A trading strategy is a set of rules or a plan that guides a trader in making decisions about buying and selling securities. A trading strategy can be based on technical analysis, fundamental analysis, or a combination of both. It can also include risk management techniques and position sizing rules.
A technical analysis-based trading strategy will typically use chart patterns, indicators, and other tools to identify buying and selling opportunities based on past market data.
A fundamental analysis-based strategy, on the other hand, will focus on the underlying economic and financial factors that can affect the value of a security. This can include analyzing a company’s financial statements, management, industry trends, and macroeconomic conditions.
A combination strategy will use a mix of both technical and fundamental analysis.
It’s important to note that a trading strategy is not a one-size-fits-all solution and it may require adjustments as market conditions change. A successful trader should be flexible, adaptable and be able to adjust their strategy as necessary. It’s also important to have a clear exit plan for both winning and losing trades.
A well-designed trading strategy can help traders make more informed decisions, manage risk, and potentially increase returns.