Best Trading Strategies Every Trader Should Learn

Looking to start trading and want to know what the best trading strategies are?

Making the decision to start trading the financial markets is not so different from starting your own business. Just like business owners, traders need a strategy.

When trading the financial markets, it is important to take time to build a strategy you can stick to. Otherwise you will find yourself making rash, uncalculated decisions. You will not maintain the consistency and discipline needed to have any success as a trader.

It is completely up to you which strategy you follow. However, the most important factor to consider is whether the strategy is something you can stick to; and can you stay disciplined enough to execute this strategy long term.

Some of the most common best trading strategies:

1: Swing Trading Strategy

2: Scalping Strategy

3: Trend Trading Strategy

4: End of Day Trading

5: News Trading

6: Day Trading

7: Technical Indicator Trading

What is a Trading Strategy?

A trading strategy is a very detailed process that specifies the price levels at which you'll enter and exit trades. Your strategy uses analysis to pinpoint different market circumstances and price levels. The majority of strategies concentrate on using technical indicators. However, some strategies can also involve the use of fundamental analysis to estimate price changes.

What You Need to Know About Choosing a Best Trading Strategy

There is no ultimate, 100% risk-free, strategy that everyone can use.

And there is no one-size-fits-all, best trading strategy because everyone’s lifestyle and availability for investing time in trading are different.

Some strategies require more of your time than others, while some require greater planning ahead of the trade itself. We can be sure however that no trading strategy at all is the worst strategy of all.

So let’s dive into our list of best trading strategies to find out which one is right for you.

Best Trading Strategy #1: Swing Trading

When it comes to best trading strategies, swing trading is among the most popular.

This strategy mainly involves taking smaller profits from short term trends and quickly cutting losses, in order to create returns over time. Though the gains may be modest if held for a few days or weeks, they can add up significantly over a longer period of time.

Swing trading focuses on recognizing price patterns over several days, sometimes weeks, and using those patterns to inform when best to enter or exit a position. As such, this method often risks lower losses with fewer gains made in comparison to other strategies over the same period. However, if practised effectively, swing trading can be a great part of a balanced portfolio.

Swing trading has become one of the best trading strategies as it allows traders to navigate market fluctuations. This type of trading requires a deep understanding of how to interpret both the length and duration of swings, as these technical indicators signal where critical levels of support and resistance can be found. Swing traders must also keep an eye out for patterns in supply and demand, while taking into account whether momentum is rising or falling inside each swing ‒ both vital components to ensure success with this form of trading.

Pros and Cons of Swing Trading Strategy

There are a few advantages and likewise disadvantages to applying a swing trading strategy.

A few pros to swing trading are:

1. Swing trading is applicable for part-time traders. For those not able to invest a lot of time on trading, this is the ideal strategy. However, you will need to take some time to learn about price patterns and how they work.
2. A swing trading strategy requires minimal time commitment. Compared to scalping and day trading, swing trading requires less time. Although it is more time consuming than long-term position trading.
3. It allows for multiple trading options. Swing trading allows traders to go long and short across a variety of securities because it includes trading "both sides" of the market.
4. Swing trading does not keep your money tied down too long. In contrast to long-term trading, swing trading allows you more flexibility in managing your money.

Disadvantages of swing trading:

1. Swing trading comes with a risk of weekend and overnight price gaps. Swing trading comes with an increased risk when trades remain open overnight or over the weekend. You can reduce the overnight risk by using stop loss orders on your trades. For weekend risks, maintaining small trades and avoiding over leveraging reduces risk.
2. Timing market swings is difficult. No trader, no matter how experienced and seasoned, can predict 100% how the market will swing.
3. Swing trading costs can pile up quickly. Although day trading is known to require more trading frequency than swing trading, compared to long-term investments swing trading can be more costly.

Strategy Tips for Swing Trading

• Swing trading strategies are based on technical and fundamental analysis.
• Catching the trend and taking advantage of pullbacks and rallies are the goals of swing trading. A trader opens a position at a pullback and closes it at a rebound.
• The primary challenge for swing traders is separating the true trend reversal from the price activity that will most likely continue.
• Swing traders may more accurately enter trades, place stop losses, and capture gains by learning to read technical indicators and daily charts.

The chart above shows how a swing trader enters a position, sets a take profit order once the trade reaches a certain level, and then exits. When the trader notices the trade rebounding they then enter a new position and set a take profit order once that trade reaches a new level, and so on and so forth, one swing at a time.

Best Trading Strategy #2: Scalping Strategy

One of the best trading strategies is scalping, which involves making numerous trades that last for very brief periods of time ‒ sometimes lasting a few seconds, minutes or hours ‒ and involve minimal changes in price. Scalpers aim for a small return from each trade, with the idea that all those little earnings will eventually add up and pay off big.

What scalpers need to be aware of, however, is their exit strategy since a considerable loss can cancel out tons of other small gains that may have accumulated. When scalping, traders tend to settle for a rather small profit from each trade due to its quick nature, as scalpers usually employ a 1 to 1 risk to reward ratio or less.

Pros and Cons of Scalping Trading Strategy

Since scalping is a fast-paced trading method it comes with both pros and cons. Let’s have a look…

A few pros to scalping are:

1. Less risk due to less market exposure. Scalping can lower risk since positions are held for short durations of time, hence a trader’s investments may be less exposed to market events.
2. Less capital intensive. Because trades are usually executed one at time, a trader doesn't necessarily need to have large sums of capital tied up in multiple positions.
3. Scalping involves less analysis of the fundamentals. Because of the fast-paced nature of scalping traders don’t look too much at the fundamentals but more on the technical.
4. There is more opportunity to trade. This is due to modest price fluctuations of a few pips are more inclined to occur regularly.

Disadvantages of scalping:

1. Scalping involves higher trading costs. In order to reap significant rewards, traders must place a lot more orders which drives up the cost of trading.
2. Time consuming and error prone. More effort needs to be spent actively monitoring and managing positions because each trade only generates marginal earnings.
3. Scalping can be psychologically tiring. The hands-on, fast-paced approach of watching charts and trading every day can affect a traders psychology over time.
4. Only a few hours per day are ideal for scalping. Therefore your plan must take these times into account to trade at the most opportune times.

Strategy Tips for Scalping

• Scalping traders usually concentrate on profits around 5 pips per trade.
• Scalping is best done in the early hours of the trading day, when the market opens, as it's generally the most liquid and volatile time.
• Some of the best strategies to apply when scalping are the stochastic oscillator strategy, the moving average strategy, the parabolic SAR indicator strategy, and the RSi strategy.
• Scalping tactics perform best when the intraday momentum is strongly trending or strongly range-bound; they perform poorly when there is contradiction or uncertainty.

In this chart the scalper is using the moving average indicator to get a trading bias and support and resistance areas to enter and exit trades.

Best Trading Strategy #3: Trend Trading

Trend trading is arguably one of the best trading strategies as it uses intricate technical analysis to identify trend directions and only places trades in that direction. This requires an effective system to determine trend movements, one with accuracy and updated frequency to ensure success. Although trend traders may often be mistaken for having bullish or bearish characteristics, following the trend instead has its own advantages.

Various tools can be used for market analysis, and with trend trading, adopting patience and adaptability become important virtues. Awareness is key too ‒ trend traders must utilize their senses to detect when a influencing factor (such as market change) renders the system dysfunctional. To sum up, trend trading is undeniably a powerful strategy but also bears its risks ‒ which is why developing a strong technical analysis system and staying vigilant are necessary skills.

Pros and Cons of Trend Trading Strategy

“The trend is your friend” is the famous adage of trend trading. Below is a list of pros and cons of trend trading revealing when this type of strategy is indeed your friend and when it’s not.

A few pros to trend trading are:

1. You could spot trends right away. You may find yourself catching the majority, if not all, of the big trends because many trend following tactics attempt to predict when a market is acquiring enough momentum to develop a new trend.
2. Trend trading requires minimal transaction costs. Compared to many other trading methods, such as scalping, where transaction costs could even render some trading tactics useless, it is a significant advantage that trend trading is a very slow-moving trading method.
3. Your entry/exit points don't have to be that accurate. You don't really care about small variations. Simply put, you have a lot of margins to work with and can afford to delay exiting at the trend's peak.
4. Trend trading doesn’t take up too much time. It is a slow-moving trading method that even people with full-time jobs can apply. Trends emerge over long time frames so excessive precision is not a crucial element.
   

Disadvantages of trend trading:

1. Trend trading comes with a high risk of fakeouts and low hit rates. In the most extreme but not impossible scenarios trend traders may discover that in most cases, trades result in losses due to fake breakouts. In addition with a low success rate, traders may experience frequent losses.
2. FOMO mentality is big in trend trading. This is because if you want to find that trend that will raise you to the top, you cannot miss out on any trend opportunity. You must always be on the lookout for trends rising and being ready to jump on the bandwagon.
3. Trend reports can be slow. Some trend trading technical tools, such as moving averages, may lag behind causing you to enter a position at a different time than you originally expected.
4. It’s not easy to ride a trend until the end. Sticking to a trend until the end is no piece of cake. It takes mental strength and discipline since you never know how the market is going to change when you start a new trade. Some traders fall into the trap of closing their positions as soon as they have made a small profit, out of fear of losing what they’ve gained.

Strategy Tips for Trend Trading

• When it comes to trend trading, consistency is key. You want to decide on the best timeframe to use so that you can make logical decisions when tracking and following the trend.
• A trend trader's best strategy is to remain vigilant and keep an eye out for signs that the trend they are trading is coming to an end or changing in some way. This sort of awareness is absolutely key; after all, if you're not paying attention and recognise the trend's final stages, you could easily find yourself in a loss-making position when other traders come out from the woodwork trying to reduce their own losses.
• An asset's price may trend upward or downward. When the market looks like it might hit higher highs, that is a good time to take a long position, if you were going to do so. If the market looks like it will reach lower lows, that’s when a short position is better.
• Moving averages, the relative strength index (RSI) and the average directional index (ADX) are usually preferred by trend traders.

In this chart you can see one strategy involving moving averages. A trader may choose to ride the longer term trend until the price moves below (or above) the averages.

Best Trading Strategy #4: End of Day Trading

This method of trading requires traders to wait until the end of the day before making decisions. When it becomes obvious that the price is going to settle or close, that’s when an end-of-day trader analyses the market. This approach necessitates comparing today’s price action to previous days price changes to predict future price movements.

This method is time efficient since one only needs to look at the data of the charts in opening and closing times. Some traders may use indicators and others may decide to trade naked basing their decision solely on price action charts.

Pros and Cons of End of Day Trading

This uncomplicated style of trading may sound ideal. However, let’s look at the advantages as well as disadvantages in order to have a spherical view of this strategy.

A few pros to end of day trading are:

1. A good starting point for new traders. Since this type of trading does not require much time commitment, it is suitable for most beginner traders that have other commitments
2. A time efficient method. End-of-day trading does not require a big part of your day and time investment in researching and analysing. All you need to do is look at the price action charts and make your trade at the end of the day.
3. You can keep your day job. Your analysis does not necessarily have to conflict with your usual working hours.

Disadvantages of end of day trading:

1. End of day trading is vulnerable to overnight market movements. Because you are trading when markets are asleep.
2. Limit orders might miss your desired price. Again, due to trading in the late hours of the day, your trades might suffer from lower liquidity.
3. Volatile pricing around earnings reports season. The period when companies release their earnings reports can bring price volatility since these reports are usually released right before the market opens or after it closes.
   

Strategy Tips for End of Day trading

• Breakouts are among the top end-of-day forex trading strategies. With the help of this approach, you can identify emerging trends in currency movements. The forex market initially constricts into low-volatility periods before opening out into trends.
• You must wait for a low volatility range to develop in order to trade a breakout. As soon as you spot a breakout movement above the resistance line, that’s when it might be a good time to place your trade.

In this chart you can see that the end-of-day trader enters the market when a breakout is spotted above the resistance line.

Best Trading Strategy #5: News Trading

The method of news trading involves trading both before and after news releases depending on news and market expectations. Given how quickly news may spread through digital media, trading on news announcements might call for a strong mindset. As soon as the news is revealed, traders must evaluate it and decide quickly how to make their trades based on the news and events happening.

Pros and Cons of News Trading Strategy

News trading may sound simple, but knowing the pros and cons of this method of trading is important if you are thinking of applying it. Let’s have a look…

A few pros to news trading are:

1. News affects trends. If you are a news trader then following the news and basing your decisions on what is happening can help you stay with the trend of the market.
2. News trading offers multiple trading opportunities. By following economic calendars, news, events and economic releases you can find many opportunities to trade at an ideal time.

Disadvantages of news trading:

1. Open trades are vulnerable overnight. Trading positions may be active for a number of days, depending on the news. Any open positions overnight are subject to overnight risk since news can affect assets while you are sleeping.
2. The trap of simplicity. Some traders may think they simply need to follow the news to make trading decisions and may try predicting market movements without applying any other type of analysis. This could potentially be damaging to their trades.

Strategy Tips for News trading

• Learn how to apply a “buy the rumour, sell the news” trading strategy. Rather than waiting to trade once a news announcement breaks out, base your trading decision on price action movement before the announcement. This can protect your trades from any volatility that may occur once a rumoured news release breaks out.

In this chart you can see how a trade price is affected as soon as the NFP report is released. There are several techniques to trading the NFP release successfully which we will dive into further in our upcoming article.

Best Trading Strategy #6: Day Trading

For traders who want a hands-on, action-packed approach to trading, day trading - otherwise known as intraday trading - is a good approach. It is also ideal if you want to make trading your full-time job.

Intraday traders make the most out of price changes that happen between opening and closing hours of the market. This helps them to also avoid overnight risks since day traders typically close all their positions by the end of the day. Since day traders frequently keep many positions open during the day, it is recommended that they employ a well organised trading plan that can quickly adjust to market volatility.

Pros and Cons of Day Trading Strategy

Day trading is not for the faint of heart as it demands discipline and focus. Read on to find out the pros and cons of this trading strategy.

A few pros to day trading are:

1. Trading during the day helps to avoid some common risks. With day trading you avoid overnight risk since your trades close by the end of the day. In addition you avoid some risks connected to long-term trading, since you are only opening short-term trades.
2. A plethora of trading opportunities can be applied. You can take advantage of local and international markets including the 24/7 forex market hours.

Disadvantages of day trading:

1. Day trading is prone to flat trades. When placing and closing trades within the timespan of a few hours, you face the drawback of dealing with flat trades, which is when a position does not make any significant move due to a lack of intra day price momentum.
2. Multiple transaction fees can eat up your capital. When you have many open trades, or trade frequently, you obviously would need to invest some capital in each of them, and with each investment comes a trading fee.

Strategy Tips for Day trading

• When creating a day trading strategy you must consider which markets you will focus on, which day trading timeframe will you choose, which indicators you will use, and how much capital will you allocate per trade?
• Choose two indicators and don’t clutter your charts with too many tools and indicators as you will get confused quickly! The moving average indicator is the most common to use when day trading.
• When trading the moving average indicator over a period of days keep an eye on whether the price is above or below the moving average. if it is above then it is indicating an uptrend in prices, or to consider going long. When the price is below the moving average then it’s time to consider sell opportunities or go short.
• Depending on where you are located and which markets you are trading in, the best time of the day to trade as a day trader is between 9:30 am and 4 pm Eastern time (US). This is ideal for stock market day trading. However, many day traders wrap things up around 11:30 am as that is when volatility slows down. Day traders need liquidity and volatility in order to day trade successfully, so you want to keep your eyes out on patterns and timeframes that are volatile for each market.

In this chart you can see the time frame between the two dotted lines where the most activity and volatility happen. Ideally, that is when a day trader would start trading.

Best Trading Strategy #7: Technical Indicator Trading

Technical indicator trading, otherwise known as indicator based trading, refers to the use of technical analysis to make trading decisions. It does not rely on fundamentals like balance sheet ratios but rather on technical instruments. An indicator develops a visual indication for a market trend using price information, mathematical algorithms, graphs, and charts.

The simple moving average, for instance, is a well-liked indicator. It is used to show a trend's direction while ignoring any short-term price increases. Since the interval doesn't change and prices are measured over a moving time, the moving average shows the average price over that period, which is why it "moves". The average is shown on the chart to help traders make their decisions.

Pros and Cons of Technical Indicator Trading

You hear the word “technical” and wonder how complicated this method could be. What you don’t know is that it is actually quite simple to apply. Below are a few more pros, as well as cons to technical indicator trading.

A few pros to technical indicator trading are:

1. Technical indicators are easier to interpret than price charts. Indicators are a great tool for finding the weaknesses and strengths of prices and to interpret when a trend may be coming to an end.
2. A great tool for training beginners. Price charts might be difficult for new traders to analyze, but with the help of some indicators, they can learn to spot tiny changes that previously they were not able to see.

Disadvantages of technical indicator trading:

1. Indicators cannot give guidance to future price movements. They cannot predict future market movements; they merely reflect past price behavior. Although a moving average may continue to trend downward, this does not mean that it will always do so.
2. Traders who proficiently read charts do not benefit from indicators. Adding indicators to a candlestick or bar chart doesn't offer a trader any additional information that they can use.

Strategy Tips for Technical Indicator Trading:

• Mastering the support and resistance price lines is key for technical traders. When you can clearly define where these two lines are on your chart, then you can assess the possible risk and reward of a trade.
• When technical trading, it is important to both understand the trend and direction of an individual trade, and pay attention to broader market trends as one could affect the other. For instance if a stock is part of a group of stocks (Index) like the Nasdaq, then any price changes of the group of stocks could affect the performance of the individual trade.
  

In this chart the trader is using a number of technical indicators such as moving averages and the stochastic oscillator signal to determine at which point it is time to exit.

Best Trading Strategy FAQs

Since you may still have some questions about the best trading strategies, below are a number of frequently asked questions and answers to further boost your strategy knowledge.

What is the most successful trading strategy?

There is no 100% guaranteed success for any strategy, however there are some strategies that are most commonly used and preferred by many successful traders. Scalping is one such strategy which requires buying and selling trades quickly within minutes or seconds. The strategy is to enter your position and as soon as it starts to make a profit, you sell.

What is the 5-3-1 trading strategy?

The 5-3-1 forex trading strategy is a guideline often used by beginner traders. It basically says to have five currency pairs to trade at a time and learn from. The three stand for how many strategies to master and use when you trade. The one is for the one set time you trade every day which should be the same to help you remain consistent.

What is the 1% trading strategy?

The 1% trading strategy is a well-liked way to safeguard your capital against significant losses. With this money management strategy, a trader never exposes more than 1% of their capital to risk. The primary goal of this rule is capital preservation; by abiding by the 1% rule, you are not taking any excessive risks.

What is the 80/20 rule in trading?

The 80-20 rule in trading generally states that with 20% of a portfolio's holdings you can achieve 80% of your portfolio’s growth. However, the vice versa rule also applies where 20% of your portfolio's holdings may account for 80% of its losses.

Best Trading Strategies - Conclusion

We hope you enjoyed this little guide of best trading strategies. Want more? Well, you're in luck because we go even more in depth for each one of these methods of trading. Coming up we are offering tips and examples so you can master the strategy and method of your choice.

Stay tuned as we reveal these resources one by one in the coming days.

And remember to check out our free trading signals to help you gain further insight for making trading decisions.