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5 Most Common Trading Strategies You Need to Know

5 Most Common Trading Strategies You Need to Know

There are a plethora of existing trading strategies. Some of them function flawlessly, while others perform mediocrely. Today, we’ll take a closer look at five popular strategies that you should be aware of and consider implementing. There’s a good chance you’ll find a strategy that suits your trading style.

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The 5 Most Common Trading Strategies You Should Know

Momentum Trading

The momentum strategy is simple to understand (but not always simple to implement): when using it, traders wait for the asset to exhibit rapid movement before opening the trade. Because you can open both long and short positions, the move can go either way. Both technical and fundamental factors can cause massive price movements and should thus be closely monitored by the trader.

Earnings reports and major news are the types of events to look for in the case of publicly traded companies, as both have the potential to significantly change stock prices. Technical factors are equally important in the case of currencies and cryptocurrencies. Strong upward and downward trends can begin with no underlying cause.

You may want to use stop-loss orders to protect yourself from large losses. If the price moves in the opposite direction, the deal will automatically close, allowing you to better manage your risks.

Scalping Strategy

Several minor wins can be just as valuable as a major win. When using this strategy, traders set buy and sell thresholds before opening the deal and then watch the asset’s price move in the desired direction.

Deals can be as short as a few seconds when using the scalping strategy. Scalpers must be prepared to act quickly and make critical financial decisions in an instant. It is worth noting that fundamental analysis has no place in scalping due to the extremely short timeframes.

Pullback Trading Strategy

Pullback traders typically do the following: they locate an asset (a company stock or an ETF) with an established positive trend and wait for it to move in the opposite direction. It is important to note that this should be a temporary retracement rather than an emerging negative trend. When the retracement is about to end and the price action is expected to rise again, you might consider opening a long position. The same can be said for a downward trend.

You could wait for a downward trend to show limited upward movement (again, not a full-fledged trend) before opening a short position when the price is at its local maximum.

Breakout Trading

Do you recall the levels of support and resistance? This strategy aims to make good use of them. When an asset price reaches a certain level that it is unable to overcome (referred to as resistance), it will typically retrace back and trade at lower levels. However, many technical analysts believe that if the asset price rises above the resistance level, it will continue to rise. It is important to note that the price action can freely move above and below the resistance level at times, so this strategy will not work.

News Trading

For those interested in fundamental analysis, news trading is probably the most promising strategy. We are all aware that major news and events are critical in the trading world. A major economic/political event can move almost any asset, whether it is a national currency, a cryptocurrency, a stock, or a commodity. When there is good news, the asset price rises; when there is bad news, the asset price falls. What’s the big deal about news trading if everything is that simple? It is difficult to predict the news before it hits the market and to make an accurate forecast. Sometimes markets act irrationally, and overall positive news causes a price drop. As a result, you must be prepared.

There are a few things to keep in mind regardless of the strategy you choose.

There is no such thing as a fail-safe strategy; all of them will produce negative results from time to time. Consider experimenting with different strategies until you find one that works for you and master it. Several losses in a row do not imply that the strategy is ineffective. It’s likely that you’ve been on a losing streak. You reduce your chances of success by constantly switching between strategies. At the same time, don’t be afraid to abandon a strategy if it no longer works for you.

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