Trading Strategies: 12 Strategies Explained for Beginners

A trading strategy is a set of rules that tells you which market to trade, when to enter, where to exit if you are wrong, and where to take profit. Different strategies suit different markets, schedules and personalities, in the same way different tools suit different jobs. This guide is the hub of the Velotrade strategy library: it summarises twelve common strategies, compares them side by side, and shows how to choose one that fits the rules of a prop firm challenge.

Quick answer: Trading strategies are rule sets for entering and exiting trades. The most common are trend following, momentum, breakout, mean reversion, price action, supply and demand, and opening range breakout, applied through a trading style such as scalping, day trading, swing trading or position trading. Beginners should pick one simple, testable strategy and size every trade small.

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Trading strategies: key facts

What is a trading strategy?

A trading strategy is a repeatable rule set precise enough that two traders following it would take the same trades. It answers five questions: what you trade, what condition must be present, what triggers the entry, where the stop-loss goes, and how you exit with a profit. A strategy is one part of a wider trading plan, which also covers daily loss limits, routine and journal review.

Rules matter because they can be tested. "Buy dips in strong markets" cannot be measured; "buy the first pullback to the 20-period moving average in an uptrend, stop below the pullback low, target 2R" can be backtested.

Strategy vs trading style: what is the difference?

A trading style is how long you hold positions (scalping, day, swing or position trading), while a strategy is the entry and exit logic (breakout, trend following, mean reversion). A breakout can run on a 1-minute chart or a weekly chart; only the stop size, target and trade frequency change.

What are the main types of trading strategies?

Most strategies belong to one of two families, and knowing which one you are using explains how it behaves.

Trend and momentum strategies buy strength and sell weakness. They tend to have lower win rates and rely on a few large winners. Research supports the idea that trends persist: an AQR study by Hurst, Ooi and Pedersen built a time series momentum strategy back to 1880 and found it was consistently profitable over the following 110 years across asset classes. That supports a diversified, systematic approach; it is not a promise for any single trader.

Mean reversion strategies fade moves that look stretched and expect price to return toward an average. They usually win more often with smaller winners, and their danger is the rare move that keeps going. Poterba and Summers (NBER, 1987) found stock returns tend to be positively correlated over short horizons and negatively correlated over long horizons, which is part of why both families can work in different conditions.

The chart is a reminder that the strategy is only half the picture. On a static drawdown account the number of full losses you can absorb is fixed by the plan and your risk per trade, whichever strategy you use.

The 12 trading strategies in this library

Each summary below links to a full guide with rules, examples and prop firm notes.

Swing trading strategies

Swing trading strategies are setups for trades held from a few days to a few weeks, usually planned on the daily and 4-hour charts. The guide covers six concrete setups with entry, stop and target rules: the pullback to a moving average, breakout and retest, support and resistance bounce, Fibonacci retracement, RSI divergence and flag continuation. The trade-off for low screen time is overnight and weekend gap risk.

Breakout trading

Breakout trading means entering when price closes beyond a range, a triangle or a flag, betting that the new move will continue. The key confirmation is volume: a breakout on expanding volume is more credible than one on thin trade. False breakouts are the main cost, so many traders wait for a retest of the broken level before entering. Stops go back inside the pattern, where the breakout would be proven wrong.

Mean reversion trading

Mean reversion trading bets that a price stretched far from its average will move back toward it. Traders use tools such as Bollinger Bands, RSI extremes or distance from a moving average to find stretched moves, and usually target the average itself. It tends to work in ranging markets and fails in strong trends, when "oversold" can stay oversold for a long time. Winners are small, so one unmanaged loss can erase many wins.

Opening range breakout

The opening range breakout is a day trading strategy that marks the high and low of the first minutes of a session, often 5, 15 or 30 minutes, and trades a break of that range. It suits markets with a clear open, such as US stocks and index ETFs like SPY and QQQ at 9:30 New York time. Stops sit at the other side of the range or its midpoint. Choppy opens can produce several false breaks in a row.

Momentum trading

Momentum trading buys markets that are already moving strongly and sells those that are falling, on the idea that strong moves attract more buyers before they fade. Traders look for price making new highs, rising volume and readings from indicators such as RSI or MACD. Reversals are sharp when the move ends, so quick exits from failed trades are central to the strategy.

Trend following

Trend following aims to catch a large part of sustained moves by entering after a trend is established and staying in until it ends. Common rules use moving average crossovers, channel breakouts or higher highs and higher lows, with trailing stops that only move in the direction of the trade. It accepts many small losses in choppy markets in exchange for occasional large winners. It suits patient traders with diversified portfolios.

Price action trading

Price action trading reads the raw chart, using candlesticks, swing highs and lows, and support and resistance, instead of relying on indicators. Traders look for patterns such as pin bars, engulfing candles and inside bars at important levels, then define stops at the point where the pattern fails. Its weakness is subjectivity: two traders can read the same chart differently, so writing precise rules is essential.

Supply and demand trading

Supply and demand trading marks zones where price left sharply in the past, on the idea that unfilled orders may remain there. Traders buy at demand zones below price and sell at supply zones above, with stops just beyond the zone. It overlaps with support and resistance but focuses on zones rather than lines and on the strength of the move away from them. Fresh, untested zones are usually rated higher.

Swing trading

Swing trading is the style of holding trades for days to weeks to capture one leg of a larger move. It sits between day trading and position trading: fewer trades, wider stops and less screen time, but exposure to overnight news and weekend gaps. The guide covers holding periods, timeframes, sizing and how to start, while swing trading strategies goes deeper on setups.

Scalping

Scalping is the shortest trading style, with trades lasting seconds to a few minutes and targets of a few ticks or pips. Scalpers take many trades a day in very liquid markets, such as major forex pairs, Bitcoin and index ETFs, during the busiest sessions. Because each profit is small, costs matter a great deal: spread and commission can be a large share of the target. It needs full concentration and strict daily loss rules.

Day trading

Day trading means opening and closing all positions within the same session, so there is no overnight gap risk. Day traders typically use 1-minute to 15-minute charts and tools such as VWAP, the opening range and intraday support and resistance. It needs several hours of screen time and discipline after losses. FINRA warns that frequent intraday trading carries significant risk, and broker disclosures show that most retail day traders lose money.

Position trading

Position trading is the longest trading style, with holds from weeks to months or longer, usually based on weekly and daily charts plus a fundamental or macro view. Position traders accept wide stops and large swings in exchange for catching major trends, and they trade rarely. The style needs patience and capital that can tolerate deep pullbacks. In a prop evaluation, wide stops mean small position sizes.

Trading strategies compared

The win rate profile below is the typical shape of results, not a promise. Your own results depend on the market, costs and how well you follow the rules.

Which trading strategy is best for beginners?

The best trading strategy for beginners is usually a simple trend pullback or a clear breakout and retest on the daily or 4-hour chart. These setups have objective rules, give time to think before each order, and teach the core skills of reading trend, placing a stop-loss and sizing a position. Beginners should avoid scalping at first, because costs and speed punish small mistakes.

A practical path: choose a style that fits your schedule (types of trading), write one strategy's rules in a paragraph, backtest it on at least 50 examples, paper trade it, then risk 0.5% or less per trade and log results in R in a trading journal.

Before trading with money at risk, remember the base rate: according to ESMA, 74% to 89% of retail CFD accounts lose money. A strategy is a tool for managing that risk, not a way around it.

How do you test a trading strategy?

Apply the exact rules to past data, then to live data without real money, and only then trade small. Measure expectancy in R after costs, the worst losing streak, and the conditions where the strategy fails: trend strategies fail in ranges, mean reversion fails in trends. Your risk-reward ratio sets the win rate you need: about 33% at 1:2 before costs, 50% at 1:1.

How to pick a strategy for a prop challenge

In a prop challenge, the firm's limits are the hard edges of the strategy, so start with the rules and work back to the strategy. Velotrade, a multi-asset prop trading firm, runs simulated evaluations on crypto, forex, gold, silver, oil, index ETFs and US stocks, with 1-step and 2-step challenges from $40 on accounts from $5K to $200K.

Two rules shape strategy choice:

• Static maximum drawdown. The floor is a fixed dollar level set from the starting balance at activation, and it never moves up with profits (static maximum drawdown explained). Every gain therefore adds buffer.
• Daily loss limit. It resets at 00:30 UTC and is set from the higher of your balance or equity at that moment, then monitored against live equity until the next reset.

Worked example: matching strategy to a 25,000 USD CLASSIC 1-Step account

• Static floor: 25,000 x (1 minus 7%) = 23,250 USD, a 1,750 USD loss budget.
• Daily loss limit at the start: 4% of 25,000 = 1,000 USD.
• Profit target: 10% = 2,500 USD.

Scalper: risks 0.25% (62.50 USD) per trade and takes up to 10 trades a day. Ten straight losses cost 625 USD, inside the 1,000 USD daily limit. A personal stop after 5 losses (312.50 USD) keeps a bad session small. Costs matter: a 25,000 USD forex position pays 0.004% commission per side, 1 USD each way, which is a real share of a few-pip target.

Swing trader: risks 0.5% (125 USD) per trade. Fourteen consecutive full losses reach the floor, so a normal losing streak of five or six trades is survivable. The risk is overnight: if a winner shows 600 USD of floating profit at 00:30 UTC, equity is 25,600 USD, the daily limit becomes 1,024 USD and the breach floor is 24,576 USD. If that trade gives back its 600 USD of profit and keeps falling by another 424 USD before the next reset, the account breaches, even though the closed balance never fell below 25,000 USD.

Trend follower: wins less often, so it needs the deepest cushion: 0.25% risk here, or the CLASSIC 2-Step, where 0.5% risk allows 20 full losses.

Low win rate strategies (trend, breakout, momentum) fit CLASSIC 2-Step better than PRO 1-Step. High win rate strategies (mean reversion, scalping) must cap the rare large loss with a hard stop. There is no time limit, only a minimum trading period, and single stocks carry extra earnings, dividend and holding rules.

Compare plans on the challenges page, and see why traders fail prop challenges for common mistakes.

Common mistakes when choosing a trading strategy

• Strategy hopping after three losses, so nothing is ever tested.
• Ignoring market conditions, such as running a trend strategy in a tight range.
• Copying results, not rules. Screenshots of winners hide the losers.
• Underestimating costs, which hit short-term strategies hardest.

Sources

• AQR, "A Century of Evidence on Trend-Following Investing" (Hurst, Ooi and Pedersen): time series momentum back to 1880.
• NBER, "Mean Reversion in Stock Prices: Evidence and Implications" (Poterba and Summers, 1987): positive short-horizon and negative long-horizon autocorrelation in stock returns.
• ESMA, "ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors" (2018): 74% to 89% of retail CFD accounts lose money.
• FINRA, "Frequent Intraday Trading: Understanding the Basics": risks of frequent intraday trading.
• Investor.gov (SEC), "Stop Order": stop orders fill at the next available price, not a guaranteed one.
• StockCharts ChartSchool, "Support & Resistance": how support and resistance levels form.
• StockCharts ChartSchool, "Moving Averages: Simple and Exponential": moving averages as trend filters.