It is no secret that many outsiders and even novice traders see trading on exchanges as something akin to magic. But it is pointless to get overly excited or scared of what the charts and graphs speak of. In fact, everything traders do on the market is done on the basis of various strategies. Of course, some strategies are more profitable than others.
Strategies are all the same or not?
The profitability of some trading strategies is a story as old as time itself. Ever since the dawn of man, profitability has been the driving factor leading traders overseas in search of markets. Everything they did involved risk and that risk was either justified with higher profits or meant ruin or death during the journey. Sending caravans laden with spice and rare woods to distant lands was also a trading strategy, because the rarity of the goods in those lands meant their prices were higher than domestic prices. The strategy was risky, but it worked as countless caravans crisscrossed the globe for centuries.
Trading strategies on financial markets do not differ that much, because they carry the same risk of ruin. It is impossible to judge strategies, since their profitability is a subjective matter and is also subject to various market conditions. Nonetheless, every strategy bears its own nuances. It is these peculiarities of every strategy and the masterful wielding of the underlying instruments by the trader that will determine the profitability of any approach.
Make your move!
The first strategy is called Carry Trade. This is a type of strategy that entails a borrowing money at a low interest rate. The money is then used as investment in an asset. The asset itself can be anything, but the idea is that it should provide returns in the long run. The Forex market is rife with such approaches, as currencies are usually stable and do not carry the risks that are inherent to commodities. Tangible assets need to be stored and entail other risks, thus making them less popular as investment assets for carry trade.
Another strategy that is very common on the market is called Day Trading. Under this strategy, traders open their positions when the market opens and close them at the end of the trading day. The point of the strategy is that by doing everything during the day, the trader avoids the uncertainties of price movements that happen overnight. By resorting to quick profits from small price movements, the traders rely on their constant tuning to the market news background.
The next strategy is called Position Trading. This is simply maintaining trading positions for a very long period of time. By relying on technical analysis, the traders engaged in this type of trade will ignore small market movements and maintain positions sometimes for years on end. In general, this type of strategy is called playing it safe and is popular with traders who are both cautions and seek higher profits in total.
Trend Trading is another extremely popular type of strategy that is often employed by traders who rely on technical analysis and automated bots. The strategy relies on strict entry and exit points for trade depending on market price and trend movements. By relying on upward and downward market movements, the traders open and close positions very quickly and can make up to hundreds of trades a day.
Last but not least is Scalping, which is a form of position trading, but on the opposite term. Scalping involves opening and closing positions very quickly and these can last from minutes to seconds. Volatility is the key to scalping as it determines the price movements of assets. Needless to say, the profits made on scalping are quite small, which forces the scalpers to open thousands of positions and reap their minute rewards over a period of time.
Whatever strategy the trader decides to employ, the benefits are there. Nonetheless, the risks involved are high as the volatility factor of the market can quickly negate any gains. When resorting to any strategy, the trader must make an adequately informed decision on what type of profits they are seeking to make on the basis of available capital. Needless to say, an immense amount of practice is required to determine the most appropriate type of strategy for any given trader.