The most popular trading strategies

Choosing a trading strategy is one of the most important decisions a trader can make. Discover five of the most popular strategies and the differences between each.

Defining your trading strategy is one of the most important decisions a trader will ever make. There are several types of trading, the main differences being the time frame and target profit margins. Some seek large profits from long-term positions, while others are content with small profits from short-term positions.

However, there are some commonalities between these investment strategies. For example, each offers the option to buy or sell, allowing you to profit from rising and falling markets.

IG offers you the opportunity to test different trading strategies across its various markets such as stocks , indices , forex , cryptos , and commodities via different investment solutions such as Turbo24 , barrier products , vanilla options and CFDs by following these steps:

The strategy of day trading

A day trading strategy involves an investor opening and closing all of their positions before the evening market closes. This avoids some of the additional risks and costs associated with holding so-called overnight positions .

Discover the best day trading strategies

A day trader may make a large number of small-value trades during the same day. This means paying close attention to market news and conducting regular analysis to be successful. A day trader will strive to make quick profits from small price movements. This means this type of investment is best suited to full-time traders who monitor the markets constantly.

Day Trading Strategy

Due to limited time frames, day traders cannot afford to take advantage of short-term movements against their positions. They must therefore quickly cut their losses to ensure they do not swallow up their profits. To mitigate the risk of losses, day traders often use stops and limits to keep potential losses within predetermined “acceptable” levels.

The strategy of position trading

Unlike day trading, position trading involves holding an asset or maintaining a position for an extended period of time, such as weeks, months, or even years. Position trading differs from the other trading strategies discussed here because it is not a day trading or short-term strategy.

As such, the position trader will not be concerned with market fluctuations and will generally not worry about short-term declines, hoping to generate gains once the market recovers.

A position trader makes far fewer trades than a day trader, but their trades tend to be larger and will be held for a longer period of time. While this increases their potential profit, it also increases their risk exposure.

Position trading

There are a number of strategies for position trading, including range, pullback, and breakout trading. Typically, a position trader will rely on fundamental and technical analysis , often using tools such as the Fibonacci retracement to identify periods of support and resistance .

The swing trading strategy

A swing trader will use a mix of technical and fundamental analysis to identify swings in an asset’s price movements. A swing high is when an asset’s price moves upward, and a swing low is when it moves downward. Unlike the two trading strategies mentioned above, swing trading has no fixed timeframe but is typically used by traders within a window ranging from two days to a week.