I bet you have noticed several ads on youtube or Instagram or any social media platform, that always go on and on about this strategy and that strategy. Well in this small article I will simplify some of the most used and well-known trading strategies out there. I will not go into detail as I will focus more on introducing these strategies to you.
Momentum Strategies
This is considered one of the more straightforward trading strategies but also one of the most effective. The idea behind this strategy is that once the stock starts to increase at a rapid pace you should hop onto the train and once it finds resistance you should hop off the train. The way you can determine that the price is increasing is by using stock indicators and statistical analysis tools. Some actually call this strategy the trend following strategy.
Mean Reversion Strategies
As its name suggests this strategy follows the mean and assumes that the market is always gravitating toward the mean and that it is ranging close to it 80% of the time. So, the way traders can determine the mean of stock would be that they first find the historic data and use it to determine the average price of a stock so that they can either sell or buy the stock based upon it returning closer to the mean.
Sentiment Based Strategies
This is considered to be a more sophisticated trading strategy since it relies on the movement of other traders in the market it can read data of any type, decipher it and come up with a conclusion. An example would be you would take Twitter data relevant to the stock that you wish to trade in, and see what other traders are going for and what direction the price is moving towards so that you can either sell or buy.
Statistical Arbitrage Strategies
The idea behind this strategy is for the algorithm to take advantage of either the misrepresentation of stock or the difference between assets such as one market may have a higher price of a stock than the other. The main idea is to use statistical and econometric techniques so that you can profit from the information that you have that has a significant impact on a stock price.
Market-Making Strategies
This strategy allows for traders to be at both ends of the market spectrum the one where the trader can be both the buyer and the seller. So the way that this strategy works is by buying up a share at a certain price and selling that share at a higher price or vice versa. By doing this you are hoping for there to be an impatient trader that is willing to buy the stock at that price so that you can make a quick profit. But the downside of this strategy is if there is no immediate buyer, then it may turn on you very rapidly.
So now that you have gotten a brief understanding of some of these strategies I hope that they will be of use to you in your trading. But before you leave let me remind you that some strategies may work for some people while others may not, so pick your strategies carefully, research and understand how it works so that you don’t make any mistakes and are profitable.
See you next time!!!!
