What are Trading Strategies?

Justin Ling Updated by Justin Ling

To accompany your rationale provided with each trade, the "Strategy" field is meant for you to provide more detail behind your decision-making.

Below we've provided some definitions that may be useful for navigating the use of this field.

Valuation - believe the market has undervalued (overvalued) a stock. Selected stock is trading for less (more) than its intrinsic value.

Earnings Upside - expect potential increase in earnings per share (EPS), typically used when you long a stock. EPS is an indicator of a company’s profitability, and is calculated by the following formula: EPS = (net income - dividends on preferred stock) / average outstanding shares.

Earnings Downside - expect potential decrease in earnings per share (EPS), typically used when you short a stock or sell part or all of a long position. EPS is an indicator of a company’s profitability, and is calculated by the following formula: EPS = (net income - dividends on preferred stock) / average outstanding shares.

Sales Upside - expect a potential increase in a company’s sales, resulting in a positive movement in price, typically used when you long a stock.

Sales Downside - expect a potential decrease in a company’s sales, resulting in a negative movement in price, typically used when you short a stock or sell part or all of a long position.

Technical - expect the continuation or reversal of a price trend based on technical indicators such as volume

Event-driven (company-specific) - expect a change in price based on the outcome of an event (the results of a pharmaceutical company’s drug trial, the announcement of an acquisition, changes in management)

Event-driven (geopolitical or economic) - expect a change in price based on the outcome of an event (i.e. a presidential election, changes in international trade agreements, political referendums, changes in domestic and international policy, changes in fiscal or monetary policy)

Macroeconomic Indicators - expect change in price based on figures such as GDP, consumer confidence, initial jobless claims, new home sales, etc.

Thematic - expect a change in price based on a broader thematic view (i.e. investing in a healthcare company based on a view of increased longevity)

Diversification - increasing or reducing a position to increase diversification of holdings

Concentration - increasing or reducing a position to increase concentration of holdings in a certain company or industry

Hedge - for the purpose of mitigating the risk of another trade [include what trade you are hedging in one-liner]

Cash (profit-taking) - reducing or eliminating a position to convert to cash, so as to benefit from an increase in price of the security

Cash (loss-mitigating) - reducing or eliminating a position to convert to cash, so as to limit future potential losses

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What are some basic Financial Vocabulary?

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