Most, if not all, people in the world are interested in making money, and we’re sure you’re one of them. Are we right? Yes? Good! That means you’re in the right place. Making money is no easy task, especially if you want to make a ton of it. But, if you dabble in trading stocks, you just might make it.
Stock trading, though profitable, needs proper planning to be done successfully. Hence, when you decide to start trading, you need to have a pre-decided strategy already in place. But what are the most successful trading strategies?
The most successful trading strategies are those that consider the risks involved and evaluate the expected results. However, you must not rely too much on just one strategy and are willing to change a strategy if needed.
Today, we will discuss a few successful trading strategies in detail, including their pros and cons, whether or not they are suitable for you, and how they work.
1. Scalping Strategy
A quick trading strategy meant for short periods, scalping involves making small profits by buying at the “bid” price and selling at the “ask” price. Those who practice this strategy aim to accumulate small profits over time.
Trades conducted under this strategy happen within a few minutes. Hence, the overnight risk is eliminated. Overnight risk is essentially the possibility of incurring a loss if changes to the market occur overnight.
The small trades done under scalping can also open up several investment opportunities for you. However, the problem with scalping is that a large loss can also lead to a loss of all other profits you may have accumulated, making it necessary for you to have a good exit strategy.
2. Swing Trading
Swing trading occurs when a market trend such as an upward movement (bull market) has ended. At that point, there is some uncertainty concerning price due to the fluctuations in the market. This is when you should buy and sell.
While a market “swings” from high to low prices, you can take advantage of this state through short or medium-term gains. You can concentrate on market trend charts, focusing on movements within the market that soon create a trend.
Swing trading saves time as long as you understand how to recognize the swings. As with scalping, you have multiple business opportunities to invest in. However, unlike scalping, swing trading has an overnight risk since some swing traders buy and sell stocks on different days.
3. Trend Trading
Trend trading involves using a combination of methods, such as long-term charts, to derive trends in a market. Trend traders follow favorable and unfavorable trends in the markets.
As a trend trader, you must be able to adapt and follow trends properly and promptly. If successful, you will be presented with multiple opportunities to make a profit since you will predict changes in the market and its prices, thus capitalizing on rises in stock prices.
Despite the benefits, trend traders are still met with overnight risks.
4. Day Trading
In the case of day trading, you must buy and sell within the same day.
In this trading strategy, you must consider several investment opportunities in a day but do not keep them open overnight. Day traders often have a significant amount of funds and use short-term strategies, such as scalping and news trading.
Since day traders only keep trades open for a few hours, the risk of loss is reduced because the money is not exposed. Even so, some trades may not display any results within a day.
5. News Trading
With a news trading strategy, you follow news releases or announcements and base investment decisions on those. You focus on expectations regarding market trends and use them to make market decisions.
As a news trader, you make use of market sentiment when deciding how to make profitable investments. Just like day traders, you can conduct and close a trade within one day. The news releases can help you forecast asset prices, providing them with economic data to make investment decisions.
News traders often have good strategies to exit and enter a market and have many investment opportunities. However, this type of trading requires relevant skills such as keeping up with news releases, interpreting market sentiment, and using this information to make investment decisions.
Final Thoughts
All of the trading strategies mentioned above have their benefits and drawbacks. The strategy you should choose depends entirely on the risks you are willing to take, the skills you have, and the amount of time you’re are willing to invest. However, any of these 5 strategies will prove to be profitable.
References:
https://www.investopedia.com/terms/t/trading-strategy.asp
https://www.investopedia.com/articles/active-trading/11/four-types-of-active-traders.asp
https://www.cmcmarkets.com/en/trading-guides/trading-strategies
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/news-trader/