09 August 2023
Whether you are a seasoned investor or one of the many traders joining in recent times, you will know that the financial landscape is forever changing. A strategy which works perfectly well today may need to be updated tomorrow as markets move and different trends emerge. Successful investment traders accommodate several strategies, looking at ways to maximise the upside while limiting the downside. It is essential to be flexible and forward-thinking, admit if you are wrong and move on!
Whether you are a long-term investor or a short-term trader, you must grasp risk management to crystallise regular returns. You must know your risk tolerance levels at an early stage; to accommodate stop-loss orders and diversification, avoiding oversized positions and overly risky trades. You'll often find that if it looks too good to be true, and there appears to be limited if no risk, it is likely too good to be true.
Akin to a surfer finding that "perfect wave", those able to ride the short-term waves of momentum have an invaluable skill. Whether looking at moving averages, volume analysis or any other type of trend strategy, you need to know when to climb aboard and jump off.
Contrarian investment is a strategy that is often ignored but can prove highly lucrative in the long term if your research is correct. In most cases, you will find that market prices reflect short to medium-term prospects. In some cases, there may be overbought or oversold positions which you can take advantage of. One of the braver investment strategies, a contrarian view, means going against the market, going against the consensus, and looking for value.
Many describe technical analysis as a self-fulfilling prophecy; it will happen if enough people are looking for the same buy signals and sell signals. Candlestick patterns and chart formations can often look like a foreign language at first glance, although when you get into the different strands of technical analysis, they will start to make sense. If you buy into technical analysis, you either buy in 100% or discount it; there are no half-measures.
The art of fundamental analysis is often seen as a long-term strategy but can also be lucrative in the short to medium term. An ability to read accounts and identify intrinsic value in assets while being aware of cash flow and relative value compared to competitors and other similar sectors can prove highly beneficial for any investor. In many ways, whatever type of trading strategy you use, the ability to read accounts and read between the lines of company statements will build a greater understanding of individual companies and sectors, giving you confidence in your abilities.
Swing trading is one investment strategy that looks obvious and simple in hindsight; the buy and sell signals were there. However, jumping on board a short to medium-term overbought or oversold position is more challenging than it looks. Constantly monitoring the risk/reward ratio as share prices swing is a given; this is not a strategy you can start, walk away from and then return. Timing is crucial with any plan, but with swing trading it is critical.
While algorithmic trading is perceived as a new concept, a new way of investing, it has been around in some shape or form for many years. The introduction of AI and machine learning has taken this concept to a different level and is beginning to hit the headlines. Back-testing strategies, analysis of data and the ability to project forward, assuming that investment patterns of yesteryear will happen again, is the core element of algorithmic trading. This is as much based on investor sentiment and activity as on price movement - getting into traders' heads.
While different trends will prompt various share price movements, these all take place under the umbrella of investor sentiment. If sentiment changes, on the upside or the downside, this will impact all investment strategies, rebasing forecasts for the future and expected share price movements. If you can read market sentiment, more critically, a change in market sentiment, you have the most valuable tool available to any investor. Use it!
There are many different strategies for short, medium and long-term investment. While it is essential not to be overly dependent on one strategy, you must also find systems that fit your investment aims and skill set. It may take some time to find the best strategies that work for you, but there are certainly enough to choose from!
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