8 Trading Strategies Every Beginner Should Know

Are you new to trading? Here are 8 Trading Strategies Every Beginner Should Know for you to start making money from trading.

When you're new to trading, it can be overwhelming trying to determine what strategy is right for you. There are countless different methodologies and systems out there, each with its own benefits and drawbacks. To help give beginners a solid foundation, here are eight of the most popular, easy-to-learn trading strategies to consider.

1. Dollar-Cost Averaging

Dollar-cost averaging (DCA) is one of the simplest yet most effective long-term investing strategies. The idea behind DCA is that you invest a set amount of money at regular intervals over time, regardless of price. This helps reduce risk because you don't invest all your capital at once.

For example, you could invest $100 into an index fund every month. When prices are low, your money buys more shares. When prices are high, you buy fewer shares. But over time, this strategy helps ensure you get a lower average cost per share. DCA works well when prices fluctuate but move overall higher in the long run.

2. Buy and Hold

A buy and hold strategy does exactly what it sounds like - you buy assets and hold them long-term. This works well for stocks, ETFs, mutual funds, and other securities you expect to increase in value over longer periods of time, like 5-10+ years.

Famously, Warren Buffett has perfected buy and hold investing, accumulating enormous gains by patiently holding stocks for decades. While buy and hold means less trading activity and fewer tax events, it also requires strong conviction in your investments.

3. Index Investing

Index funds and ETFs offer investors a way to buy and hold the broader market. Rather than selecting individual assets, you would invest in things like S&P 500 index funds that track the 500 largest U.S. companies.

This passive, diversified approach makes index investing an easy, low-cost way for beginners to gain market exposure without picking stocks. Over the long run, index returns reliably outpace the results of most active stock picking.

4. Trend Trading

Trend trading aims to capitalize on momentum in asset prices that persist for long periods. Traders identify a current trend (up, down, sideways) and take positions, expecting the dominant price move to continue.

There are many ways to determine trends, such as moving averages and peak/trough analysis. The challenge is avoiding false signals and knowing when a trend ends or reverses. Stop losses help traders exit losing trend trades quickly.

5. Copy Trading

Copy trading allows you to mimic other successful traders' strategies. Some online brokers offer copy trading platforms where you can automatically replicate buying and selling activity from top performers.

For beginners still learning how to trade themselves, copy trading can be an excellent way to start seeing returns faster while avoiding rookie mistakes. Just be sure to copy established traders with a long track record of outsized risk-adjusted returns. Working with platforms that are designed specifically for beginners is the best way to do this.

6. Swing Trading

Swing trading aims to profit from price swings in shorter timeframes from a few days to weeks. Using technical analysis, swing traders identify overbought/oversold signals and enter long/short positions expecting the price to revert toward identifiable support and resistance levels.

Compared to day trading, swing trading offers beginners more flexibility to enter and exit positions while still taking advantage of short-medium-term opportunities. Swing trading also requires less monitoring than active day trading, making it a good choice for those short on time.

7. Position Trading

Position traders take an even longer-term approach than swing traders, holding positions from months to years. Fundamental analysis drives buy/sell decisions more than pure technical analysis.

For example, position traders may analyze factors like sales growth, P/E ratios, and earnings surprises to determine if a security is under/overvalued and holds long-term appreciation potential. This strategic style centers around patience and conviction in core investment theses. It also requires a lot of research and understanding of the financial markets.

8. Day Trading

Day trading is when traders open and close positions within the same day, hoping to profit from intraday price fluctuations. Markets offer tremendous short-term volatility, providing day traders with ample money-making opportunities.

While compelling for adrenaline junkies, beginners should avoid rushing into day trading, which requires immense skill, risk management, and attentiveness. It’s best to try paper trading first before putting real capital on the line in fast-moving markets.

The variety of available trading methodologies can confuse newcomers. However, strategies like dollar cost averaging, index investing, and long-term trend trading are reliable ways to gain experience. As you get more comfortable, consider ramping up activity towards swing trading and other active styles like day trading. Above all, define your goals clearly, make sure to manage risk appropriately, and determine which strategies best align with your strengths. Staying disciplined is critical no matter what strategy you pursue as a beginner.

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