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Stock market trading is a complex and diverse landscape. Thus, navigating it can be pretty challenging, particularly if you are an aspirant or a novice trader.
Staying afloat and profitable demands thoughtful strategies that help you set your trading trajectory and drive you closer to your financial goals.
However, amidst so many trading strategies, which one do professional traders use the most and how do those strategies impact outcomes?
While our best share trading classes in Pune cover them during the course, let’s overview them in this blog to help you learn and acquire them more seamlessly.
What are Trading Strategies?
At the outset, let’s understand what trading strategies are.
So, these are approaches traders adopt to make informed trading decisions.
They involve a step-by-step process during which traders review the situation, analyze it and decide what’s right for their financial objective.
While reviewing and analyzing a particular trading situation, traders consider understanding market volatilities, comprehending risks, a stock’s performance, etc.
Trading strategies can be short- or long-term based on a trader’s time horizon. Thus, they usually involve setting position sizing, specific entry and exit points, risk management rules and trading time frames.
Now that you’ve seen the basics of trading strategies, let’s look at some top ones that seasoned and professional traders use.
Top 5 Trading Strategies
From buy and hold to algorithmic trading, experienced traders use these strategies to trade effectively and stay profitable.
1. Buy and Hold
As the name suggests, this strategy involves buying stock and holding onto them for an extended period, no matter how much ever the market fluctuates.
Traders use this strategy based on the understanding or vision that the market usually fares upwards in the long run. Thus, they hold certain stocks for years to benefit from their potential upward movement.
As for risk, buy and hold has a low to moderate risk as it depends on the market’s long-term performance. Traders usually realize profits over years in the form of returns in terms of capital appreciation and dividends. Thus, it is suited to long-term investors who can wait and endure temporary market fluctuations.
Important Note: This strategy requires buying good quality shares of leading companies. You must avoid using this strategy while investing in small and unknown businesses. One of the keys to finding fundamentally strong companies is to conduct a comprehensive fundamental analysis of the company.
2. Swing Trading
This is another of the top trading strategies. It focuses on earning short- to medium-term gains across days to weeks. In this strategy, traders often look for stocks with a potential to undergo price swings based on market news or trends.
Swing trading involves moderate risk as traders hold positions for a period longer than day trading. The strategy can result in good returns over a short and medium time frame, based on how the market performs. Thus, traders with analytical skills and who can hold stocks for days to weeks can adopt this trading strategy.
3. Growth Investing
This strategy involves investing in companies expected to grow quicker and better than other companies. However, one must note that such companies do not pay dividends. Instead, they reinvest their earnings to expand further. Thus, experienced investors look for companies with a solid growth potential.
Growth investing carries moderate to high risk as companies might not necessarily grow as expected. However, if they do, investors stand a chance to earn high profits. Thus, this strategy is suitable if you are an investor with high risk tolerance and if you look for long-term capital appreciation.
Learn More – Career Options in Equity Market – A New Lookout
4. Futures and Options Trading
Sounds like a familiar name? It must be because it is another popular trading strategy.
Futures and options (F&O) trading involves purchasing and selling contracts that draw their value from a particular asset.
In futures, traders must buy or sell the asset at a set price on the future date. However, on the other hand, in options, traders have the right but not the obligation to purchase or sell at a set price before the contract expires.
F&O trading carries a significant amount of risk given the leverage and complicated nature of the contracts. Profits and losses can be significant, particularly with futures. Hence, you may consider entering F&O only when you have the experience and understanding it takes to deal with them.
Check Out – Future and Options Trading: Brief Detailed Guide
5. Algorithmic Trading
This trading strategy involves determining and entering a set of commands into a computer model. It is an automated process that uses time, trading volume, and price, along with complex mathematical models and formulae.
The algorithms this strategy employs quickly scans market data and places orders faster than human beings, helping traders to capitalize on tiny price differences.
However, algorithmic trading involves moderate to high risk, based on how complex the algorithm and market conditions are. Besides, the algorithm has to be effective as traders rely on it for decision-making. Therefore, traders with a programming background and profound understanding of trading strategies can adopt it.
Want to Learn More About Trading Strategies?
Join EMS, one of the best share trading classes in Pune.
Our courses also involve learning various trading strategies and practicing them. To date, thousands of aspirants have trained with us and become confident players.
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