Trading Strategies

• HedgingIntermediate6 min read

  Hedging is opening a position that is expected to gain when another of your positions loses, reducing your overall risk.

• Day TradingBeginner6 min read

  Day trading means opening and closing positions within the same trading day, so that no positions are held overnight.

• Swing TradingBeginner5 min read

  Swing trading aims to capture price moves that last from a few days to a few weeks.

• ScalpingIntermediate5 min read

  Scalping is a very short-term style that aims to take many small profits from tiny price moves, often holding for seconds or minutes.

• Trend FollowingIntermediate5 min read

  Trend following is buying assets that are rising and selling those that are falling, staying in until the trend shows signs of ending.

• Mean ReversionIntermediate5 min read

  Mean reversion is the idea that prices that stretch far from their average tend to return toward it, and strategies that trade on that assumption.

• Position TradingBeginner5 min read

  Position trading means holding trades for weeks to months or longer, aiming to capture large trends rather than daily swings.

• Trading StrategyBeginner4 min read

  A trading strategy is a defined method for deciding when to buy or sell, based on specific conditions that can be written down and tested.

• Trade Setup and Entry TriggerBeginner4 min read

  A setup is the set of market conditions your strategy looks for, such as a pullback to support in an uptrend. The entry trigger is the specific event that tells you to act on it, such as a candle closing back above the level.

• Trading EdgeIntermediate4 min read

  A trading edge is a repeatable advantage that produces a positive expectancy over many trades, after costs. It can come from a pattern, information, speed or execution, and it must be shown with enough data to rule out luck.

• Dollar-Cost AveragingBeginner4 min read

  Dollar-cost averaging (DCA) is investing a fixed amount at regular intervals regardless of price, which spreads purchases over time.

• Algorithmic TradingIntermediate3 min read

  Algorithmic trading uses computer programs to place orders automatically according to predefined rules.

• ArbitrageAdvanced3 min read

  Arbitrage is profiting from a price difference for the same asset in two places by buying the cheaper and selling the dearer at the same time.

• Breakout TradingIntermediate3 min read

  Breakout trading means entering when the price moves out of a range or past a key level, expecting the move to continue.

• Buy and HoldBeginner3 min read

  Buy and hold is a long-term approach of buying assets and keeping them through market ups and downs, rather than trading frequently.

• Carry TradeAdvanced3 min read

  A carry trade borrows in a low-interest-rate currency and invests in a higher-yielding one, earning the difference unless exchange rates move against it.

• Contrarian TradingIntermediate3 min read

  Contrarian trading means deliberately going against the prevailing crowd sentiment, buying when others are fearful and selling when they are euphoric.

• Directional TradingBeginner3 min read

  Directional trading means profiting from correctly predicting whether a price will rise or fall, as opposed to strategies that profit from spreads or volatility.

• Fading the Move and Selling the RipIntermediate3 min read

  Fading a move means trading against it in the expectation that it will stall or reverse — selling into a sharp rally or buying a sharp drop. “Sell the rip” is the counterpart of “buy the dip”: selling after a bounce in a weak market.

• Grid TradingIntermediate3 min read

  Grid trading places buy and sell orders at fixed intervals above and below a price, profiting from back-and-forth movement but suffering in strong trends.

• High-Frequency TradingAdvanced3 min read

  High-frequency trading (HFT) is algorithmic trading at extremely high speed, holding positions for fractions of a second, usually by specialised firms.

• Merger ArbitrageAdvanced3 min read

  Merger arbitrage is buying a takeover target after a deal is announced, when it trades a little below the offer price, to earn that spread if the deal closes. The main risk is the deal failing, which can send the price sharply lower.

• Momentum TradingIntermediate3 min read

  Momentum trading means buying assets that are rising strongly — or shorting those falling strongly — expecting the move to persist for a while.

• News TradingIntermediate3 min read

  News trading and event-driven trading aim to profit from price reactions to scheduled or unexpected events such as data releases or earnings.

• Pairs TradingAdvanced3 min read

  Pairs trading means going long one asset and short a closely related one, betting on the gap between them rather than on the market's direction.

• Pullback TradingIntermediate3 min read

  Pullback trading means entering in the direction of a trend after a temporary move against it, aiming for a better price than chasing.

• Range TradingIntermediate3 min read

  Range trading means buying near the bottom and selling near the top of a sideways range, until the price breaks out of it.

• Re-EntryIntermediate3 min read

  A re-entry is opening a new position in the same idea after a previous one was closed — for example after being stopped out, if the setup forms again.

• SeasonalityIntermediate3 min read

  Seasonality is a tendency for prices to behave in a certain way at certain times of year, such as harvest effects in agricultural commodities.

• Trade ThesisBeginner3 min read

  A trade thesis is the reason you expect a trade to work, written down before you enter it, together with what would prove it wrong.

• Trading SystemIntermediate3 min read

  A trading system is a complete, usually rule-based set of strategies, risk rules, tools and procedures, often precise enough to be automated.

• Trading APIs, FIX and WebSocketsAdvanced4 min read

  An API (application programming interface) lets software place orders and receive data from a broker or exchange. FIX is the long-standing industry protocol for electronic trading messages; WebSocket feeds stream live prices over a persistent connection. APIs usually have rate limits on how many requests you can send.

• Turtle Trading SystemIntermediate3 min read

  The Turtle trading system was a rule-based trend-following method taught by Richard Dennis and William Eckhardt to a group of trainees in 1983. It bought breakouts to new multi-week highs, sized positions by volatility and used strict stops.

Each term is defined in one sentence. Terms marked “Article in preparation” will get a full step-by-step article.

• Basis Trade

  AdvancedArticle in preparation

  A basis trade buys an asset in the spot market and sells its futures (or the reverse) to earn the gap between the two as they converge. In crypto it is called cash-and-carry; in Treasuries hedge funds run it with heavy leverage, which can unwind violently in stress.

• Bottom Fishing

  BeginnerGlossary

  Bottom fishing is buying assets after a big fall in the hope they have reached their low. It can pay off, but trying to “catch a falling knife” often means buying too early, so many traders wait for a base or a change in trend first.

• Coattail Investing

  BeginnerGlossary

  Coattail investing means copying the trades of famous investors, usually from their published holdings such as US 13F filings. Those reports arrive weeks after the quarter ends, so followers buy late and miss later changes.

• Commodity Trading AdvisorCTA

  AdvancedGlossary

  A commodity trading advisor manages or advises on futures trading for clients. Many CTAs run systematic trend-following strategies, known collectively as managed futures.

• Copy Trading

  BeginnerArticle in preparation

  Copy trading automatically mirrors another trader's positions in your own account, in proportion to the amount you allocate. It saves effort, but past results do not guarantee future ones and you still carry every loss.

• Dividend Capture

  IntermediateGlossary

  Dividend capture means buying a stock just before its ex-dividend date to collect the payout, then selling soon after. The price usually drops by about the dividend on the ex-date, so after taxes and costs the strategy rarely earns much.

• Dogs of the Dow

  BeginnerGlossary

  Dogs of the Dow is a simple yearly strategy: buy the ten Dow Jones stocks with the highest dividend yields in equal amounts and rebalance once a year. The idea is that high yields flag out-of-favour blue chips due for a recovery.

• Factor Investing

  AdvancedArticle in preparation

  Factor investing targets traits that research links to long-run excess returns — such as value, size, momentum, quality and low volatility. The Fama–French three-factor model made the idea mainstream; “smart beta” ETFs package single factors.

• Index Arbitrage

  AdvancedGlossary

  Index arbitrage trades the gap between stock index futures and the stocks in the index: buying whichever is cheap and selling whichever is dear, then waiting for the prices to converge.

• January Effect

  IntermediateGlossary

  The January effect is the historical tendency for stocks, especially small caps, to rise in early January, often explained by tax-loss selling in December followed by buying back. It has weakened since it became widely known.

• Market-Neutral Strategies

  AdvancedGlossary

  Market-neutral strategies hold long and short positions sized so that overall exposure to the market, or beta, is close to zero. Returns then come from the gap between winners and losers rather than from the market's direction.

• Presidential Election Cycle

  IntermediateGlossary

  The presidential election cycle theory says US stocks tend to do worst in the first two years of a presidential term and best in the third, as administrations push for growth before re-election. It is a loose historical tendency, not a rule.

• Prop Firms and Funded Accounts

  BeginnerArticle in preparation

  Proprietary trading firms trade with their own capital. Retail “prop firms” sell evaluation challenges: pass the profit target without breaking drawdown rules and you trade a funded account for a share of profits. Most participants fail, and the fees are the firm's income.

• Quantitative Trading

  AdvancedArticle in preparation

  Quantitative trading uses statistical models and data, rather than judgement, to decide what to buy and sell; the people who build the models are called quants. Strategies range from slow factor portfolios to high-frequency market making.

• Santa Claus Rally

  BeginnerGlossary

  The Santa Claus rally is the historical tendency for US stocks to rise over the last five trading days of the year and the first two of January. It is a seasonal quirk, not a promise, and has failed in plenty of years.

• Tactical Asset AllocationTAA

  IntermediateGlossary

  Tactical asset allocation shifts a portfolio away from its long-term mix for a while — say from 60/40 to 70/30 stocks — to lean into markets that look attractive. It differs from strategic allocation, which sets the long-run mix and rebalances back to it.

• Trading Bots

  IntermediateArticle in preparation

  A trading bot is software that places trades automatically according to programmed rules, often through an exchange's API. Bots execute without emotion or fatigue, but they still need a real edge, and bots sold with promised returns are a common scam.

• Triangular Arbitrage

  AdvancedGlossary

  Triangular arbitrage exploits a mismatch between three currency rates — for example EUR/USD, USD/JPY and EUR/JPY — by trading around the loop and ending up with more of the starting currency. Such gaps are tiny and closed within milliseconds by banks and algorithms.