A trading strategy is a plan you need in order to buy and sell in online trading using some predefined rules that will allow you to make educated trading decisions.
What are the types of trading strategies?
Online traders have a number of different strategies and techniques that will help them to determine when is the best time to enter and exit a trade. Having the right trading strategy is very important as it will guide you along the way in bad and good times. Although it is important to stick with your trading strategy once you have made a decision, this should be constantly innovated and reviewed: there are always new opportunities to learn and those shouldn’t be underestimated.
Below we will present some of the major types of online trading strategies that you can test with your trading platform:
What is Fundamental Analysis trading strategy?
In the fundamental analysis, traders will be looking at the fundamental indicators of a financial asset to established if that instrument is undervalued or overvalued. Fundamental analysis takes time and resources and can be very complex involving lots of elements. If done well, however, will give a quite precise indication of how things are likely to evolve in the near future and most importantly if the share price will improve or will deteriorate.
What is Technical Analysis trading strategy?
Technical analysis is another big category of trading strategies that are very popular among online traders. It is mostly used by traders that have the aim of getting a profit in the short term and that are very active. It involves reviewing the past and recent behaviour of a financial asset using charts to determine what it will happen in the near future.
The idea behind this is that many traders have the belief that market movements are normally determined by supply, demand and mass-market psychology: in doing so they have developed a methodology that establishes limits and ranges. Following those rules traders are able to detect trends: the majority of traders appreciate technical analysis as it provides a clear objective and also it has a visual and scientific basis to help you determine when to buy and sell currencies.
What is Trend Trading strategy?
Trend trading is a trading strategy that is particularly common when dealing with Forex. It consists of identifying an upward or downward trend in a currency price movement and also establish trade entries and exit points based on the position of the currency’s price in the trend and strength of the related trend.
You might have heard the phrase ‘The Trend is your friend’: this is just a reminder that recent trends can guide almost precisely on how things are likely to pan out in the near future and also on where is the best to set up trade entry and exit points. Trend traders use a number of tools to study trends like moving averages, relative strength indicators, volume measurements and so on.
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What is Range Trading strategy?
Range trading is a very popular trading strategy that is based on the assumption that prices can hold steady and in a predictable range for a given period of time. This is particularly relevant to those financial assets that are in stable and predictable economies.
Ranger traders need to buy and sell at predictable highs and lows of resistance and support and in order to make a profit, they need to do the same in as many trading sessions as possible. Range traders normally use the exact same tools as trend traders to find out trade entry and exit levels.
What is Momentum Trading strategy?
Momentum trading and momentum indicators are based on the notion that a price will continue to trend in a particular direction. In the other way, weakening movements might signal that a trend has suddenly lost strength and that could be headed for a reversal. With momentum strategies both price and volume are considered: normally price and volumes are also looked at with the use of graphic aides like oscillators and candlestick charts.
What is Swing Trading strategy?
Swing trading is normally a medium-term trading strategy that is used over a period from one day to a week. Swing traders are looking to do trades on ‘swings’ to highs and lows over a rather long period of time. The reason why it is a medium to long trading strategy is that the traders are keen to filter out some of the ‘noise’ or erratic price movements that are normally happening in intraday trading. This is also to avoid setting narrowly placed stop losses that could be ‘stopped-out’ during very short-term market movements.
What is the Breakout Trading strategy?
A breakout trading strategy is a strategy where traders are looking to establish a trade entry point at a breakout from a previously defined trading range. So if the price moves higher then a previously defined level of resistance on the chart, the trader will buy as he has the expectation that the financial asset will continue to move higher. In the same way, if the price breaks a level of support within a range the trader might sell the asset but aiming to buy it again when it reaches a more favourable price.
What is the Retracement Trading strategy?
Retracement strategies are created on the idea that prices never tend to move in perfectly straight lines between highs and lows but that is usually making some pause and change direction in the middle of their larger paths between firm support and resistance levels.
With this strategy, traders will wait for a price to pull back or to ‘retrace’ as this will give a sign of confirmation of a trend. They will then buy or sell in order to take advantage of a longer and more probable price movement in a certain direction.
What is the Reversal Trading strategy?
As we can guess from the name, reversal trading is when traders look to anticipate a reversal in a price trend with the aim of getting into the trade ahead of the market. This strategy is one of the riskiest ones as true reversals traders are normally tough to spot: if predicted correctly though they can deliver great returns.