A trading strategy often reflects the personality and temperament of a trader. So, it is important to try and find a style and strategy that suits you.
The more it fits with your character and commitment, the more likely it is that you may be successful and trade over the long-term.
Are you someone who wants to see results quickly? Or are you more laid back and happy to wait for long-term results as the markets move around?
Tools and Timeframes
Stock markets are full of opportunities for every trader, no matter what their experience, expertise and goals.
Traders who buy and sell stocks actively will typically use derivative products like CFDs, that take their value from the underlying market. The trader will not own the shares which means they can take positions to benefit both from falling and rising prices.
Active traders will tend to focus on smaller price movements and hold positions over the short to medium term, in contrast to share investors who possibly buy and hold stocks over a long time period.
Three Common Strategies
There are many different trading strategies out there, which differ on what type of analysis to use, how long you hold positions for and how much time you want to devote to the markets.
Three stand out as the most used for stock trading. You can see if one of them matches your personality and style, and get more information by visiting FXTM to dig deeper into stock trading.*
Position Trader
Character / Lifestyle: Calm, time to research, ultra-patient
Analysis: Fundamental analysis focusing on long-term trends and themes
Duration of Trades: Long-term using weekly and monthly charts, so minor price moves are less of a concern
Attention needed: A few hours per week to study potential trade set-ups
Uses: Orders to manage risk and smaller size trades
Avoids: Highly volatile markets
Sometimes known as: Buy & Hold Strategy
Swing Trader
Character / Lifestyle: Time-pressed, organised, patient
Analysis: Technical or fundamental analysis using price action to determine entry and exit levels
Duration of Trades: Days or weeks so short to medium-term, fewer trades
Attention needed: An hour or two a day to check positions
Uses: Orders to open and close once a price is hit
Avoids: Range bound markets
Sometimes known as: Momentum Strategy
Scalp Trader
Character / Lifestyle: Decisive, excitable, wants instant results
Analysis: Technical analysis using short-term charts
Duration of Trades: Very short-term, intraday, intra-hour
Attention needed: Constant throughout the day, to enter and exit multiple trades
Uses: High volumes of orders in fast-moving trading strategy
Avoids: Illiquid markets
Sometimes known as: (a form of) Day Trading
Two golden rules to remember:
Be consistent – consistency in trading style will potentially lead to consistency in results. Changing styles too quickly can lead to poor decision making based on limited knowledge.
Always use risk management – learning how to control your losses and manage your winners using different types of orders increases your chances of long-term success (knowing that the risk of losses exists too).
If you are just starting out on your trading journey, finding a strategy that fits your lifestyle, personality and emotional make-up is a big part of your strategy.
For experienced stock traders, seeking and finding an edge to beat the market, known as ‘alpha’, is key. This will usually be done by combining one of these popular strategies with other tactics like mean reversion, relative value or event risk trading.
Visit FXTM to discover more about stock trading strategies.
*Please note that stock trading is only available under Exinity Ltd.
Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.
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