Trading strategy definition

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A trading strategy is an established method of planning and making trades that you can follow in the hope of making a profit.

Trading strategies will typically set out specifications for which trades to make, when to make them, when to exit them, and how much capital you should risk on each position. If followed correctly, they offer you a means of objectively assessing whether a trade is worth the risk at the outset.

Trading strategy example

Day trading is a well-known trading strategy which stipulates that no positions should be kept open overnight, to avoid the increased cost and risk associated with medium to long term trading. Because of the short length of time each trade is open for, day trading sets out to make lots of trades, making profits quickly from very small price movements.

Choosing a trading strategy

There are lots of trading strategies to choose from, and picking one means finding an option that suits your trading: including your risk appetite, knowledge of the markets and the amount of time you have to trade. Day trading, for example, requires constant attention of the markets and as such may not be suitable for everyone.

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