Trading strategies: what is the best strategy for you?

Trend trading

A trend trading strategy relies on the use of technical analysis to identify the direction of market dynamics. This is generally considered to be a medium term strategy, best suited to the trading styles of position traders or swing traders, as each position will remain open as long as the trend continues.

The price of an asset can go up or down. If you were to go long, you would when you think the market is going to hit higher highs. If you were to take a short position you would if you thought the market would hit lower lows.

Derivatives and leveraged products – such as CFDs – are popular choices for trend following strategies because they allow traders to be both long and short. Here you would make a small initial deposit (called a margin) to open a larger position. Note that leveraged trading is high risk and you could lose more than your initial deposit amount as your total profit or loss is based on the total position size. Make sure you have the right risk management steps in place.

Trend traders will use indicators throughout the trend to identify potential retracements, which are temporary moves against the dominant trend. Trend traders will often pay little attention to retracements, but it is important to confirm that this is a temporary move rather than a full reversal – which is often a close signal of a transaction.


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