Two basic styles are used by most traders.
Trend following strategies also fall in this category. trend followers look for big moves and because such big moves are infrequent they have comparatively low number of trades.
Some growth investors also follow this kind of approach , they find growth stock very early in its growth cycle and hold
To trade such strategies you need extremely high skill. Unless you are very right on your infrequent trades you can have hit or miss years.
Low expectancy High Frequency
In this style traders look for small but frequent moves.
Swing trading, day trading, high frequency trading, quant strategies are primarily focused on this.
In last 10 years these strategies have become very popular and widely used.
Transaction costs have dropped dramatically in last 10 years. When I started trading a trade used to cost 39 dollars one way. Now you can do a round trade for around 1 to 10 dollars.
Large scale use of quant techniques have also contributed to this. High frequency trading has become the biggest trading style on the street .
All factors being same it is easier to forecast a next small move than to forecast a large move.
Trader can decide to use either of the approach and make money and lots of money. Day traders using high frequency trading make millions and same way a low frequency trader who catches biggest move in a year can make millions.
But the important caveat is that to do both you need very high degree of skill or market understanding on your chosen holding period.
Depending on your choice of strategy your development path will be different.
- High expectancy Low frequency
- Low expectancy High Frequency
In this style traders look for big moves and infrequent trades. Buy and hold is an ultimate High Expectancy and Low Frequency strategy. And for investors they are very popular. Many 401k strategies follow that approach along with asset allocation.
Trend following strategies also fall in this category. trend followers look for big moves and because such big moves are infrequent they have comparatively low number of trades.
Value investors typically follow these kind of methods as it often takes time for market to recognise value.
Some growth investors also follow this kind of approach , they find growth stock very early in its growth cycle and hold
Part of the IBD strategy which focuses on holding big stocks for long term moves falls here. Rest of IBD strategy is primarily swing trading strategy where they look for 20% gains.
To trade such strategies you need extremely high skill. Unless you are very right on your infrequent trades you can have hit or miss years.
Low expectancy High Frequency
In this style traders look for small but frequent moves.
Swing trading, day trading, high frequency trading, quant strategies are primarily focused on this.
In last 10 years these strategies have become very popular and widely used.
Transaction costs have dropped dramatically in last 10 years. When I started trading a trade used to cost 39 dollars one way. Now you can do a round trade for around 1 to 10 dollars.
Large scale use of quant techniques have also contributed to this. High frequency trading has become the biggest trading style on the street .
All factors being same it is easier to forecast a next small move than to forecast a large move.
Trader can decide to use either of the approach and make money and lots of money. Day traders using high frequency trading make millions and same way a low frequency trader who catches biggest move in a year can make millions.
But the important caveat is that to do both you need very high degree of skill or market understanding on your chosen holding period.
Depending on your choice of strategy your development path will be different.
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