The 4 Main Types of Trading Strategies

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In trading, despite the countless different strategies and setups that are used by traders all over the world, all these strategies can actually be traced back to these 4 core types:

• Break (trading breakouts)
• Swing (trend-following)
• Bounce (counter-trend, mean reversion)
• Turn (market reversals)

Each strategy type has its pros and cons, so in the future, when someone shares a trading strategy with you, you will instantly be able to see which category that trading strategy falls under, and hence deduce the pros and cons of the strategy.

 

1. Break (Trading Breakouts)

Breakouts happen when the market is in the ranging phase, and there is no clear trend in the market. As both the bulls and bears fight to gain control of the market, at some point either side wins, and prices break out of the sideways range and starts moving explosively in one direction.

2. Swing (Trend-following)

When the market is trending or starting to trend, it makes sense to ride the trend. Trend-following strategies are designed to detect the start of such trends, and get you in on them, as well as getting you out once the trend is over.

3. Bounce (Counter-trend, Mean Reversion)

Occasionally, there might be exceptionally strong short-term movements in the markets, such as a price spike on a news announcement, or a climatic buying or panic selling. When that happens, prices usually become overbought/oversold, and prices will have a rebound back to “normal” levels.

4. Turn (Market Reversals)

All markets and products follow certain large economic or trend cycles, which means that no matter how strong the trend, at some point it will exhaust the move and lead to a change in direction. This usually results in major turning points in the markets.

 

 

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