1. Trend following
This approach looks for established upward or downward trends and attempts to participate while the trend continues. Reversals and sideways markets can create losses.
TRADING EDUCATION · STRATEGIES
Understand different approaches to trading.
A trading strategy provides a structured set of rules for evaluating potential opportunities, entering trades, managing risk, and deciding when to exit.
No trading strategy works in every market condition or guarantees profits. Always consider potential losses, costs, and your own financial circumstances.
THE FOUNDATIONS
What is a trading strategy?
A trading strategy is a repeatable approach that defines the conditions under which a trader considers entering and exiting a position. It may use price trends, chart patterns, market information, or other criteria.
A clearly defined strategy helps traders evaluate decisions consistently instead of reacting impulsively to every market movement.
Rules matter more than predictions
A useful strategy defines what you will do under different conditions, including when your original idea is no longer valid.
2. Breakout trading
Breakout traders watch for price moving beyond an established support, resistance, or trading range. Some breakouts fail and quickly reverse.
3. Range trading
This approach looks for opportunities within a market that repeatedly moves between areas of support and resistance. It becomes less reliable when price breaks out of the range.
4. Trading timeframes
Some traders hold positions for minutes or hours, while others hold them for days or longer. The timeframe affects trade management, costs, and the time needed to monitor positions.
5. Risk-first planning
Define the entry conditions, planned exit, position size, and potential loss before placing a trade. A strategy should account for costs and unexpected price movements.
How to evaluate a strategy
Before risking real money, write down the strategy's rules and decide how you will measure its results. Historical examples can help you understand how it behaved in the past, but they cannot guarantee future performance.
- Define clear entry and exit conditions.
- Specify position sizing and risk limits.
- Consider transaction fees and slippage.
- Test consistently using historical data or a simulator.
- Review losing trades as well as winning trades.
- Avoid assuming that a short run of success will continue.
Past results are not a promise
A strategy that performed well historically may perform poorly in different market conditions. Testing also has limitations and can overstate expected performance.
Build your foundation
Understand how markets work and learn to manage risk before exploring strategies in greater depth.
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