1.Buy-and-hold strategy
A buy-and-hold investment strategy involves buying a stock and holding it for a long period of time, despite any fluctuations in the stock’s value. When using this strategy, you’d believe – based on your own fundamental and technical analysis – that a company’s stock stands a strong chance of appreciating in value over time, despite its current value.
2.‘Buy-low, sell-high’ strategy
A ‘buy-low, sell-high’ investment strategy is similar to a buy-and-hold strategy. The key difference is that a ‘buy-low, sell-high’ strategy aims to buy shares when they are undervalued and sell them when they achieve their true market value. This is opposed to a buy-and-hold strategy, which is less concerned with the price at which the shares are purchased. Fundamental analysis can help you to identify whether a stock is undervalued based on company earnings, leadership decisions, and technical innovations that could cause the stock price to increase in the future.
3.Breakout investment strategy
A breakout investment strategy means that you’ll wait until the price of the underlying stock has broken through a level of historic resistance before opening an investment position. A resistance level is used in technical analysis, and it represents the historic ‘ceiling’ of a stock’s value. If the price breaks through this level, then it could be an indicator that the stock will reach higher highs in the future.
How to choose an investment strategy
There are several factors to consider when you’re choosing your strategy. You’ll want to consider how you might achieve the best returns over time, as well as the potential risk to reward ratio – coupled with your own risk appetite.
How have investors made the best returns over time?
The best returns over time have been made by investors who choose to spend time in the markets, rather than those who attempt to time the markets.
‘Time in the markets’ is a long-term buy and hold strategy in which investors seek to maximise their profits by maintaining a position for a long period. Statistics show that a buy-and-hold strategy offers a chance to achieve the best returns over time – as shown by the ‘FTSE 100 total return’ in the graphic below.