Exchange trading strategies and tactics

how to do day trading successfully

Exchange strategies

There are many approaches to defining stock trading strategies. Basically, the strategy is determined depending on the degree of involvement of the trader in the market, namely, on the frequency of making exchange transactions. According to this parameter, a large number of types of stock exchange strategies can be distinguished, but for our purposes it is enough to divide all trading strategies into two main groups: investing and trading.

Investing is a strategy of long-term, conservative investments in securities. A conservative investor forms a long-term investment portfolio based on the long-term growth of selected assets and the stock market as a whole. The main characteristics of a conservative investor are:

. Propensity for smart, low-risk investments-a conservative investor is not inclined to take risks, rather he wants to keep what he has.

. Lack of free time for active trading – even if a conservative investor has a positive attitude to risk, they are limited by their own free time and cannot pay enough attention to the market to implement an active strategy.

The investment strategy assumes investments for a period of 1 year or more (the optimal investment horizon is 3 years). Successful conservative investing is possible only if there is a steady growing market trend.

The strategy requires little time and in a growing market shows a steady return, close to the values of the market (stock index). At the same time, a conservative investor does not pay attention to short-term drawdowns and medium-term market volatility.

The main task of a conservative investor is to form an investment portfolio based on the principles of risk diversification. Approaches to building a portfolio depend on the investor's experience and individual preferences.

Active strategy (ortrading) includes medium-and short-term operations. An active trader can make from one trade per quarter to several trades per day. An active strategy, in turn, can be broken down into smaller components (medium-term trading, short-term trading, intraday speculation, scalping), but the main unifying features here are the following::

. An active trader is positive about risk if it allows you to significantly increase your savings.

. An active trader can earn both on the rise and fall of the market (using margin lending).

. An active trader has time to observe the market and trade actively.

Trading involves working mainly with blue chips and actively using margin lending.

Unlike the investor, who can use analytical recommendations and model portfolios to make decisions, the trader faces a more complex task – making independent trading decisions. To do this, it has traditional trading methods for analyzing information in its arsenal. Their reasonable combination, depending on the chosen strategy and the pace of trading, allows you to correctly assess the events taking place on the market and make the right investment decisions.

Why is the investor not playing short?

In previous courses, we mentioned several times that an investor needs a growing trend in the market or at least the presence of individual growing stocks in it to achieve a positive investment result, because he cannot pay for a decrease.

We are talking about economic feasibility.

To play short, you need to use margin lending. Margin lending has its own cost, which is expressed as a percentage and is about 15% per annum in the current market. When we play short, we expect the market to decline, and the decline, unlike growth, is limited by certain limits.

The market can grow by any number of percentages and even by any number of times.

But it can fall by a maximum of 100% - it is impossible to fall below zero. We will not take into account extreme crisis situations, when the drop can actually reach 80-90% in a short time. In the normal functioning of the country's economy, the falling trend may amount, in relative terms, to 30-40% of the current price levels at which growth ended. And this fall can last from one to three years.

Then-simple arithmetic. Let's look at an example.

The market has completed the long-term trend on which you, as an investor, earned. The decline began. More precisely, a long-term downtrend has begun, and you have opened a "short" (short position). The decline continues for 2 years and totals 35% of the current price. If you are short at 15% per annum all this time, your net income for 2 years will be only 5%. You don't track shorter trends as part of your investment strategy.

The situation is different for an active trader. It tracks shorter trends and is in position from 1 day to 1 month.

During the day, credit funds are free for them, and they will pay a little more than 1% for the loan in a month. And you can earn from 5% to 20%, depending on the period of holding the position and the activity of market movements.

Trading Tactics

Investing is a fairly unambiguous trading strategy, in which it is almost impossible to distinguish significant varieties.

Trading, in turn, contains many different trading tactics: from medium-term trading, in which the position is held for several weeks to scalping, where the position is held for several minutes. It makes sense to consider all types of trading when building trading systems for different trading rates, and to understand the key features, it is enough to divide it into two components:

. Positional trading.

. Intraday trading.

The boundary between these tactics is the fact that an open position is moved to the next trading session. The period of holding a position does not matter, but only one thing is important – it closes on the opening day or moves on to the next.

The key difference between this division is as follows.

The Russian market closely interacts with neighboring markets of other countries, including those that trade in distant time zones (America, Asia). Trading in these countries takes place at a time when our market is closed, so in the morning traders take into account the results of the Asian and American trading sessions when opening the Russian market cumulatively. Because of this, our market can often experience such a phenomenon as a morning gap-the gap between yesterday's closing price and today's opening price.

Thus, positional trading carries additional risk: opening the market in the opposite direction to the open position, triggering stop orders, reducing profits and increasing losses.

For intraday trading, these risks are absent – the position is opened and closed during one trading day, and the trading session is continuous.

Another advantage of intraday trading is free margin lending. An intraday trader can use all the opportunities to increase capital with credit funds, and he does not need to pay for it.

On the other hand, positional trading carries significantly less risk due to fewer transactions over the same period compared to intraday trading. And the price chart built for intraday trading is much more affected by news factors.

The investor, positional and intraday trader should use different methods of making trading decisions to improve the effectiveness of their trading strategy.

The best strategy for novice traders

In the first year of trading, it is best for novice traders to use a strategy of gradual, step-by-step immersion in the stock market. Step-by-step entry is optimal if you came to the stock market not for emotions and impressions, but for money.

To implement a step-in strategy, you should follow the following principles::

. Fixed capital is better used for positional trading at first. If you define yourself as a conservative trader-this is a daily chart, if you are more inclined to trade inside the day – at least 15 minutes. More frequent operations in the first months of trading will be too difficult for you in terms of emotional response. Up to 80% of the start-up capital should be allocated for this purpose.

. Periodically, if you have the time and desire, you should perform short-term operations in order to better understand the market and learn how to trade faster.

. The first step is to develop a competent risk management system and follow its rules.

The main goal here is to save capital until you learn to understand the market "immediately" and trade effectively. This is exactly what a good risk management system helps to do.

Once we have decided on our strategy and tactics, we should move on to methods of making trading decisions that allow us to make transactions on time and correctly understand the current market situation.