Classification of strategies based on holding period
Let us begin with the first classification, the holding period of a trading strategy.
Holding period is the amount of time you are in the trade, i.e. the time gap between a buy and sell order of a stock. Simple isn’t it.
Levels of holding period :
Long-term investments There are the investments, focused on future high growth stocks. These strategies are developed by a thorough analysis of a company’s profile, team, domain, mentors etc. More focus is on the current stability and future growth prospects of the company. Fundamental analysis and ratios play an important part in this. It has some risk that if you can identify the correct stocks with a diversified portfolio, it is good. You can look up some key fundamentals of the company like P/E ratio, Revenue growth, and profitability metrics for the company.
Medium-term investments We would classify it as just trading. Buy a stock, hold for some days and then exit. Strategies based on such holding periods are usually developed by a combination of fundamental ratios, price movement, and qualitative market sentiment. It’s a medium risk method, as market sentiment can change fast based on news and yet again, all depends on how well your approach your analysis. You can look up the current market news related to different sectors to identify the stocks.
Intraday trading It’s called intraday trading when the buy and sell orders for a particular stock are executed the same day. Strategies based on such holding periods are usually developed by using technical analysis, charting and predictive analytical models like time series analysis, neural nets, sentiment analysis etc. These are profitable when the stock has a lot of movement, either upward or downward and corresponding correct positions can be identified. It’s a high-risk high-return proposition.
High-Frequency Trading. It requires extremely good hardware and software support to identify the profit opportunities, perform calculations and generate profits in an extremely short time.
