Categories of strategies

Hello guys,

I am at the beginning of my trading journey and i was wondering it strategies could be grouped Info different categories?(like Trend following system ect.)

In which trading categories can strategies be grouped?

I appreciate your answer!

 

1. Trend trading
2. Reversal Trading (this and trend trading doesn't get along well so better to do one or the other)
3. impulsively take a trade depending on how you 'feel' and then hope and pray you make a penny

 

At a first stab, I'd say all strategies can be grouped into neutral (arbitrage) and absolute, and within absolute there is fundamental and technical, and within technical there is reversion to mean and momentum.

 

and within fundamental....

There's relative value?

 

In practive, I would guess most value managers are probably practicing "relative value," given the imperative to be fully invested. But is that a strategy? I would think any strategy is also an "absolute return" strategy.

Maybe "directional" is better than absolute because "absolute" already has a specific meaning.

 

I use to believe there were two types of trading, trend and counter-trend, but now I have settled on just one type- trend. Every trade I have entered into, I look for it to trend in my direction otherwise why would I put it on? Now granted, I use a boatload of money management rules to put the percentages on my side and I use options to hedge some trades, but bottom line, I take trades for them to become profitable.

 

+1

Good grouping.

 

Great Question!! Your strategies will depend upon what info/technology you have access to, characteristics of the markets you're trading and your competitive edge. Not all strategies fit every market so you must know the characteristics of each and not all strategies work in every time frame. For instance, on a daily chart, ETF's trend more than their components (I'll leave it up to you to find out why). If you have access to Specialist books, DOM etc., then you'll have new strats. If you trade options then you'll want to understand relationships between implied and realized ordered parameters, etc.

As you grow to understand the markets, then you realize that some characteristics are actually something completely different. At that point, your strategies change as well as the development of them, etc.

 

Momentum, mean reversion and trend following. This is standard classification. But again, nothing is standard in trading.

 

I would categorise trend following as a momentum strategy. So you have momentum or MR. i.e. long or short volatility.