What types of trading strategies do exist
A trading strategy is a set of conditions under which a trader can open a Buy or Sell deal. It can be a rigidly fixed list of rules, or a standard algorithm, the interpretation of which falls entirely on the shoulders of the trader. There are several types of trading strategies. We will talk about them further.
Types of trading strategies by the time of transaction existence
Every deal has its life cycle. Some have a few minutes or hours and close by the end of the trading day. Others are held for several days and weeks. Depending on the lifetime of the deals, trading strategies are divided into three types: short, medium and long term.
Short-term traders open from a few deals to several dozens of transactions in 1-2 days. If orders are closed on the same business day on which they were opened, these strategies are called intraday strategies. If a trader opens a large number of deals during one day, which is closed with a minimum profit (2-5 pips) after a short time (2-5 minutes), such trading systems are called scalping. All of them refer to short-term strategies because they have the main distinctive feature - a short cycle of deals.
The period of holding an open position in medium-term strategies varies between 2-5 days. Usually, they are closed within one trading week (maximum one and a half). It is the most common type of trading strategies.
Long-term trading systems are characterized by a long life cycle of one order. It can exist for several weeks to several months. Long-term traders open a few deals, but they earn as much as those who use short- and medium-term trading strategies.
Types of trading strategies depending on the trading method
This classification contains many more options than the previous one.
Trend and counter-trend strategies
Trend trading strategies imply opening of deals in the direction of the primary trend after the correction is completed. It is the most profitable type of trade, provided that the trend is determined correctly, and the entry point is correctly selected.
It is necessary to predict when the main movement will end, and the pair correction will be to enter the market with a counter-trend strategy. It is much more difficult to trade against a trend than in its direction, because the correction is always shorter than the trend movement, and it is harder to determine it.
Trading off and on a break-down
In trading, these trading strategies are used together with support and resistance levels and trend lines. Breakout trading involves entering the market in the direction of a price breaking through a level or slanting trend line. Breakout trading is used inside a flat or sloping channel when the price is in a range and moves from one border to another.
Trading strategies based on patterns
In candlestick trading strategies, the primary condition for entering the market is the presence of a candlestick pattern - a pattern (candlesticks or a combination of candlesticks that meet specific rules). Such trading systems include the Price Action methodology. To open a deal using it, you should wait for one particular combination of candlesticks, as in the example below.
The "External Bar" pattern has been formed in the market. You can open a sell deal after breaking through its minimum.
Graphical trading strategies
By graphical trading strategies, we mean trading systems that use graphical constructions. These include trading systems based on trend lines and geometric shapes such as the Triangle, Head and Shoulders, Flag, Pennant, etc.
Strategies for trading with and without indicators
Trading strategies with indicators are based on mathematical calculations, which are displayed on a currency pair chart as numbers, lines and charts. Trading systems without the use of indicators imply the analysis of the net price chart without any third-party tools.
Trading from levels
This type of trading strategies uses different kinds of levels - Fibonacci, Murray, Pivots, horizontal support and resistance levels. The principle of trading is to open deals from some strong levels to others.
There are many different types of trading strategies, and one trading system may have signs of various kinds. For example, there are short-term indicator trading strategies or medium-term graphical trading systems to break out of (break out) the trend.
It is necessary to choose a suitable strategy based on your knowledge, experience and psychological preparation. Some people are comfortable to trade during the day; others prefer to run long distances. Some successfully profit from trading on indicators, while others do not use them at all. Choose a suitable algorithm and test it in practice.