over several days/weeks. Swing traders bases their choice on close examinations of stock indicators.
Scalping
Scalping strategy means making a small profit from a series of trades performed within seconds or minutes. Traders use
What is the best day trading strategy?
Nobody can tell for sure what strategy will lead to substantial profit. The following trading strategies can be applied within one particular day.
News Trading
This strategy is quite simple. When a major event takes place, the traders come to action. All they need is to explore current news and act quickly.
Range Trading
This strategy demands to learn and using a high and low range of specific objectives.
Pairs Trading
As the name implies, this strategy means using a pair of opposite deals. Choose an objective, and then make a short deal on a weak stock and a long on a strong one.
Contrarian Trading
This is the strategy, which is based on playing against the market. When the stock goes up, one trades against it.
Of course, one is not obliged to use only one concrete strategy. Most experienced traders use stock trading strategies, which as per their opinion suits them most. But substantial profits can be gained not only due to diversification of strategies but to a variety of strategies.
These are different equity trading strategies, but cryptocurrency trade has its particularities.
What is the best strategy for crypto trading?
There is no secret that crypto is extremely volatile - more volatile, than other objects. So many traders consider that technical analysis should not be applied to crypto trading. News affects the market greatly - but the effect is unpredictable. The news or more often rumours lead to FUD - "Fear, Uncertainty, Doubt", which might be provoked by big traders. This may lead to ups and downs which do not correspond to real-life events.
One of the most popular variants is position trading when a person buys a coin or token, which is considered to have good prospects. This is actually a matter of trust in this or that asset - in the project itself, in the technology it offers. It is a good variant especially when one mitigates the risks by buying several coins. The obvious objection to this strategy is that one can not receive profit right now.
So what are trading strategies that can bring regular profit?
One of the popular strategies which appeared due to the volatility of the crypto market is arbitration trade. If the rate differs on various crypto exchanges by 2-3%, it is possible to buy cheap and sell at a higher price. It might gain profit even after the payment of commissions. The only problem is to "catch" the moment as long as such a situation does not last long.
Therefore, investors face a real problem: where to find time to study the aspects of the crypto trade and monitor the market constantly. One can consider crypto automation as the acceptable variant to save time. The robot can make deals as per the algorithm without the participation of a person.