Categories of strategies
- Thread starter pisco
- Start date
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.
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.
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.
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.