A Beginner’s Guide to Trading Strategies

A Beginner’s Guide to Trading Strategies

When dipping your feet into the world of trading and financial markets, you’ll discover numerous different types of trading strategies. Whilst there are several popular strategies in trading, one that works for someone else, may not necessarily work for you.

You will need to learn what seems to work, as you get more and more into the trading world. Eventually you will find the strategy that works for you, no one else can tell you what to do and guarantee results, it is ultimately based on your decision and how you feel.

Whilst someone can give you a hot tip, factors such as your available finances and assets, as well as your lifestyle and own personal risk to reward feelings, are important to listen to when making trading decisions.

With that said, here are some of the best trading strategies to try out and what they involve doing. It could either work for you in the long run or be a good starting point to learn from.

Quantitative Investing Strategy

Referred to as quant strategies for short, or sometimes also known as systematic investing, this type of trading strategy is data driven and involves identifying stocks that have a high probability of performing better than expected by looking at a wide range of its distinctive qualities.

Though it can sound complex – involving data, mathematics, programming languages and even AI – here’s a simpler example of using the strategy…

From all the different types of data gathered, you could pick out the data that shows how many staff members a company currently has, along with how many it has historically had. You can then use this information to determine the company’s growth or identify changes, perhaps periods where the staff count went down, or when it peaked.

You can use this information to determine how well a company is doing, this data could be transferred into a graph so it’s easier to see the information. A non-moving number or graph line could be an indicator of a stagnating company that won’t be worth investing in.

Backtesting

A practice related to quant strategies is known as backtesting. This process gathers historical data and analyses it to predict whether a strategy or investment is worth doing. It can’t guarantee a positive result, as no one can predict the future, but it can definitely be a useful tool for helping investors and traders to make decisions.

News Trading Strategy

A news trading strategy involves quick decision making, as a trader will make judgments either before or after news about a particular market or company is released. As news travels fast thanks to the internet, trading decisions will need to be made immediately. A trade may have to be made before a news release, based on market expectations instead.

News trading gives you a clear entry and exit strategy, as well as regular opportunities from numerous news events throughout the day. The downside is that this type of strategy requires expert skill in understanding how news affects an investment.

End of Day Trading Strategy

An ideal way to start trading, an end of day trading strategy is suitable for most traders. It involves trading nearest to the point it is clear that a market price is going to settle or close. This is identified by comparing the price movements with those of the previous day.

As you only need to analyse morning or night, it’s much less time consuming than other strategies.

Day Trading Strategy

This is opposed to the end of day strategy, it involves actively trading during the daytime as a full time profession, taking advantage of fluctuations throughout the day. Day traders will have an organised plan but be able to quickly adapt to any changes. This is a more professional strategy.

Trend Trading Strategy

A trend trading strategy involves following trends by using technical analysis to define and pre-determine where the trend is going. Whilst it is easy to identify an existing trend, predicting one can be difficult.

However once a system has been developed for identifying trends, it is suited for people with limited time, you’ll just need to stay aware of signs that a trend is about to change or end.

Begin Your Step Into the World of Trading

These are just a few of the strategies out there to try. If you are interested in getting into trading, learning more about the strategies listed above could give you a good start. But remember, there isn’t a one size fits all trading strategy, so you’ll need to find what works for you.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.