Types of trading strategies: trend-following, countertrend, arbitrage, HFT

In this section, you have studied the basics of scalping and the basic principles of technical analysis. However, there are many other trading strategies, each with its own advantages, risks, and skill requirements.

a) Trend-following strategies (Trend Following):

Essence: identification of a sustainable price movement direction and trading in that direction until signs of a reversal appear.

Key concepts to study:

1. Trend identification on different timeframes

2. Entry points on pullbacks within the trend

3. Using moving averages to identify the trend

4. Trend channels and trading them

5. Position management in a strong trend (pyramiding, trailing stops).

Advantages: potential for large profits in strong trends, relatively simple logic.

Disadvantages: losses in sideways markets, psychological difficulty of holding positions during corrections.

b) Countertrend strategies (Mean Reversion):

Essence: the assumption that price tends to return to its average value after excessive deviations.

Key concepts to study:

1. Identifying overbought and oversold conditions

2. Using oscillators (RSI, Stochastic) — indicators that help identify overbought and oversold conditions, i.e., situations where price has moved too far from its average value and may begin to revert

3. Trading in sideways ranges (range trading)

4. Identifying extremes for reversal trading

5. Bollinger Bands and deviations from the mean — an indicator that shows the normal range of price fluctuations around the average value and helps identify moments when price has moved too far from this range and may begin to revert.

Advantages: high win rate in sideways markets, when price moves for a long time within a range between support and resistance levels without forming a stable uptrend or downtrend, frequent trading opportunities.

Disadvantages: risk of catching the beginning of a strong trend, the need for strict stop-losses.

c) Arbitrage:

Essence: extracting profit from price differences of the same asset on different exchanges or between related instruments.

Types of arbitrage:

• Inter-exchange — buying on one exchange and selling on another

• Triangular — using differences in exchange rates between three currencies

• Statistical — trading correlated assets when they deviate from their normal relationship

• P2P arbitrage — using price differences between P2P platforms and exchanges.

Features:

• Requires significant capital

• Profit margin is usually small (1–3%), but risks are minimal

• It is necessary to consider transfer fees and transaction speed

• Competition with automated bots.

Risks:

• Price changes during the transfer of funds between exchanges

• Blockchain transaction delays

• Sudden changes in fees

• Withdrawal suspension on one of the exchanges.

d) High-Frequency Trading (HFT):

Essence: using algorithms to execute a large number of trades in fractions of a second, extracting profit from micro price movements.

Important warning: HFT requires:

• Professional programming

• Expensive infrastructure (servers located close to exchanges, specialized communication channels)

• Deep knowledge of market microstructure

• Significant capital.

This area is not suitable for beginners. Studying HFT makes sense primarily to understand how large market participants operate and how their actions affect short-term price movements.

e) Position Trading:

Essence: holding positions from weeks to months based on fundamental and technical analysis of long-term trends.

Key elements:

• Fundamental analysis of projects (technology, team, use case)

• Macroeconomic factors affecting cryptocurrencies

• Building a diversified portfolio (allocation of capital across multiple assets to reduce risk)

• Using wide stop-losses or no stop-losses

• Psychological resilience to temporary drawdowns of 20–30%.

f) Breakout Trading:

Essence: entering a position when key levels or chart formations are broken, expecting a strong move.

What to study:

• Identifying quality breakouts vs false breakouts

• Confirming breakouts with volume

• Selecting targets after a breakout (measured move)

• Risk management in breakout trading

• Breakouts after consolidation vs trend breakouts.

g) News Trading:

Essence: extracting profit from sharp price movements after the release of important news.

Features:

• Requires extremely fast reaction

• High volatility and slippage

• Need to understand which news affect the market

• Risk of entering a false move (the initial reaction often reverses).

Beginners are advised to avoid trading directly during news releases, but it is important to be aware of the economic data release schedule in order not to enter a position before a major event.

z) How to choose an appropriate strategy

Selection factors:

• Available time for trading (intraday vs position trading)

• Psychological profile (whether you are comfortable holding positions for a long time or need fast results)

• Capital size (some strategies require a larger deposit)

• Technical skills (ability to program, use advanced tools)

• Tolerance to risk and drawdowns.

Strategy type	Available time for trading	Psychological profile	Capital size	Technical skills	Tolerance to risk and drawdowns
Trend	Suitable with limited time; position and swing trading are possible	Comfort with waiting for results; willingness to endure sequences of losing trades	Small or medium deposit	Basic technical analysis	Moderate; drawdowns are possible in sideways markets
Countertrend (Mean Reversion)	Require active participation; more often intraday trading	Comfort with fast decisions and frequent trades	A capital buffer is desirable	Working with indicators and filters	Elevated; risk of sharp drawdowns at the start of a trend
Arbitrage	Significant time spent on setup and monitoring; partial automation is possible	Rational, process-oriented approach	Medium or large deposit	Advanced skills (API, automation)	Low market risk, but there are operational and technical risks
High-Frequency Trading (HFT)	Very high time requirements for development and maintenance	Systemic, technical mindset	Large capital	High: programming, infrastructure	High technological and competitive risks

Recommended approach

1. Exclude strategies that do not match your available time, capital size, or technical skills.

2. From the remaining options, choose one simple strategy (for example, a trend-following strategy on daily charts).

3. Study the selected strategy thoroughly and test it on at least 100 trades.

4. Consider other approaches only after achieving stable results with the current strategy.

5. Do not combine opposing strategies (trend-following and countertrend) on the same account.

6. If you want to test multiple approaches, use separate accounts for each strategy.