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Different trading strategies that you can use when trading on the stock market

With the development of technology and communication capabilities, we can argue that the number of people interested in financial markets is increasing. To be able to say this, we may not even need to refer to statistics. If you dare to be a little confident and open up a topic like "What do you think about the market" at your workplace, in your neighbourhood, at an event or in any environment, you can hear that almost everyone has an opinion on this topic with almost everyone having invested in some products at one time or another.

To make a stock investment today, it is enough to open an online account with an authorized brokerage house from the comfort of your seat. There are various trading strategies used by investors who trade currencies, gold, stocks or CFD products. In the stock markets, to which millions flock every day, some investors are interested in methods that they hope will yield high profits in the medium and long term, while others resort to more short-term trading strategies and try to make profits in shorter intervals.

  • Short-term transactions are positions that are opened and closed out on the same day or within a maximum of a few weeks.
  • Medium-term buying and selling takes place over a period that can last from a few weeks to several months.
  • Finally, long-term trading means holding onto securities for months or even years.

Each trading method has its own advantages. The ability of the chosen trading strategy to produce positive results depends on the investor's inclinations, return and risk expectations, as well as the performance of the strategy within a specific time-period. In this article, we will examine some of the most commonly used trading strategies by traders in the stock markets to help you make more accurate investment decisions and profit from your activities.

The presence of a large number of investors trading in the markets leads to the formation of some predictable patterns of behaviour in the price movements of financial assets. In fact, this is the heart of technical analysis. Investors, especially those who use active trading strategies, base their strategies around opening and closing their positions at the right time, if they can interpret the behaviour of price movements correctly.

Since active trading aims to make profits from the short-term price movements of a stock or financial instrument, the analogy of a "market beating strategy" can be drawn. Active traders often resort to technical analysis methods to enter and exit a position at the right time. In addition, active investors need to spend a lot of time on following daily stock market trends and news tracking. Traders use trading strategies that they believe work best for them. Especially if you are an investor with little experience in the markets, it is helpful to know the differences between these strategies.

 

Day Trading

 

Day trading involves as the name suggests trading on a daily basis. It is one of the most commonly used and also one of the riskiest trading strategies on the stock market, as it offers a high chance of earnings in the short term. Day Trading is a method whereby you try to make a profit by buying and selling stocks watching closely the price movements of financial assets during the day.

What distinguishes day trading from other short-term investment strategies is that the opened positions are closed on the same day. A day trader does not carry over his position to the next day. He accepts his profit or loss and closes his transactions at the end of the day.

If you are a beginner, day trading may not be for you. Especially if you are interested in some risky financial investment products with high volatility, it is recommended to stay away from leveraged transactions and do day trading after you have gained enough experience to absorb unpredictable price movements in the markets.

 

Position Trading

 

Position trading, a medium-term trading strategy, is a method that focuses on trend analysis by ignoring daily price movements. For this reason, some analysts do not consider this method an active investment strategy.

Position traders who use the position trading strategy make extensive use of technical analysis to determine their entry and exit points. This method attempts to predict the direction of the trend rather than the price, so that profits can be made from both the upward and downward movements of the market. Traders who choose this strategy generally prefer to enter a position after the trends become clear and exit, after the trend breaks.

Studying the price movements of the financial asset in the past period, tracking the trading volumes and analysing values such as MACD, RSI, moving average are be crucial for successful position trading.

 

Swing Trading

 

According to many analysts and investors, swing trading is considered the most difficult trading strategy to implement. Swing trading can be positioned between day trading and position trading and can be considered as a medium-term trading strategy. As the name suggests, it is a trading strategy based on accurately predicting market trends during periods of high volatility when markets swing like a seesaw.

When a trend fizzles out or when a new trend emerges, the price movements of investment products follow a more volatile course. This is usually where investors (swing traders) come in, using the swing trading strategy. This is because high volatility is their best friend. The more volatile the price of an investment product is, the more you can earn if you can predict its direction correctly.

Investors who want to use the swing trading strategy do not like market conditions where prices are calm or move in a certain direction. These traders must give great importance to both fundamental and technical analysis.

 

Scalping

 

Scalping can be called the fastest active trading strategy. In that respect, it can be considered as a subcategory of the day trading strategy. It is based on exploiting the gaps (bid price - ask price) between the buying and selling prices of the scalped investment product.

Shortly after buying a security, the purchase price + spread is calculated to enable selling at a higher point and making a profit. Since scalping is a very short and even instant trading strategy, the risk is extremely low and so is the amount of profit per trade. Scalping processes are usually completed within a few minutes or at most a few hours.

Scalpers who follow the scalping strategy do not wait for a trend to appear or break. We cannot even say that they make extensive use of fundamental and technical analysis methods.

Scalpers stay away from large volume trades and large price movements. However, they prefer high- liquidity markets and investment products, so they can open and close a large number of small positions. Some of these may result in losses, but the most important thing is to close out the day profitably.

The investment product and the brokerage platform for trading are equally important for scalpers. Due to its nature, scalping does not go hand in hand with high spread and commission rates. The lower the spread and brokerage commission rates, the better it is for scalpers.