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Trading Strategy

21.11.2020

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WHAT IS A TRADING STRATEGY. HOW TO CREATE YOUR OWN STRATEGY

A trading strategy is something without which work on the exchange is impossible. Without a trading strategy, trading turns into a game of chance for adrenaline, not profit. Therefore, the importance of a trading strategy cannot be overstated.

In this article, we have prepared reviews of some trading strategies, analyzed them on

WHAT IS A TRADING STRATEGY

Trading Strategy is a complete trader’s guide. The goal of the strategy is to provide profit on the exchange.

A trading strategy is usually based on:

  • market analysis rules (fundamental and/or technical analysis) and search for opportunities;
  • rules for entering a position with a favorable forecast;
  • position retention rules;
  • rules for exiting a position;
  • risk management;
  • rules for correcting errors

Any trading strategy must be consistent with the personality and discipline of the trader. How he analyzes the information coming from the market and assesses its nature, how he creates a forecast based on actual data. Are you inclined to hold profits and cut losses? A ready-made trading strategy is like a clear action plan that applies to both manual and automated trading.

WHAT ARE THE TRADING STRATEGIES

There are many trading strategies available.

There are universal strategies. There are specialized – separate strategies for the bond market, stocks, currency pairs, futures, indices, etc.

By position holding, time trading strategies are divided into:

  • Short term
  • mid-term
  • long-term.

In general, strategies can be divided into:

  • trend;
  • counter-trend;
  • flat (flat – flat, flat)

In any trend strategy, the assumption lies that the price has more chances to continue the directional movement – up or down – than to reverse it. The trend is the direction of price movement, taking into account which the trade is conducted. In an uptrend, deals are opened mainly in longs, in a downtrend – in shorts.

An uptrend is considered to continue as long as each new low and high of the price is higher than the previous values. In a downtrend, subsequent price lows and highs should be lower than the previous ones. The counter-trend strategy is based on the principle of corrective movements when the price reaches new lows or highs.

Unlike trending strategies, counter-trending strategies usually use more different indicators that indicate that a financial asset is overbought or oversold. After a period of movement along with the trend up or down, there comes a moment when the momentum is exhausted, the price slows down progress, and enters a correction phase. This moment is used to open a position against the main movement.

A flat strategy is used in a market where the price tends to hold within a range. In this case, there may be spikes when the price breaks through the boundaries formed by the flat but then returns to the existing range again. A flat trading strategy prescribes to open positions from the lower and upper borders of the flat with the aim of moving to the opposite border of the flat.

TRADING STRATEGY BASED ON MARKET MARGIN

There is an opinion among traders that if a stock has risen or lost 25-30% in price, then a correction phase begins. The values ​​of 25-35% are not taken from the ceiling but are set values ​​that form the boundaries of the risk parameters for margin positions. For each stock, the risk parameters may be different, but they usually lie within the specified numbers. The price going beyond the risk parameters is accompanied by forced closing of margin positions by brokers.

What is meant? Margin trading in shares implies the existence of a counterparty who lends his shares to the client in short or long. As a rule, such a party is a broker who has the right to forcefully close the client’s margin position if the price moves in the opposite direction.

In real trading, a large mass of small clients acts in sync. Let’s say they buy a stock when good news comes out. In doing so, they use leveraged trading. This creates zones where brokers will close the positions of such traders by margin call in the 25-35% region below the good news release point.

SUMMARY

Before you start using a trading strategy, you need to have facts confirming its profitability. If there are 27 million strategies in the public domain, this does not mean that they will all make money. Most likely the opposite. Because who wants to share their personal “Grail”? Therefore, finding your own strategy is a personal task for every trader.

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