A trading strategy is a fixed plan that is designed to achieve a profitable return by going long or short in markets. Trading strategies are based on fundamental or technical analysis, or engage them both. By following a specific trading strategy, investors seek to remove the emotional component of investing.
Investopedia defines a trading strategy as a set of objective rules designating the conditions that must be met for trade entries and exits to occur.
A trading strategy includes specifications for trade entries, including trade filters and triggers, as well as rules for trade exits, money management, timeframes, order types, etc. A trading strategy, if based on quantifiable specifications, can be analyzed on historical data to project the future performance of the strategy.
When properly researched and executed, a trading strategy can provide a mathematical expectation for the specified rules, and help traders and investors determine if a trading idea is potentially profitable.
The most common trading strategies include breakouts, retracements, reversals, momentum and position trading.