Investment trading strategies

Investment trading strategies

Whether you are investing in the forex market, cryptocurrencies or the stock market, it is essential to have investment trading strategies in place. In a world that can be volatile and unpredictable, you must retain an element of focus. While no investment strategy is set in stone, you should not be overly flexible, which could undermine your whole investment philosophy.

It matters not whether you have a short, medium or long-term investment horizon; your investment journey has to have a start, aim and end game. Without this, how will you know when you have achieved your target?

Why are trading strategies so important?

Even in the madness of short-term trading in the forex, cryptocurrency or the stock market, traders still have their own strategies. Whether trading with margin, making money from relatively small moves, trading pricing anomalies or buying ahead of expected good news, there’s always a plan. This allows traders to “keep their heads while everyone else is losing theirs” and brings a degree of structure to the table. Many traders will use stop-loss limits which allow them to cut their losers and run their winners.

Do you need different trading strategies?

While any investment market can be fast-moving, volatile and unpredictable, it is very much a case of horses for courses. You will find that successful investors perhaps have three or four different investment strategies used in varying circumstances. Scalping, day trading and swing trading are all practical short-term strategies. Looking longer-term, many people monitor at an array of different moving averages, chart patterns while also incorporating a stop-loss approach.

It is essential to cut your losers as quickly as possible, but it is also important to run your winners. Unfortunately, as we will cover in the next section, many people panic and take the opposite approach. They will run their losers, not willing to believe they have got it wrong, while cutting their winners, often missing out on further upside. This is because the whole concept of investment, whether short, medium or long-term, is based upon your psychology. In essence, you can recognise the right call and appreciate when you get it wrong – before it is too late.

The psychology of trading

If investors all thought the same and had the same goals and investment strategies, life would be boring. Consequently, individual traders may be suited to different investment styles, short, medium or longer term. Some investors can incorporate numerous investment styles, but jumping from strategy to strategy can be tricky in your mind. These are all very different mindsets!

So, if you're relatively open to volatility and risk and also able to appreciate a degree of structure, short-term day trading may be for you. On the other hand, those who work more on fundamentals are perhaps best suited to a medium to long-term investment approach. This will mean ignoring the short-term peaks and troughs as long as the long-term fundamentals remain intact - a challenge in itself.

Adapting to markets

The current market environment is a prime example of adapting to the situation in front of you. Not only have we seen record low-interest rates for more than a decade, but we also have the Covid pandemic. Government financial assistance has kept many businesses and sectors afloat. Even though worldwide economies are starting to open up, there will still be bumps along the road to complete freedom. Many companies and investors have been forced to appreciate the benefits of the Internet during the ongoing challenges.

Looking back in time, different trends and investment strategies will repeat themselves time and time again. New ones will emerge, but sometimes it is as if we are on a constant loop. Those investors who adapt quickest and buy into new trends and new strategies are the ones who are successful. Those who stubbornly stand by the strategies of yesteryear will struggle to stand still, let alone increase the value of their investments.

Even "dinosaurs" (tongue in cheek) such as Warren Buffett now embrace the technology boom, which has changed the way businesses operate since the turn of the century. However, as he does not fully appreciate/understand the technology boom, he brought in third-party experts to help him. This is a perfect example of somebody willing to embrace change and appreciate others out there who are better qualified.

Summary

While any trading strategy will have a degree of flexibility and discretion, it is important not to veer too far away from the fundamentals. The hard part is identifying your next investment, but it is crucial that you also have a target/exit strategy in mind. Open your mind to alternatives, retain a degree of flexibility and only take on a strategy with which you feel comfortable. It would be best to buy into individual buy a forex trading course; lock, stock and barrel to stand any chance of success. As they say, "fair heart never won fair maiden".