Strategies for Online Trading

The most important part of trading is to have a game plan or action plan in place. That is popularly referred to as a trading strategy. Trading strategies are a systematic and disciplined approach to trading in stocks or other asset classes. Trading strategies entail a logic to the trade as well as a plan of action. That is what makes Trading strategies actionable and meaningful. Here we look at the types of Trading strategies and try to zero in on the best Trading strategies in the context. Of course, the best Trading strategies are always the ones customized for you.

While looking at different types of Trading strategies, we shall also look at some common Trading strategies used in regular day-to-day trading. An online trading strategy assumes a plan of action and actioning of the plan. The execution is normally as important in Trading strategy as the strategy itself.

Online Trading Strategies

While Trading strategies are unique to individuals, you can break up Trading strategies into 6 broad categories. Here is a look at Trading strategies.

1. The news-based trading strategy entails smart trading based on news flows and quick interpretation of such news flows; both before and following news releases. Trading on news flows requires quick analysis and speed and is normally considered a safe momentum approach to trading stocks. The focus of traders in this approach is to stick to stock that react to the news.

   Of course, one big question is whether the news is factored in the price or not. That calls for judgment. News trading has some benefits. It identifies granular trading opportunities and the exit and profit-taking can be quite fast. However, this approach has some drawbacks too. News trading can create overnight risk as this is something traders do not have control over. This is true of overnight positions.

2. Market close strategy or end-of-day trading strategy entails trading very close to the last half hour in the market. That is when the markets are the most active with high volumes on most counters and a lot of price action happens during this period. This requires in-depth empirical study of patterns in the past and positions are taken accordingly.

   This trading strategy has some advantages in that it is a good approach for starters since the risk of liquidity is normally not an issue here. Also, this trading strategy entails lower time commitment as the exit is normally the next day morning. On the downside, such Trading strategies can be also exposed to overnight risk, and setting stop losses in such trading strategies can be quite complex.

3. Swing trading strategy is as old as the hills in the trading world. Swing trading strategies are normally direction-agnostic as traders are willing to play on the long side and the short side, but it requires a higher level of skill compared to other trading strategies. These swing traders typically use technical charts and oscillators to identify and play such opportunities.

   Swing trading has some key benefits. The chances of success can be quite high, once you gain expertise in this kind of approach. It is not just intuitive but also an empirical data-based trading strategy. However, it has some limitations. Apart from the overnight risk, swing entails requires a lot of research and understanding of market trends so it is not for all traders.

4. Interestingly, a day trading strategy is a strategy too. There are scores of professional day traders who purely indulge in day trading. This trading strategy has some unique advantages. Costs are lower, you don’t worry about Demat in this trading strategy and you can trade both ways without worrying about delivery. However, the Day trading strategy is recommended only for traders who can keep discipline in trading with a strict risk management approach.

   Day trading strategy has some unique advantages. You avoid overnight risk altogether in this approach and you don’t burn a hole if you can maintain basic rules of stop losses and profit targets. You can also just focus on 5-6 stocks in this trading strategy and you can churn the capital several times in the day. However, intraday trading may not work on flat days or lackluster markets as costs won’t be covered. Also, you need to be prepared for a high probability of wrong trades.

5. Among the various Trading strategies, scalping is called a high octane game where traders move in and out with high volumes and on low spreads. This trading strategy is most common in forex trading but traders do apply this strategy in equity and derivatives markets too. Scalping operates on low spreads and high volumes hence these trading strategies have to be backed up by tremendous trading discipline. Scalpers don’t let their profits run for too long but keep monetizing at regular intervals.

   One big benefit of trading strategies like scalping is that there is no overnight risk at all in this approach. Trades last from a few minutes to an hour at the most. Your spectrum of trading opportunities is a lot more. On the downside, the assumption is that scalping as a trading strategy works only when there are high volumes, high liquidity, and low bid-ask spreads.

6. Finally, position trading strategies don’t need too much of an explanation. They entail delivery in equity which can be for a week, month, or few months in succession so that the entire sector or stock story plays out. This is a research-driven strategy but the chances of profit are quite high in this approach.

Advantage of Online Trading

One of the big advantages of online trading is that it is quick, transparent, and economical. It is a kind of a consolidated approach to trading where the entire trading activity is entirely focused in one place with multiple tools for skillful execution.

How to Start Online Trading

You start online trading by opening a trading account with a SEBI registered broker and then activating internet trading in the account. That entails signing the Client / Broker agreement as well as completing your KYC. Once you are done, start with small trades and understand the process flow before embarking on large trades. Keep risk in perspective.