Are you overwhelmed by the sheer amount of strategies you can focus on as a trader? Don’t know whether to day trade, swing trade or be a long-term investor?
You have to find the right strategy that works for you. It can mean the difference between success and failure.
But where to start? How to choose?
To help you find your best fit, take in this list of 11 trading strategies, their benefits and pitfalls, and some scanning tips and tricks to help you find your best fit.
Table of Contents
- 1 What Are Trading Strategies?
- 2 11 Trading Strategies to Use With a Stock Scan
- 3 Short-Term Stock Investment Strategies
- 4 Longer-Term and Tactical Trading and Investing Strategies
- 5 Derivatives and Algorithmic Trading Strategies
- 6 Key Tips for Your Trading Strategies
- 7 Conclusion
- 8 One Platform. One System. Every Tool
What Are Trading Strategies?
Before we dive into the nitty-gritty, let’s detail what exactly a trading strategy is …
In short, a trading strategy is a well-thought-out plan for making trading decisions.
A good trading strategy includes rules you’ll follow when you trade:
- What you need to see before you enter a trade
- Where you’ll exit, how much you’ll risk
- Where you’ll place your stop loss
Trading strategies can come in a variety of shapes, sizes, and colors. Some are so insanely simple a 6-year-old could follow them.
Other strategies are mired in complexity, requiring cutting-edge computing and a team of PhDs.
Here’s a nifty pro tip: Many of the best traders use pretty simple strategies. Try not to overcomplicate it!
Benefits of Selecting the Right Trading Strategy
Selecting the right trading strategy is one of the most important steps you’ll take as a fledgling trader.
No doubt you’ll probably flit around between different strategies in your trading study, looking for the right fit.
That’s generally a smart move … you don’t know what works until you try it.
But remember that the goal is to eventually master a certain strategy. So when you find something that shows promise and suits you, focus on it. Refine it.
And don’t throw it away just over a few bad trades. Some things take time.
That said, check out a few of the major benefits of choosing the right strategy:
- Profitability. Different strategies work better in different environments. Trading breakouts can be advantageous when a lot of stocks are making breakouts …
But when the market’s quiet, you may be better off trading for quick scalps and swing trades. Your trading success can often be correlated with picking the right strategy for the right market environment.
- Peace of mind. As traders, we all have different psychological makeup and risk tolerances. Some of us can’t sleep at night if we have a position on, so we might focus on day trading.
Others might hate the frenzied pace of day trading and feel perfectly calm holding positions for weeks. Trading shouldn’t mean dying of stress. You should enjoy your life — pick a strategy that fits your mindset.
- Lifestyle. Different lifestyles mean different strategies. Day trading often means sitting in front of the screen all day watching for opportunities.
Longer-term trading often means you won’t be in front of the screens as much. It’s generally much more accessible if you work a 9-to-5 job. When you’re picking your strategy, keep your preferred lifestyle in mind.
11 Trading Strategies to Use With a Stock Scan
OK, so we’ve covered how important it is to pick the right strategy. We’ll get into scanning for trades in a sec, but first, let’s take a deep dive into different strategies and the types of traders they’re best suited for.
Here’s a taste of what’s possible … feast your eyes on this list of trading strategies:
Intraday Trading Strategies
#1 Day Trading Strategy
Day trading is opening a trade before closing it later in the day, looking to make a profit.
Day trading can allow you to take advantage of price movements during the trading session, often caused by news or company announcements.
You can often find more trades than if using longer-term strategies.
There’s a downside to day trading: You won’t be able to participate in larger, longer-term moves of stock prices since you have to close your position by the end of the day.
You can also rack up a lot of commissions, and you’ll need to be prepared for the often-hectic pace of the trading day.
Longing strong stocks, shorting weak ones, trading news catalysts — there are many day trading strategies that work … others, not so much ( here are a few interesting ones.). How can you tell the difference?
Use your scanner to find the stocks you want to focus on when the market opens …
We can’t stress this enough: Preparation is key in day trading.
Proper preparation can help you sort names between your watchlist and dud list. If you aren’t scanning every day, you need to be.
If you’re looking for fast-paced stock trading strategies, scalping might be right up your alley.
In the most basic terms, scalping is ultra-short-term day trading. Think of looking to quickly make 1 cent to 10 cents or so per share.
Scalping moves at a rapid pace — you need to be fully focused and use short-term charts and Level 2 quotes.
With scalping, little profits can add up over a trading session … but be aware, you’re also paying commissions for each little trade too. And those can add up. Make sure you don’t use an expensive broker for scalping trades!
Short-Term Stock Investment Strategies
#3 Swing Trading
Swing trading is a step up from day trading. A swing trader can hold positions anywhere from a day to a few weeks.
As a swing trader, you can take advantage of overnight moves — which can potentially be substantial.
The flipside of that is the overnight risk …
Sometimes stocks gap down as the market’s closed. That can often mean having to use a larger stop loss and taking a smaller position size than if you were day trading.
Swing trading is generally a little less intense in terms of your time and can mean less screen time. If you want to trade and keep your day job, swing trading may be a good option for you.
#4 Position Trading
Next up, we have position trading. A position trader can hold stocks longer — anywhere from weeks to two years or so.
A position trader seeks to take advantage of major price moves in a stock. In an environment where many stocks are making huge moves, holding on longer term can be beneficial.
But if the markets are sloshing around in trading ranges, longer-term positions can be frustrating.
Position trading is one of the strategies that can be a good fit for people who don’t have a lot of time to dedicate to the markets. You can select your trades, set your stop losses, and check in every few days or weeks.
Longer-Term and Tactical Trading and Investing Strategies
#5 Breakout and Reversal Trading Strategies
Let’s discuss two trading styles that aren’t as dependant on holding periods — they’re more about the market environment.
First, let’s look at trading breakouts. This is where a trader looks to profit from a stock when it bursts through a previous key resistance level.
Imagine a stock that’s never traded above $100 suddenly rockets up to $101 on heavy volume.
Breakout traders often want to grab the stock because they think the market is indicating it wants to go higher since it broke a key resistance level.
Key point: The breakout strategy is aimed for markets that are trending with lots of stocks making big moves.
Now, let’s look at reversal trades. These are trades that can profit from a stock’s change in trend.
For example: Maybe a stock had a massive run-up but ran out of steam, and people are starting to doubt the company’s future. That can lead to a trend reversal, with the stock plummeting down, and reversal traders hoping to profit on the decline.
#6 Momentum Trading (Trend Following)
Momentum trading, in a nutshell, is buying what’s going up and selling what’s going down.
The momentum trader holds stocks making strong upward moves — then closes out positions as they run out of steam.
When the market is making strong moves without deep pullbacks, this strategy can have its perks. But what happens when the market doesn’t make those big moves and instead trades in a range or just heads downward?
The momentum trader will often have their stop losses hit over and over again — possibly seeing painful draws on their capital.
#7 Long-Term Investments
Investing means holding an asset for anywhere between a year to a lifetime. Here, you’re looking for the asset to rise in price and as well as potential dividends.
For these positions, think research: The company’s fundamentals, the viability of the business, balance sheets, earnings reports.
Investing is a popular way in which many people aim to grow their capital over time. But it doesn’t offer the same benefits that a shorter-term trading strategy potentially can, like, for example, quickly scaling capital through consistent winning trades.
Derivatives and Algorithmic Trading Strategies
#8 Options Trading Strategy
Options are somewhat complex. They’re contracts that give you the right to buy or sell a security at a certain price, until a certain date.
For example, you may buy a call options contract that allows you to buy 100 shares of Microsoft for $150 anytime until the contract expires. For this privilege, you pay a fee (called a premium) to the option contract seller.
As an options trader, you can be either a buyer or seller of the contracts — depending on what your brokerage account allows.
Options trading can get wildly complex, and many strategies aren’t suited to newbies. But there are a few option trading strategies for beginners.
For example, let’s say a trader is bullish on XYZ stock. They can buy the stock outright or they can purchase a call option, which would allow the trader to purchase the stock around the current price if XYZ increases in price.
#9 Commodity Trading Strategy
Commodities are raw materials like soybeans, copper, gold, and crude oil.
The typical way to speculate on the price of commodities is to buy or sell futures contracts on a futures exchange, similar to trading stocks.
The price of most commodities varies substantially year to year. That can depend on a number of factors: supply and demand, the global economy, and the weather, to name a few.
There’s no best commodity trading strategy. In fact, many strategies used with stocks can also be used when trading commodities. You can trade breakouts, reversals, hold long term, and even day trade.
#10 Forex Swing Trading Strategy
Another asset class that you can trade: currencies, also known as the foreign exchange (forex) market.
Trading forex involves speculating on the price difference between two currencies — for example, the British pound against the Japanese yen (GBPJPY).
The forex market trades 24 hours a day, five days a week, and trading follows the sun around the globe, from Asia to Europe to the U.S.
Due to the 24-hour nature of forex, swing trading is common for currencies. Traders may hold currency positions for days, hoping to profit from global macro waves of price movement.
If you’re new to trading, consider trading stocks rather than forex. Why? In the forex market, you’re competing with major players — hedge funds, investment banks, and even central banks.
In the stock market, your competition can be easier, like unsophisticated retail traders and lazy mutual funds. Which would you rather be up against?
#11 Algorithmic Trading Strategies
Now for our final strategy, algorithmic trading or automated trading.
Automated trading means you program your strategy into your computer, preferably running statistical backtests. Then you let your computer make the trading decisions for you.
Is this the greatest strategy — programming a computer to do all the work for you?!
A lot of beginners get sucked into this. But the reality is that you can get stuck with a system that works in only ONE market environment. It won’t evolve as the markets change.
Some algorithmic strategies are awesome. Others are worthless. One thing’s for sure: If you go the automated trading route, you need to be tech-savvy.
Key Tips for Your Trading Strategies
Now that you’ve made it through our list of 11 trading strategies for beginners (and everyone else), what’s next?
No matter what strategy you use, here are some fundamental principles to help guide your trading. Take a few minutes to review them now.
Liquidity and Volatility
If you’re reading this blog, you’re probably active in the market (or want to be).
Active traders need two key things: liquidity and volatility.
That means they need people ready to buy and sell at all times. And they need stocks that move up or down in price, allowing them to make a profit.
Our advice: Only bother with stocks that have enough trading volume to allow you to enter and exit the stock without knocking the price around.
Next, look for volatility. Watch for stocks moving up or down due to market excitement about the company.
There’s no point sitting in a position for days, weeks, or months while the stock price barely moves. In that time, you could be making trades in the big movers. Go where the action is!
Stock Chart Patterns and Technical Indicators
Many of the most successful traders make buying and selling decisions based on technical analysis. They read the psychology of the market using chart patterns and technical indicators.
Think of chart patterns as the footprints of the market herd. They can alert you to stocks that are ready to move, key levels a share will be bought and sold at, and where to intelligently place your stop loss.
Technical indicators are a way to further filter your trades, examining things like momentum and volatility in greater detail.
To help find hot stocks on the move, watch for news catalysts.
A news catalyst can be almost anything: news stories, SEC filings, rumblings on Twitter or online forums. It’s anything that excites the market and makes traders want to buy or sell the stock, pushing the price up or down.
Make it a habit to read through any potential news catalysts every day before the market opens. It’s one more way to help find stocks for your watchlist.
The StocksToTrade platform allows you to scan for news stories in real time and view the SEC filings for your favorite stocks. Try the 14-day trial for just $7, and you’ll be thrilled by how efficiently this process works when you use a great platform.
Use a Stock Scanner
Once you’ve learned how to scan stocks for day trading, get yourself a stock scanner.
With a scanner, you set the criteria before scanning thousands of stocks. In short, you make the computer do the boring work for you. Once you try it, you’ll probably refuse to do it the old way ever again.
Before we built StocksToTrade, our daily scanning meant tedious work, clicking between clunky websites and desktop apps, trying to find the best stock trades for the day.
With StocksToTrade, you’re covered for all your stock trading needs. It’s the one-stop shop for serious stock traders. You get …
- Elegant, top-of-the-line charting capabilities:
- A massive library of technical indicators
- The ability to scan for SEC filings and news stories in real time
- Access to just about every stock traded in the U.S., including the pink sheets and OTC markets
- And more prime features that help make the boring and monotonous parts of trading seem nearly instant and effortless.
Once you check out the StocksToTrade trial, you’ll quickly learn why so many traders refuse to start their trading days without it.
With so many different trading strategies, which should you choose? That’s entirely up to you. No two traders are alike, so everyone has their own go-to strategies.
If you don’t yet have your own set strategy yet, that’s OK. Read through this list a few times, think about your ideal trading situations and setups, then test some strategies to find out what best suits you (remember, it needs to fit your lifestyle too).
Not comfortable using your trading account to fund your strategy tests? No problem. This is a perfect time to paper trade. This simulated trading environment gives you the opportunity to watch the markets and see how your trades would theoretically perform in real time, without having to risk a cent of your capital.
Whichever strategy you pick, keep it simple and test it thoroughly. Then, when you’re officially ready to dive in, make sure to use high-level tools like StocksToTrade to help you make the process as seamless as possible.
Do you have a favorite strategy? What works best for you? Share your comments … we want to hear from you!