Trading Strategies for Beginners

Photo by Ben White on Unsplash

We may encounter many popular trading techniques when trading in both traditional and cryptocurrency financial markets and learn that sometimes using one method will not represent the success of a successful trader or an investor.

We studied the fundamentals of Exchange-Traded Funds (ETF) in our previous article and learnt that ETFs are especially suitable for beginners because of its myriad of benefits like portfolio diversification. Today, we are looking at the various types of strategies ideal for any form of trading or investment, more so for ETFs.



In a substantial portfolio, maybe obtained as a result of an inheritance, a beginner may sometimes need to hedge or protect against downside risk.

Assume you have inherited a massive U.S. blue-chip portfolio and are nervous about the possibility of a significant fall in U.S. equities. The buying of put options is one alternative. However, most beginners are not familiar with option trading strategies; initiating a short position in broad market ETFs such as the SPDR S&P 500 (SPY) or the SPDR Dow Jones Industrial Average ETF is an alternative strategy (DIA).

Your blue-chip stock exposure will be effectively hedged as losses in your portfolio will be offset by gains in the short ETF position if the market declines as predicted. Notice that your gains will also be capped if the market progresses, as gains in your portfolio would be offset by losses in the short ETF role. Nevertheless, ETFs provide a reasonably simple and successful method of hedging for beginners. 

Asset Allocation

A vital investment tool is asset allocation, which means allocating a portion of a portfolio to various asset categories, such as stocks, shares, commodities and cash, for diversification purposes. The low investment threshold for most ETFs, usually as little as $50 per month, makes it easy for a novice to adopt a simple asset allocation strategy depending on his or her investment time horizon and risk tolerance.

Swing Trading

Swing trades aim to take advantage of large price fluctuations or other instruments, such as currencies or commodities. Unlike day trading, which is rarely left open immediately, they can take anything from a few days to a few weeks to sort out.

ETFs’ characteristics are their diversification and tight bid/ask spreads that make them ideal for swing trading. Furthermore, since ETFs are available for a wide variety of sectors and many different investment groups, a novice may choose to trade an ETF based on an industry or asset class where they have some unique experience or knowledge.

Since ETFs are usually stock or other asset baskets, they do not show the same degree of upward price movement as a single stock in a bull market. Their diversification often makes them less vulnerable to a significant downward step than single stocks. This offers some defense, which is an essential consideration for beginners, against capital erosion.

Short Selling

For most investors, short selling, the sale of a borrowed security or financial instrument, is typically a pretty risky endeavor and thus not something most beginners should pursue.

Because of the lower risk of a short squeeze, short selling through ETFs is preferable to shorting individual stocks, a trading scenario in which a significantly shortened security or product spikes higher, as well as the considerably lower borrowing expense (compared with the cost incurred in trying to short a stock with high short interest). For a beginner, these risk-mitigation factors are essential.

Short selling through ETFs also helps a trader to take advantage of a broad theme of investment. Thus, through the iShares MSCI Emerging Markets ETF, an experienced beginner (if such an oxymoron exists) is familiar with the risks of shorting and wants to initiate a short position in the emerging markets might do so (EEM).

Dollar-Cost Averaging

Finally, dollar-cost averaging (DCA) is the practice of purchasing an asset on a daily schedule for a certain fixed-dollar sum, regardless of the asset’s changing cost and is the most popular strategy amongst young investors. Beginner investors are usually young individuals who have been in the workforce for a year or two and have a steady income every month from which they can save a little.

For beginners, there are two significant benefits of such periodic investing. The first is that the savings process imparts a specific discipline. It makes excellent sense to pay yourself first, as many financial planners advise, which you accomplish by saving regularly.

Secondly, by investing a fixed-dollar amount in an ETF monthly, you accumulate more units when the price is low and when there are fewer units when the price of the ETF goes up – This averages out the cost of your holdings. This technique will pay off lucratively over time as long as one sticks to the discipline.

Closing Thoughts

Photo by Sergi Kabrera on Unsplash

Amid unprecedented strains on the global economy at this time of Covid-19, you will still find opportunities in any primary asset class with the right strategies. The bottom line is still diversification, whether you are a beginner or an expert in the financial markets. 

For related articles, read DigiFinex Academy

You can share this post on

Share on facebook
Share on twitter
Share on telegram
Share on whatsapp
Share on reddit
Share on linkedin
Reletad Post

DigiFinex AMA Recap | How One Music Company is Shaking Up the Industry Through Blockchain – MiraQle

DigiFinex 20th AMA has just happened! This time we have hosted the AMA on our Telegram community. Are you a music lover? MiraQle is enabling global fans to actively participate in the entertainment industry through blockchain!

At this AMA, we have invited Ross Lee, the CEO of MiraQle as our special guest. He shared with us how blockchain could shake up the entertainment industry. Read on our blog recap to learn more now!

DigiFinex AMA Recap | TWISTER, Rebuilding the Value of Anonymous Privacy on TRON

DigiFinex 19th AMA has just happened! This time we have hosted the AMA on our Telegram community. 

For this episode, we have invited Twister, an anonymous privacy project based on TRON chain with team members from Singapore, Thailand and Vietnam. Project leader of TWS, Perth Wong, has shared with us the latest news and updates. Read on our blog recap to learn more now!

DigiFinex AMA Recap | Empowering Social Platform Independence in Open Source Blockchain

At the 17th DigiFinex AMA, we have invited lead designer from Pocketnet Platform, Daniel to talk with us on ways to allow authors to earn crypto for their content and protect them from arbitrary censorship through community moderation. Want to know how to engage on this decentralized social platform with your online creations while earning an income? Click in to read more!

DigiFinex AMA Recap | Facilitating Project Elevation through Motorsport Games in NFT Market

Speaking of online games, do you like to watch car racing games or playing them? In today’s AMA, we have invited REVV’s product leader, Sean, to introduce to us the core concept of REVV and its parent company Animoca Brands on utilizing gamification, blockchain and artificial intelligence technology to develop and release a wide range of racing games and a series of mobile product portfolios. We will also explore the latest hot topic-NFT!

DigiFinex AMA Recap | Decentralized Publishing Infrastructure

DigiFinex 15th AMA: Giving likes has been a social media thing that everyone surely knows to do. But what if there’s a new purpose of giving like that could help change the life of creators? Founder of LikeCoin, Kin Ko will be opening up about his journey of starting LikeCoin and walk us through his journey, recap on our blog post now to learn how to give back to our creators!

%d bloggers like this: