Trading approaches represent the broad logic behind why a trader enters the market. They define the kind of opportunities being targeted — whether it is following an existing trend, catching a breakout, anticipating a reversal, or acting on momentum. Some approaches are directional, while others, like arbitrage and hedging, are used for protection or risk-free profit. These approaches act as guiding philosophies that shape the development of specific strategies.
Importance / Key Highlights
- Provides the overall mindset and reasoning for trade selection.
- Helps traders identify market conditions they are best suited for.
- Serves as the foundation for designing strategies.
- Allows traders to specialize in particular opportunity types.
Main Trading Approaches
- Trend Following: Riding the direction of the market trend.
- Breakout Trading: Entering when price crosses key levels.
- Reversal Trading: Targeting turning points in price movement.
- Momentum Trading: Acting on strong, volume-backed moves.
- Arbitrage: Profiting from price differences across markets.
- Hedging: Reducing risk on existing positions.