06
2024/08
16 effective trading strategies every trader must learn!
By incorporating diverse strategies, traders can enhance their ability to manage risks, identify trends, and maximize their profits.
Here are 16 effective trading strategies, each with its unique approach and methodology.
Strategy 1: Opening Auction Strategy
The opening price battle is a significant focus for traders. The idea is simple: predict the day’s trend based on the rise or fall within a certain time after the market opens. This strategy works well on 1-minute, 3-minute, and 5-minute charts with minimal parameters, leaving little room for optimization.
Strategy 2: Classic Foreign Aberration Strategy
Created by Keith Fitschen in 1986, this legendary trading system once achieved an annual return of over 100%. The Aberration system uses three bands for trading. It calculates the arithmetic average of the closing prices over the past N days (MA) as the middle band (MID). It uses the standard deviation of the closing prices (std) to measure volatility, calculating the upper band (MID + m * std) and the lower band (MID – m * std). Buy when the price breaks the upper band and close the position when it returns to the middle band; conversely, sell when the price breaks the lower band and close the position when it returns to the middle band.
Strategy 3: Turtle Trading Strategy
The Turtle Trading method, developed by Richard Dennis, is simple but effective. It proves that a straightforward strategy with a positive expectancy when consistently and extensively repeated, can turn anyone into a winning trader. Although it originated in the 1980s, it still performs well in the futures market today.
Strategy 4: Dual Thrust Intraday Strategy
Developed by Michael Chalek in the 1980s, the Dual Thrust strategy remains one of the most classic trading systems, and it is performing well in the futures market. This intraday strategy calculates the channel width based on the previous day’s high, low, and closing prices. It sets the upper and lower bands above and below the opening price by this width. Buy when the price breaks the upper band and sell when it breaks the lower band. Positions must be closed by the end of the trading day.
Strategy 5: Single Moving Average Strategy
This strategy uses a single moving average to determine the market’s bullish or bearish direction. With enough understanding of the market’s essence, a single moving average can be profitable.
Strategy 6: Channel Breakout Strategy
A common and classic trend trading method, the channel breakout defines trends based on price breakthroughs of the upper and lower channels. With good historical backtesting results, it uses a moving average as the middle band and adds channels above and below it. Buy when the price breaks the upper channel, sell when it breaks the lower channel, and close positions when the price returns to the middle band.
Strategy 7: Position Management Strategy
Fund management is crucial in trading, and a significant part of it is position management. Using different position management methods at various stages can yield different trading results. A good trading strategy with poor position management may not achieve expected returns. It might even result in losses, while a strategy with a negative expectancy can become successful with proper position management.
Strategy 8: Stochastic Oscillator Strategy
George Lane introduced the stochastic oscillator (%K, %D) many years ago. It is based on the idea that the closing price tends to be near the top of the price range in an uptrend and near the bottom in a downtrend.
Strategy 9: Trailing Stop Strategy
In a trend-following automated trading strategy, positions often exit when the trend reverses. To prevent significant profit giveback, a trailing stop can be added to the original plan, exiting positions when a simple high or low point is broken.
Strategy 10: Volume and Price Strategy
Adding volume-related conditions to a trading strategy can filter trades to some extent. When volume is insufficient, the strategy avoids opening positions, filtering out some false breakouts. However, this extra condition might cause missed opportunities in significant trends.
Strategy 11: Relative Strength Index (RSI) Strategy
Introduced by J. Welles Wilder in his 1978 book “New Concepts in Technical Trading Systems,” RSI addresses issues with the oscillation index’s value deviation and boundary adjustments. A high RSI indicates a bullish trend, prompting long positions, while a low RSI suggests a bearish trend, prompting short positions.
Strategy 12: Bias (BIAS) Strategy
In technical analysis, bias refers to the difference between the market index or closing price and a moving average price. A large bias indicates a bullish trend, prompting long positions, while a small bias indicates a bearish trend, prompting short positions.
Strategy 13: Moving Average Channel Strategy
Trading based on a single moving average can result in frequent stop-outs during choppy markets. To mitigate this, a channel is added above and below the moving average, serving as the upper and lower bands. Buy when the price breaks the upper band, sell when it breaks the lower band, and close positions when the price returns to the middle band.
Strategy 14: Double Moving Average Strategy
Moving averages are the most commonly used indicators and tools in trading. They represent the average price over a period and can act as a bullish or bearish boundary. Using two moving averages, trends are identified by their position relative to each other, and price breakthroughs determine entry points.
Strategy 15: Commodity Channel Index (CCI) Strategy
Developed by Donald Lambert in the 1980s, the CCI measures whether stock, forex, or precious metals prices have moved beyond normal distribution ranges. According to classic technical analysis literature, when CCI is above +100, establish long positions; when below -100, establish short positions. Close all positions between these two lines.
Strategy 16: Closing Price Breakout Strategy
In algorithmic trading, breakout strategies are among the most commonly used. Comparing the current price to the price N periods ago determines whether the market is on a bullish or bearish trend. If the current price is higher than the price N periods ago, it indicates a bullish trend; if lower, it indicates a bearish trend.
These 16 trading strategies offer a range of approaches to suit different market conditions and trading styles. Whether you prefer short-term intraday trading or long-term trend following, there is a strategy that can be tailored to meet your needs.
