Trading strategy

Trading strategy is any set of rules to ensure a profit in trading. Technical and/or fundamental analysis are/is used to devise a trading strategy.

Trading strategies work to standardise investment by building trading triggers around predefined indicators.

A hypothesis about how the market behaves is made, then tested with historical data, and if proven right, it is adopted as a trading strategy in the live markets.

Example

Say a hypothesis is made the stocks which have seen their net income increase consistently in the past three quarters will give a positive return in the next quarter too. If historical data supports this proposed trend and there are no imminent macroeconomic changes, we may take the hypothesis to the live markets to trade in a way that we profit from such stocks’ price movements.