Knowledge base

What is a Trading Strategy?

A trading strategy is a pre-established set of rules by which a trader executes trades and manages their capital. The main goal of any trading strategy is to make a profit.

What is a Trading Strategy for?

A trading strategy is a clear action plan in the market. Having it allows for a systematic approach to trading and makes it more effective.

If you make trades following a specific tactic, it significantly minimizes the influence of emotions on your trading, which often leads to significant losses.

Furthermore, a trading strategy significantly saves the trader’s time. When you have a ready algorithm, decisions are always made much faster and easier.

What Does a Trading Strategy Include?

Any trading strategy is built on several important aspects:

  • – Conditions for opening a trade;
  • – Rules for limiting losses;
  • – Market analysis rules;
  • – Criteria for holding a trade;
  • – Signals for exiting a position;
  • – Ways to increase profit on a trade;
  • – Capital management methods.

A trading strategy can also involve trading on a specific working timeframe and even during certain market hours.

What Types of Trading Strategies Exist?

Today, there are more than 20 million trading strategies in the world. At first glance, they seem very different, but in reality, many have similar features. All tactics are classified according to 4 main parameters:

1) By the duration of holding a position in the market

Depending on how long a trade lasts, the following types of strategies are distinguished:

  • – Ultra-short-term;
  • – Short-term;
  • – Medium-term;
  • – Long-term.

2) By risk profile

Here, the main criterion is the level of risk acceptable to the trader. Considering this indicator, 3 main types of strategies are distinguished:

  • – Conservative (minimal risk);
  • – Aggressive (increased risk);
  • – Moderate (balanced risk).

3) By market analysis method

The basis of any trading strategy is market analysis. Depending on the method of research and forecasting price movement, 3 types of strategies are distinguished:

  • – Trend-based;
  • – Counter-trend;
  • – Flat market.

4) By the method of entering the market

Considering the fact that trading can be conducted by the trader themselves or by a robot, 3 groups of strategies are distinguished:

  • – Manual;
  • – Semi-automatic;
  • – Automatic.