Trading strategy

A robust trading strategy is the cornerstone of successful trading. That’s why we’ve compiled this guide to help you understand different approaches to trading and build a solid strategy of your own – one that suits your personality, goals and risk appetite. You’ll also learn how to test and refine your trading strategy to adapt to changing market conditions.

What is a trading strategy?

A trading strategy is a plan or set of rules that a trader follows when buying or selling financial products. Your strategy is there to help you make well informed trading decisions calmly and dispassionately, drawing on financial data, technical indicators and your research skills, rather than being guided by gut instinct or emotions.

A good trading strategy takes various factors into account, including:

Market conditions
Risks, and your risk appetite
Your personal trading goals

Why use a trading strategy?

Consistency

Maintain a disciplined, consistent approach to your trading decisions.

Emotional control

Minimize the role that emotions play in trading.

Clear goals

Develop a basis on which you can decide when to enter and exit the market.

Risk management

Decide in advance how much money you're willing to risk on each trade.

Efficiency

Save time by following a clear plan.

Adaptability

Tweak your strategy to adapt to evolving market conditions.

Seven best trading strategies

Here we look at some of the main trading strategies, most of which involve short-term timeframes. Traders often adapt one or more of these approaches to suit their needs and circumstances, developing them into a personalized plan or trading style.

The strategies outlined below carry risks as markets can quickly change direction, leading to potential losses. To help manage these risks, traders often add take-profit orders and stop-loss orders to their trades.

Finding the right strategy for you

Trading strategies are highly subjective. You may not hit upon the ideal strategy right away, so it’s worth experimenting with different approaches until you find a strategy – or a blend of strategies – that’s right for you.

You can test out different trading strategies by opening a free demo account with us. Your demo account comes with $10,000 in virtual funds, allowing you to practice implementing different trading strategies in a risk-free setting.

It's important to remember that the best traders are adaptable and can modify their trading strategy to suit the market conditions and the available opportunities. Therefore, it’s a good idea to learn about various trading strategies and to try combining them in different ways.

When developing your trading strategy, keep the following points in mind:

All traders make losing trades, so don’t become disheartened if you incur losses. Start small, and don’t put up more than you can afford to lose.
Patience is vital. Open a demo account with us and take the time to learn how to apply different trading strategies.
Formulate a trading plan and keep track of your profits and losses. Doing so will help you maintain consistency and discipline in your trading.

Hedging

Hedging is a risk-management plan that aims to offset potential losses in one position by opening an opposite position in a related asset.

Price-action trading

Price-action traders attempt to read the market and make trading decisions based on recent price movements, rather than relying on technical indicators.

Backtesting

Backtesting uses historical data to examine how well a hypothetical trading strategy or model would have performed. Although past performance doesn't guarantee future results, robust backtesting can help traders formulate their trading strategy.