The Pros and Cons of Different Types of Trading Strategies

different trading strategies

Trading strategies come in different colours.

It’s common for everyone to have their own favourite colour and we shouldn’t judge anybody based on their preferences.

But one should know the pros and cons of their choice especially when it comes to dealing with money.

A trading strategy is a set of rules and guidelines that you follow when you buy and sell stocks or other financial instruments.

It helps you to make consistent and rational decisions based on your goals, preferences, and risk tolerance.

Trading strategies are based on various factors, such as time frame, market condition, risk appetite, and trading style.

Each type of trading strategy has its own pros and cons, and there is no one-size-fits-all solution for every trader or every situation.

This blog will discuss four types of trading strategies that traders use:

  • Trend following
  • Swing trading
  • Scalping
  • Arbitrage

We will explain what they are, how they work, and what are their advantages and disadvantages in detail in the upcoming sections.

Trend Following

Trend following is a trading strategy that involves following the direction of the dominant market trend.

A trend is a sustained movement of prices in one direction, either up or down.

Trend followers use various indicators and tools to identify the trend and its strength:

  • Moving averages
  • Trend lines
  • Chart patterns.

They then enter the market when the trend is established and exit when the trend reverses or weakens.

Simple and easy to followGenerates false signals in choppy markets
Captures large and consistent profitsRequires patience and discipline for entry/exit points
Reduces emotional stress and overtradingIncurs large drawdowns during market reversals/corrections
Benefits from market momentum and compoundingMisses short-term opportunities by holding positions too long/short

Swing Trading

Swing trading is a trading strategy that involves exploiting short-term price fluctuations and capturing medium-sized profits in various market conditions. 

Swing traders use various techniques and methods to identify the best entry and exit points.

They do this based on:

  • Support and resistance levels
  • Fibonacci retracements
  • Candlestick patterns
  • And other technical analysis tools

They then enter the market when they spot a potential price movement and exit when they reach their target or stop-loss.

Exploits short-term price fluctuations for medium-sized profitsAffected by overnight risks and market gaps
Works in both bullish and bearish trends, and range-bound marketsRequires extensive market analysis and technical skills
Offers more trading opportunities and flexibilityInvolves higher transaction costs and commissions
Balances risk and reward with appropriate stop-losses


Scalping is a trading strategy that involves taking advantage of small price movements and generating consistent profits in liquid markets. 

Scalpers use various tools and systems to monitor the market constantly and execute trades quickly based on: 

  • Price action
  • Order flow
  • High-frequency trading algorithms, etc. 

They then enter the market when they see a favourable price difference between buyers and sellers and exit when they reach a small profit margin.

Takes advantage of small price movementsRequires constant monitoring and quick trade execution
Exploits market inefficiencies and anomaliesDemands high concentration and attention to avoid errors
Reduces exposure to market risks and volatilityRequires significant capital, technology, and infrastructure
Benefits from market liquidity and speedIncurs high transaction costs and slippage
Utilizes advanced technology and infrastructureFaces price slippage due to market volatility


Arbitrage is a trading strategy that involves exploiting price differences and discrepancies between different markets or instruments. 

Arbitrageurs use various opportunities and strategies to simultaneously buy and sell the same or related assets at different prices: 

  • Market arbitrage
  • Merger arbitrage
  • Statistical arbitrage

They then enter the market when they find an arbitrage opportunity and exit when the price difference disappears or narrows.

Exploits price differences between markets or instrumentsDifficulties in finding and executing opportunities due to competition and efficiency
Generates risk-free or low-risk profitsRequires significant capital, technology, and infrastructure
Benefits from market diversity and complexityPotential legal, regulatory, or ethical issues
Uses sophisticated models and algorithmsComplex calculations and models involved


In the dynamic world of trading, both scalping and arbitrage offer unique advantages and challenges. 

Scalping thrives on swift price movements, while arbitrage capitalizes on market discrepancies. 

Remember, success requires constant vigilance and technological prowess. 

Elevate your trading game with StockPro’s Master Trader course, honing your skills to navigate these strategies effectively. 

Embrace the opportunities and complexities, and let StockPro empower you on your journey to becoming a proficient trader.

Contact us now for more information. 

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