How to Choose the Best Stock Trading Strategy
Choosing the best stock trading strategy depends on your trading goals, lifestyle, and personality. Different strategies have different advantages and disadvantages, risks and rewards, time frames and requirements. You need to find a strategy that suits your objectives, preferences, and resources.
Stock trading is the basis of buying and selling with the goal of profiting on price fluctuations. There are many important factors to consider when deciding the best trading strategy for you.
Let’s look at some of the most common trading strategies that could improve your existing trading strategy.
Adding Risk Diversification
This strategy reduces the risk in your portfolio as it creates a mix of various tradeable stocks. Spreading your investments around a wide range of industries leads to your exposure being more opportunistic, rather than placing all your trades into one investment.
Let’s say for example, that a portfolio was mainly trading Airline and Tourism sectors when the recent pandemic began. Any traders buying these stocks would have suffered quite a loss due to the markets falling considerably. If the portfolio was diverse, and included pharmaceutical and technology stocks, then this would have balanced out the P&L as those industries increased in value during the same period.
Diversification is not designed to maximise profits or to eliminate all risk. However, trading with a wider range of asset classes can help to balance out the portfolio to achieve your trading goals.
Trade at Convenient Time Periods
One big benefit of the Foreign Exchange market is that currencies trade 24 hours a day except weekends. However, this is not the case when trading stocks, as different time zones will depend on when a stock can be traded.
London, New York, and Tokyo are just a few of the major markets in the world which have different trading intervals. So, for example, attempting to open a position with Microsoft during the Tokyo session would not be possible, as the trader would need to wait until Wall Street has opened first.
So, keep in mind the stocks that you want to trade, as the session periods could restrict you from reaching your targets.
Trade Stocks that are More Relative to You
Many people can dive in at the deep end and trade asset classes just because they are popular and have continuous fundamental updates. Whilst this can be beneficial, traders should also realise that it might not work every time.
The stock market is very diverse, with many sectors such as Banking, Automobile and Telecommunication. But are any of these industries inspiring you to always keep up to date with breaking news stories?
By trading stocks that are more interesting, you could be more likely to have more of a passion about keeping up to date with the industry that you have invested in. This could lead to better understanding of where prices could be heading, leading your portfolio to increase in value.
It Doesn’t Need to be Confusing
Adding stocks into your portfolio doesn’t have to be scary as it opens up a new dimension of trading opportunities. Just keep in mind that stocks trade differently to other asset classes as forex and energies have many factors on what makes them move!
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