What are the differences between the three major trading strategies: trend, carry, and algorithm?

1. What is trend trading?

existforeign exchange marketIn, for exampleShield BoOn other trading platforms, trend trading is a common strategy. Trend trading combines technical analysis, fundamental analysis, and money management to gain a probabilistic advantage when judging the direction, and a mathematical advantage when making a profit, so as to gain profits. For example, trend trading is like observing the movement path of ants, using known or unknown technical tools to gain a probabilistic and mathematical advantage. Technical analysis and fundamental analysis provide a probabilistic advantage, and probability plus money management form a mathematical differential advantage. The advantage of trend trading is that it has strong profitability and high returns, but the disadvantage is that there is always uncertainty, and traders need to continuously invest energy and easily feel tired. The above content briefly introduces the core idea of trend trading.

2. What is a carry trade?

On platforms such as Dunbo, carry trading is also a common strategy. It takes advantage of the interest rate difference by buying high-interest currencies and selling low-interest currencies. The key lies in time, and gains are obtained through the holding time. Carry trading takes advantage of the liquidity characteristics in the market and has certain certainty. It is similar to holding high-quality company stocks with high dividends and making profits through dividends. The advantage of carry trading is that it has certain certainty, but the disadvantage is that it is widely used by institutions, with relatively weak profitability and low returns. Institutions guarantee certainty through low leverage, while small funds can get a good rate of return by adjusting leverage due to their high risk tolerance. The above helps sort out the key characteristics of carry trading.

3. What is algorithmic trading?

Algorithmic trading simply takes advantage of discontinuous or persistent pricing biases in the market to profit. As far as I know, common algorithms include volatility difference algorithms, cost regression algorithms, seasonal difference algorithms, distortion regression algorithms, etc. There are all kinds of algorithms in the market, and they will continue to emerge in the future. Trend trading is full of uncertainty, while algorithmic trading has a considerable degree of certainty, even higher than carry trading. If trend trading is like judging the movement of ants, then algorithmic trading is like a straightened rubber band. No matter how you pull it, it will eventually return to a straight line. This is fundamentally different from trend trading. Because algorithmic trading is widely pursued by institutions, its profitability is usually not high, and the market needs to provide price difference opportunities. Small funds can increase risk and obtain higher returns through leverage. Trend traders are prone to get bored with the market, and algorithmic trading takes advantage of the bias of market certainty and is usually not tiring. For traders who are already tired of the constant thinking in trend trading, algorithmic trading may provide a relatively easy way to survive. In future further discussions of financial operations, various algorithmic trading may be covered in detail, but these require a certain accumulation of professional foundations.