Resources/Trading strategies

Trading strategies

Educational guide

A structured introduction to how traders classify strategies, read setups, and manage risk—with diagrams you can reference while learning. Not personalized investment advice.

On this page

Overview
Strategy loop
Time horizons
Market logic
Chart patterns
Options overview
Risk & sizing
Common pitfalls
Related

Educational use only

Markets involve substantial risk. This page explains concepts and frameworks; it does not recommend any security, product, or trade. Always consider your objectives, costs, taxes, and regulations in your jurisdiction before investing or trading.

What is a trading strategy?

A trading strategy is a repeatable set of rules that define what to trade, when to enter and exit, how large a position to take, and how to review results. The goal is not a single perfect trade—it is a positive expectancy over many trades when the strategy is applied with discipline, assuming market conditions remain favorable for that approach.

Serious traders separate edge (why the strategy might work), risk (how much you can lose per trade and in stress), and execution (fills, fees, slippage, and emotional discipline).

The strategy loop

Treat trading like a controlled process: document assumptions, define triggers, size consistently, then improve from journals—not from memory alone.

Closed-loop process (conceptual)

Hypothesis — What inefficiency or behavior are you exploiting (e.g. trend persistence after breadth thrust)?
Rules — Exact entry, invalidation (stop), and exit (target or trail).
Size & risk — Risk per trade as a fraction of equity; max heat across positions.
Execute — Follow the plan; avoid impulsive changes mid-trade.
Review — Tag trades, measure expectancy, detect regime drift.

Time horizon spectrum

Strategies are often grouped by how long positions are held. Shorter horizons usually mean more trades, higher attention to costs, and stricter execution; longer horizons emphasize fundamentals, dividends, and macro.

Scalp

seconds–minutes

Day

intraday

Swing

days–weeks

Position

weeks–months+

Invest

months–years

Scalping

Many small wins; relies on tight spreads, low latency, and strict risk. High cost and attention burden.

Day trading

Flat by session close; avoids overnight gap risk. Needs defined session rules and discipline on daily loss limits.

Swing trading

Holds days to weeks; balances noise and trend. Often combines technical levels with catalysts.

Position / investing

Weeks to years; driven more by thesis, fundamentals, or macro. Portfolio risk and correlation matter more.

Strategy logic (how price is expected to behave)

Trend following assumes moves persist once inertia builds—often implemented with moving averages, breakouts of ranges, or ADX filters. Strengths: can capture large moves. Risks: whipsaws in range-bound regimes; lag from indicators.

Examples: MA crossover systems, Donchian/Turtle-style breakouts, time-series momentum in futures.

Chart concepts (illustrative)

These simplified figures show common teaching visuals—not trade recommendations. Real markets add noise, gaps, and session effects.

Moving-average crossover (concept)

Range: support & resistance

Breakout from consolidation

Risk vs reward (R-multiple idea)

Reading the risk-reward sketch

Many traders express plans in "R" (risk units). If you risk 1R to make 2R, you need a lower win rate than a 1:1 plan— but slippage and fees eat into theoretical edges.

Options strategies (overview)

Options layer direction, time, and volatility into payoffs. Below is a compact reference—each structure has distinct Greeks, margin, and assignment risks.

Structure	Typical use case	Risk note
Long call / long put	Directional bet with defined premium risk	Theta decay; IV crush after events
Covered call	Income on stock you own; capped upside	Downside stock risk remains
Protective put	Floor stock downside	Premium cost; drag if flat
Vertical spread	Limit premium outlay; cap gain/loss	Liquidity & width selection matter
Iron condor / iron butterfly	Range / low-vol premium selling	Tail risk; gap moves
Straddle / strangle	Long vol or big move uncertainty	Expensive premium; needs large move
Calendar spread	Play term structure / vol timing	Pin risk near strikes

Risk management essentials

Position sizing

A common starting framework: choose a max loss per trade as a small fraction of account equity (e.g. 0.5–1%), then size shares/contracts so the distance to your stop equals that risk. Adjust for correlation across positions.

Stops & invalidation

Stops should reflect where the thesis is wrong, not only dollar comfort. Volatility-adjusted stops (e.g. ATR multiples) can reduce noise exits but widen risk per unit.

Diversification & correlation

Holding multiple names in the same sector may not diversify macro shocks. For options, mind clustered vega across positions.

Common pitfalls

•Curve-fitting — Optimizing indicators on past data until they look perfect; often fails forward.
•Ignoring costs — Commissions, spreads, borrow fees, and taxes can erase edges on short horizons.
•Trading without a journal — No feedback loop; repeats the same mistakes.
•Regime change — Trend systems suffer in chop; mean-reversion suffers in strong trends. Monitor market state.