Investment strategies is a blueprint that guides all traders’ decisions when placing a trade. To establish an investment strategy. These two fundamental variables must be taken into account:
- Trading term: short, medium or long term.
- Product on which the trade will carry out: Shares, currencies, stock indices, raw materials, CFDs
Once the time frame and the financial product or asset have been established, the investment strategy must be defined considering these other vital aspects, which are specific to each operator:
- Risk profile.
- Profitability target.
- Capital available for trading
Based on all these elements, the investment strategy will define the guidelines for opening and closing positions and risk management in each operation.
Establishing an investment strategy is the first necessary step if you want to operate in the financial markets. By establishing an investment strategy and, more importantly, its disciplined application, trading will be an activity based on preparation, knowledge, dedication, perseverance, and continuous learning from mistakes. These are the only ingredients to be successful in trading.
In the absence of an investment strategy, the only factor that will intervene in trading will be chance. Although it may bring you profits, it will only achieve on time, but not systematically. In addition, you will have the same probability of both winning and losing.
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Can You Create Your investment strategies?
Not only can you create your investment strategy, but it is the first step that must necessarily be taken before starting to operate in the financial markets.
The definition of an investment strategy is based on subjective factors that are specific to each operator. After all, each trader has his way of managing risk, which will influence how he achieves his goals.
The key is to find a strategy that suits your needs and makes you enjoy your trading experience. In this way, you will be able to make your investments according to technical criteria appropriate to your investor profile. You will not be carried away by emotions, which are the main enemy of the trader most of the time.
Difference Between Invest And Speculate investment strategies
Traders who keep their positions open for extended periods (months and even years) do so by studying the fundamental factors that affect the markets. It could be called investment.
Meanwhile, scalping is a strategy in a fast-paced trading day where positions are opened and closed within minutes or even seconds. Buying and selling Frequently, and speculators target the slightest movement during the day to create profits.
How To Create An investment strategies?
The explanation in this point is valid for the definition of investment strategies for any financial asset. Although each has its particularities, the basic concepts for investment strategies are common to all. They.
In trading, to create an investment strategy, the first thing you will need is access to platforms where you can consult charts that represent, for different time horizons, the price trends of financial assets (shares, indices, currencies ) in the markets.
Identify Bullish Or Bearish Trends
Identifying trends, bullish or bearish, is a fundamental aspect in the interpretation of charts and, therefore, in the formulation of any investment strategy.
Within trends, there is always a primary trend, which marks the main price direction, and a secondary trend, which reflects price fluctuations in the direct path.
In the graphic platforms, in addition to the evolution of the price of the assets, it must be possible to represent the evolution of critical variables such as the trading volume or technical analysis indicators. You can find all these elements in the trading platforms that Trade makes available to you.
Identify What Type Of Trader You Are
Once you have the right platform in place, you will need to decide on the time frame you will trade. In other words, you will have to ask yourself if you are:
- A Day Trader. (short term)
- A swing trader. (medium-term)
- An Investor. (long term)
Swing trading seeks to obtain profits that are not very high but consistent in several operations.
In this type of trading, a usual profitability objective for each operation is usually 10%, admitting returns even of 5% in poorly defined market situations.
While it may seem like a low-profit target, the key to this strategy is to repeat the trade consistently a certain number of times.
Long-Term Investment Strategy
On the other hand, some operators keep their positions open for long periods: months and even years, mainly due to studying the fundamental factors that affect the valuation of said assets. In this type of a decision. Actual analysis knowledge prevails and geopolitical and macroeconomic factors. In addition, it tends to be better suited to investors with more available capital due to the costs of holding positions over long periods.
Long-term investments are the polar opposite of day trading in that the goal is to make long-term profits as a result of price movement in a primary trend, not short-term market momentum. In this type of investment. Attention is not paid to short-term market fluctuations since the long-term return objective. For this reason, it is consider that small short-term oscillations in the market will balance out over time.
After choosing the time frame in which you will trade, you must adjust the scale of your charts to make them consistent with your trader profile:
- A day trader will typically use hourly charts to identify the primary price trend and 5-minute charts to define secondary price trends.
- A swing trader will use daily, weekly stock charts to define primary trends and hourly charts to identify secondary trends.
- A trader will use charts with weekly price changes on a monthly scale to define primary trends and daily charts for secondary directions.
After becoming familiar with reading charts. And also The next step is to detect indicators that allow you to anticipate ups and downs in prices. Can use To achieve this, a multitude of hands:
- Japanese candlestick figures
- Technical analysis figures: trend lines, triangles.
- Variations in trading volume.
- Variations in volatility: Bollinger bands.
- Reactions to announcements or economic news.
Most Outstanding Investment Strategies By Market Or Product
FOREX. One of the most popular strategies in the foreign exchange market is fundamental trading, partly because FOREX is a space greatly influence by geopolitics. If you learn to control the course of major political events and anticipate them, this strategy is ideally suite to Forex. What do you need to carry out this strategy?
- A calendar of economic events.
- Notions of geopolitics, global economy and fundamental analysis.
- Carry out longer-term operations.
CFDs. And also Being a shorter-term trade, investing with CFDs is better suite to day trading using strategies base on technical elements and indicators. Some of the most used are:
- Bollinger Bands Strategy.
- Hit and Run.
- Use of Japanese Candles.
- Detrended Price Oscillator.
- Nihilist strategy.
CFD trading allows leverage. Therefore. It is possible to obtain returns associate with investment more excellent than the capital available. And also Take advantage of small price movements in the assets on which the CFD has establish.
For this reason. Trading with CFDs can be very lucrative but just as risky. Which is why it is one of the products in which adequate risk management is essential. Through the use of stop-loss and by limiting the capital put at risk in each operation.