Every successful company has a carefully crafted and well researched business plan that serves as both a roadmap and a blueprint. Similarly successful football teams spend a lot of time and effort in developing their playbook. If you are an investor, the same purpose can be achieved by the trading strategies that you devise. Your trading strategies should contain a clear definition of your investment objectives, the kind of investments style that you are going to adopt and what kind of risk management you are going to employ based on your personal appetite for risk. This is essential to achieve your trading goals and your desired return on investment.
The most popular trading strategies divide themselves into four categories depending on the kind of investor you are. The categories are value investing, swing trading, position trading and day trading. Each category follows a distinctive approach to trading because of the difference in trading styles. You must bear in mind that none of these trading strategies are inherently better so you should decide on one that suit your personal investing style and preference. Once you have found an approach with which you are comfortable, stick with it instead of tinkering piecemeal after temporary setbacks. Remember that you should keep the dominant market emotions of fear and greed out of the reckoning and resist the temptation to switch trading strategies just because you have some losing positions.
Value investing, devised by Benjamin Graham and popularized by Warren Buffett, is essentially long-term bargain hunting. Values investing trading strategies exclude the search for quick profits or short-term bargains. Instead, these trading strategies concentrate on finding high-quality but undervalued stocks with the use of diligent research and analysis. Discipline and patience are the key factors in determining the rewards from the trading strategies that you implement.
Swing trading, which is also popularly known as momentum trading, aims to profit from the small swings in price when stocks are trending strongly. Here, your investment horizon can be counted in days or weeks and your trading strategies must be drawn up accordingly. You are looking for the right timing in your entry and exit positions and this generally depends on tools to establish these with some accuracy.
The time frame of position trading falls somewhere between value investing and swing trading. Here your trading strategies will concentrate on risk minimization and not be affected by the day to day price fluctuations. The time horizon ranges from weeks to months. The successful trading strategies concentrate on spotting trends and reversals so that you can sell on down trends and buy on up trends. Position traders refrain from trading when the market is ranging sideways.
Day trading involves buying and selling on the same day and no carry forward positions. Day trading strategies focus on large trading volumes and narrow spreads. These trading strategies need to focus on keeping track of fluctuations minute to minute as well as managing the pressure and a much higher risk. It is easy to get addicted and turn your trading activity into a form of gambling.