How many basic trading approaches exist?

[Mark Johnson <janitor@xxxxxxxxxxxx>]

Gary Fritz suggests there are only a small number
of general classes of mechanical trading systems.
He names three (full quote @ bottom)
  1. Trend Following
  2. Counter Trend / Mean Reversion
  3. Volatility Trading

In reply, I would like to suggest there are only
TWO general categories of trading, each of which
has several slightly different manifestations.
The manifestations can be implemented using
human discretion, or fully mechanical algorithms,
as the trader sees fit.  I will call these two
general categories "D" and "ND":

 D:  Betting on what WILL happen (directional trading)
 ND: Betting on what will NOT happen (non directional trading)

Manifestations of these include:

D.1: Trend Following

D.2: Trend Fading / Countertrend
     D.2.1: Support and Resistance
     D.2.2: Overbought, Oversold

D.3: Trend Predicting
     D.3.1: Cycles
     D.3.2: Intermarket Analysis
     D.3.3: Chart Patterns, candlesticks, etc.
     D.3.4: Elliott Wave

ND.1: Selling Option Premium
ND.2: Noise Trading

I am sure there are more individual manifestations
of directional trading, and of non-directional trading,
than the nine I have mentioned here.

Best wishes,
Mark Johnson



GF> It seems to me there are a limited number of systematic
GF> approaches:
GF>
GF> * Trend-following:  jumping on a market move and riding
GF> it.  This assumes that a market in motion will tend to
GF> remain in motion in the same direction.  I would call
GF> any trading approach that rides a move as long as
GF> possible, regardless of its entry method, to be a
GF> trend follower.    Obviously this works best in trending
GF> markets, and not all markets satisfy this criterion.
GF>
GF> * Counter-trend or mean-reversion:  assuming that a
GF> market in motion will tend to REVERSE.  These systems
GF> enter when the market is "out of balance" and exit
GF> when the market returns to "balance."
GF>
GF> * Volatility trading:  assuming that volatility is
GF> mean-reverting, and looking for extremes of volatility
GF> for trading opportunities.  E.g. finding a market that has
GF> gone sideways for a while, and jumping on a breakout.
GF>
GF> I think these are the major fundamental classes of
GF> trading systems, at least if we look only at price and
GF> maybe volume.  Have I missed any?  There are other
GF> approaches such as option strategies, but I'm going
GF> to assume for the moment that we aren't talking about
GF> that type of system.