main types of stock trading strategies
Having analyzed the combination of the three most important factors, which we discussed in the previous part of the article, we have all the necessary information to select their own exchange strategy. From what to choose and how to make the choices that will lead to effective relationships with the stock exchange and will allow to achieve the purposes for which we originally expected?
Active strategy (trading)
When you select this strategy the investor opens primarily short-term and medium-term positions, and may withdraw funds from the turnover partially or completely at any time. Moreover, active strategy implies on the one hand tighter control of current risks, due to the limitations of the amount of losses in each transaction, but on the other allows to increase profits and as a consequence the risk of using credit facilities broker.
Consider the features and the rules of that strategy. Firstly, active strategy involves working mainly with the «blue chips», i.e. with the most liquid shares in the Russian stock market. Second, and most important, factor is the active investor has the opportunity to work with a margin shoulder. From this it follows the third rule - with the active strategy of the direction of movement of the market of the investor's not interested in that, he may, with equal efficiency earn both at the growth and decline, the value of the securities.
The main tool for decision-making in the framework of active strategies - technical analysis, and the main task - to determine the point of «entry» and «exit» in the required time interval.
As a rule, this strategy requires from the investor to give the market a lot of attention. Even if the chosen strategy of trade involves the Commission of not more than one transaction per week, preferably daily monitor the overall market situation, be aware of the news, which may substantially affect the stock market and in General to keep the hand on the pulse, in order not to miss the best time to profit taking.
It should be noted that, by working in this strategy, it is possible to limit the risk of loss due to billing stop orders, i.e., for example, sell under condition of decrease of the prices up to a certain level, as well as using the recommendations of the system of «Aton-Line Navigator», which helps novice investors to navigate in the vast ocean of securities, selecting those that remain afloat, even if the storm.
Investment (portfolio) strategy
The main reason for the choice of this strategy is the lack of time for performance of transactions and the existence of «long» investment. Whatever your attitude to risk - if you don't have a chance to give the stock market at least half an hour daily, the investment strategy will be to your best choice.
However, for this strategy there are a number of features and constraints that need to be taken into account when choosing. Firstly, the best investment strategy works in the presence of the global upward trend, i.e. when the market is seeing a steady growth.
Secondly, an important factor is the investment period, because investment horizons strategies range from 1 year and more. In other words, you must be absolutely sure that for at least a year your savings do not need you at any of the other, not related to exchange of traffic, purpose. Otherwise you have the chance at the forced exit from the market close their positions not in the good point and not an income, which had been counted on.
The third feature of the investment strategy lies in the fact that the investor does not use margin shoulder, and thus earns only on the growth of the stock market.
The investor pays a lot of attention to the assessment of investment attractiveness of the selected company, the largest value in making decisions about buying or selling to have the data of the fundamental analysis. Technical analysis instruments he uses to identify the point of opening and closing positions on the already selected instrument.
Depending on the relationship to risk in the portfolio can include not only the blue chips, but the shares little liquid undervalued market companies. It should be borne in mind that the strategy envisages investments for a long time and does not require paid to the exchange trade a lot of time. The level of risk of this strategy increases significantly, as undervalued market shares really have a great chance to grow in the price, however, to say exactly when this will happen - it is impossible. By choosing this strategy in management of own funds, should be seriously considered fundamental indicators of the undervalued the company, as well as be ready for a long period of waiting the day when the market will turn the attention to the underestimated share. True, and the results of the waiting sometimes impress no less than the results of the most successful active strategies.
A mixed strategy
The classification of strategies exists on paper, but the real trade brings them in their adjustments. Often novice investor unable to properly identify their personal aversion to risk, there are cases when it is impossible to unequivocally define the term of the investment (for example, part of the funds can be invested for the long term, and the other part will be needed in the course of the year). In such cases, the most effective would be to combine different strategies depending on the specific circumstances of each individual investor. So there is a mixed strategy of exchange trade, which includes features of both active trading, and investment strategy.
The main conditions of the efficiency of the joint strategy are as follows:
You are ready to pay the exchange trade at least a few hours a week;
You clearly imagine a proportional division of assets in its portfolio investment term.
Feature of the mixed strategy is the so-called portfolio diversification strategy. In fact, the investor's portfolio is divided into parts, one of which is invested for the long term, the other is managed actively. Here you can give an example, when a portion of the proceeds goes to the undervalued shares of the second echelon, and the other is used for an active trading with blue chips. The proportions of dividing depend on the individual decision of each of the investor, but they are imposed standard limit on investment and risk appetite.
Having studied the strategy of exchange trade, everyone can choose for themselves the best way to work on the stock market. However, not less important is the understanding of the fact, that for effective and efficient exchange trade, we need only two things: the availability of start-up capital and the desire of his increase. The presence of a large number of free time when this is not decisive - everyone can choose for themselves the optimal strategy, depending on what time and opportunities it offers.
