Strategies: How do I know which shares to buy?

How do I know which shares to buy?

Not all trades will return a profit. The value of companies and their shares fluctuates over both the long and short term. There are tens of thousands of companies to invest in, so how do we narrow down the options?

A trading strategy is a plan used by traders to in order to choose which shares to buy with the most likelihood of returning a profit. Trading strategies come in all sorts of styles, operating on different markets and time frames.

Types of Trading Strategies

For simplicity, we’ll put trading strategies into three main categories.

Value Investing/Fundamentals

Value investing is the oldest and most common type of trading, and what comes to mind for most people when they think investing. Value investing involves picking stocks the trader considers undervalued, waiting for the price to rise, and then selling. A value investor will consider the market landscape and look through a company’s earnings report to decide whether a company is worth investing in.

Discretionary Trading

Discretionary Traders use technical analysis and chart patterns to decide on trades using their own intuition and experience. They will sort through stocks looking for opportunities for potential investments. They may use computer algorithms in this process, but the final decision is up to the trader.

Systematic Trading

Systematic trading involves developing computer algorithms to analyse many stocks and come to a decision. Systematic trading strategies use mathematics to find trends and patterns amongst data. This has the benefit of being able to evaluate millions of data points in very short time periods, as well as removing human error and bias from the process.