In investing, be it stocks, forex, cryptocurrencies, or commodities, no single strategy works for everyone. Therefore, what one group of investors considers the best trading strategy might not be right with another group? That is because different investors would have different tastes and investment goals.
The best trading strategy should be the one that fits an investor’s circumstance and investment goal. Identifying the strategy that fits begins with understanding the different strategies. Then you can choose the one that best suits you.
Investing approaches can be grouped into two main categories, namely active and passive. Active investing focuses on exploiting a security’s price movements for profit, typically with a short-term horizon. Think about executing trade-in minutes or a few hours or days or weeks. On the other hand, passive investing is the practice of buying securities and holding them over a long period – say five years, ten years, or even longer.
Those are the main categories of investing strategies. Within them, there are specific approaches that investors can adopt based on their circumstances and goals. Here is a look at a few types of active trading strategies.
Day Trading is an excellent example of an active investing or trading approach. As the name suggests, it involves starting and closing trades the same day. In day trading, the investor’s goal is to profit from the fluctuation of a securities’ price within a day. Day trading is mostly the domain of experienced investors or professional traders and ideal for those seeking quick, short-term gains. While it can yield significant gains in just minutes or hours, it can also deliver massive losses, including loss of the capital, if things go wrong.
In Swing trading, investors seek to profit from a moving market. In this trading method, positions can be held for longer than a day, but as long as the volatility may last. To profit from a trade, Swing traders try to find the right time to enter and exit security. That may require analyzing the market and setting out trading rules. Typically, Swing traders seek to enter or exit security at the beginning of price volatility to maximize their returns.
Pair trading is one of the best trading strategies for traders or investors trying to minimize their risks. The strategy can be applied in the trading of virtually all securities.
Pair trading in stocks involves taking opposing positions in two different but related stocks. These may be stocks of competing companies in the same industry but whose prices tend to move in opposite directions over time. In that case, a trader opens a long position on the stock whose price is currently low but which they believe will go up over time. At the same time, the trader takes a short position on the stock they believe will decline over time. The trader profits from the spread in the value of the opposing shares. In the Pair trading strategy, investors can profit regardless of the market trend. But it requires carefully choosing their pair of stocks to invest in and the right timing of when to close the positions.
Passive Investing Strategies
Turning to the passive investing approach, the investor seeks to identify strong securities to purchase and hold for a long period. The first step is identifying high-quality investments that can be appreciated over time. Passive investors aim to build wealth gradually over the long-term and are not concerned about short-term price fluctuations. Legendary investor Warren Buffett is perhaps the most prominent believer in passive investing. Passive investing requires carefully analyzing the markets and investment securities to make the right pick.
Whether active investing is better than passive investing endorsed by Buffett is an ongoing debate. But there is no question every investing strategy has its drawbacks. Of course, if only one particular strategy works, then there would be no active versus passive divide. The same goes for investment securities and assets. If only stocks make money for investors, nobody would be trading forex, commodities, or cryptocurrencies.
Therefore, people choose investment strategies that align with their tastes and goals.
Among the affluent investors, the use of trust management services is quickly gaining popularity. And many trust companies have sprouted up around the world to address this growing demand. Nexus Trust Management is an excellent example of a trusted company that works with private clients.
Trust management services have become popular with people keen to overcome the active versus passive investing dilemma. Trust companies provide a range of services, from investment portfolio administration to wealth management services such as financial planning and tax preparation.
Since trusts assume full fiduciary responsibility for the client and provide a one-stop-shop for investing and wealth management needs, they save clients the time and frustration of trying to analyze the markets or coordinating investments across various platforms or brokerages.
An important consideration for someone who wants to grow their wealth is to choose a reputable trust company with a proven track record and provides a diverse range of investment options. High-net worth individuals have embraced trust services as they offer an orderly way to manage wealth.