5 popular online trading strategies
|1. End-of-day trading|
|2. Swing trading|
|3. Position trading|
|4. News trading|
|5. Day trading|
When it comes to online trading, the most important thing to keep in mind is that there is no one best approach. Those who try to tell you otherwise are way off the mark — different types of investors need different kinds of plans.
The level of risk you're willing to take should be your first priority when deciding on a plan. No matter what you're putting your money into, there's always some degree of risk involved, and the key to making money in the market is knowing how to mitigate that risk. After that, it’s about your goals and what strategy could help you get there most effectively.
Wondering where to start? Here are breakdowns of five popular and diverse online trading strategies for you to start building your knowledge on the subject.
1. End-of-day trading
Trading heavily in the final half an hour of the market day is what's known as a "market closing" strategy or "end-of-day trading" strategy. During that time, if an asset's price hits a certain threshold, an investor would make a buy or a sell order through their broker. Most exchanges see high trade volumes in the last hours of a trading session, and markets often experience a great deal of price movement.
Those just starting out can definitely benefit from this tactic, as it allows them to make a choice based on a relatively quick analysis of market charts before the end of the trading day. Another reason is that liquidity risk is typically not an issue, which sets the scene for a good beginner’s starting point. And because the trade is often closed the next day, this strategy requires less time commitment than others. One thing to keep in mind is that there is always the chance of overnight risk, which is generally avoidable with a stop-loss order; however, those can be difficult to implement, so beginners beware!
2. Swing trading
Swing trading methods often aren't biased in any one direction because traders are open to playing both the long and short sides of the market, but they do require a higher skill level. Knowing how the market will fluctuate is crucial to the success of swing traders; in Lehman's terms, traders using this strategy will have to be skilled enough to forecast when to buy an asset, if they think its price will go up, and when to sell it if they think its price will go down.
To learn how to trade on both the buy and sell sides of a market, traders study a wide range of market indicators and patterns. Often, swing traders will lean on technical analysis tools, like charts and oscillators, to spot and capitalize on favorable market conditions.
A significant amount of experience and knowledge is usually needed here because traders will have to understand how the market reacts to different elements, including changes in supply and demand. That’s not to say it can’t be picked up over time, though. Once you know the data and charts to watch, you can practice the swing trading strategy and start bulking up your skills.
3. Position trading
When engaging in position trading, the goal is to maintain ownership of an asset long after other market participants have sold their stakes. So, if an investor is leaning toward this strategy, it’s likely because they have a long-term outlook on trading. That’s because it's a strategy that looks at the big picture, predicting that the market value will go up no matter what happens in the short term.
Naturally, people who are just interested in short-term gains shouldn't use a position trading strategy. This is a plan that calls for some legwork at first, but when the research is done and investment made, it allows for a more passive trading style – investors can usually sit back while their investment grows over months or even years. Bear in mind, though, that there is no certainty that the market will continue to grow and that using this strategy might result in more broker commission fees.
4. News trading
A news-based trading strategy takes quick analysis, but it's usually deemed a safe way to trade stocks with momentum. Traders that use this strategy concentrate on stocks with a history of reacting quickly to breaking news. In this context, "news" might refer to anything from a shift in interest rates to a major corporation's annual financial report. How you expect the market will respond to news will determine your trading decision. So, before or after the release of news, you may use this information to decide how to allocate your portfolio.
The news's impact on the price of an asset is hugely important, of course, and that calls for educated analysis and judgment. After all, speculating that an asset's price would grow is useless if it has already adjusted to the news. Now, the upside to this strategy is that it finds precise entry and exit points for trading, allowing for quick accumulation of potential gains. The downside, however, is that news can be unpredictable, and traders using this strategy can be exposed to overnight risk when holding onto positions.
One way to ease yourself into this trading strategy is to mark your calendar with the dates on which significant announcements are expected to be released.
5. Day trading
Day trading is buying and selling between the market's opening and closing times — it's a professional trading method that demands diligent daily effort. You'll likely occupy a variety of positions during the day, but none of them should be open when the clock runs out for the day. This protects your capital from the possible losses related to overnight market fluctuations.
The strategy is pretty versatile and can be applied to a wide variety of markets, from commodities to currencies and beyond. But if you choose to day trade internationally, stay aware of how transactions all around the world might influence your own trades. Just remember that this type of trading takes discipline and control, so it can be helpful to establish entry and exit limits from the get-go.
The bottom line
So, now that you’ve got an idea of different online trading strategies, the next step would be to figure out what kind of strategy suits you best. To do that, decide what sort of returns you need from your investments. Choosing a plan that is designed for potential quick short-term gains is very different from opting for a strategy that tries to power through market swings over an extended time frame. And don't forget to consider the risk levels you're comfortable with!