115+ Systematic & Discretionary Trading Strategies – Complete Guide

In this article, we cover various systematic and discretionary trading and investing strategies, covering a wide range of approaches, asset classes, and time horizons, along with brief descriptions of each.

Please note that many strategies are really a mix of both in the real world.

However, they may tend to be more commonly used in one way or another.

Please note that we also have individual articles on many of these strategies – or on the relevant terms used within each category – which are often interlinked in the various sections.

This article was largely written as simply an overview or compendium of that work. 

In the interest of keeping the article to a reasonable length, we describe each strategy in about one sentence.

Discretionary Investment Strategies vs. Systematic Investing Strategies – What Are the Differences?

Discretionary Investment Strategies and Systematic Investing Strategies are two distinct approaches to managing investments.

Each has its own set of characteristics, and the differences between the two can impact the overall performance and risk profile of an investment portfolio.

Here’s an overview of the key characteristics and differences between these two strategies:

Discretionary Investment Strategies

• Human decision-making: Discretionary investment strategies rely on the judgment and expertise of the portfolio manager or investor to make investment decisions. This could involve analyzing individual stocks, economic factors, or market trends.
• Subjective analysis: Investors using a discretionary approach often base their decisions on personal experience, intuition, or subjective assessments of the investment opportunity.
• Less consistency: Due to the human element, discretionary investment strategies can be less consistent than systematic strategies, as they are influenced by the decision-maker’s emotions and biases.
• Flexibility: Discretionary investing allows for greater flexibility, as investors can adapt to changing market conditions and incorporate new information into their decision-making process.
• Tailored approach: Discretionary strategies can be tailored to the specific goals, risk tolerance, and preferences of the individual investor.

Systematic Investing Strategies

• Rule-based approach: Systematic investing strategies involve the use of predefined rules or algorithms to make investment decisions. These rules may be based on factors such as historical data, quantitative analysis, or technical indicators.
• Objective analysis: Decisions in a systematic strategy are based on objective criteria, reducing the potential influence of human emotions and biases.
• Consistency: Systematic strategies follow a consistent set of rules, which can lead to more predictable outcomes and reduce the likelihood of making impulsive or ill-timed investment decisions.
• Limited flexibility: Systematic investing can be less flexible than discretionary strategies, as it may be more challenging to adapt to changing market conditions or new information quickly.
• Replicability: Systematic strategies are generally easier to replicate and scale, as the investment process is rule-based and can be automated using software or computer algorithms.

Discretionary Investment Strategies

Here are trading and investing strategies that fall more into the “discretionary” bucket:

Value investing

Seeking undervalued stocks based on fundamental analysis, often using financial ratios to identify companies trading at a discount to their intrinsic value.

Growth investing

Focusing on companies with high growth potential, characterized by rapidly increasing revenues, earnings, and market share, often at the expense of current profitability.

Dividend investing

Investing in companies that pay regular dividends, offering a steady stream of income and potential capital appreciation.

Index investing

Passive investment strategy that aims to replicate the performance of a market index, often through index funds or exchange-traded funds (ETFs).

Passive investing

A buy-and-hold approach, focusing on minimizing fees and taxes, often achieved through index funds, ETFs, or other low-cost investment vehicles.

Active investing

Portfolio managers actively select securities, aiming to outperform benchmark indices by using fundamental or technical analysis.

Swing trading

Attempting to capture short- to medium-term gains in a security or market, typically holding positions for days or weeks.

Day trading

Buying and selling securities within a single trading day, aiming to capitalize on small price movements.

Scalping

Making numerous, rapid trades to profit from small price movements, typically closing positions within minutes.

Position trading

Holding a security for an extended period, typically weeks or months, based on long-term trends and price movements.

Sector rotation

Moving investments between sectors to capitalize on economic cycles and anticipated shifts in market performance.

For example, this might include holding consumer staples over consumer discretionary stocks when the trader/investor expects the economy to weaken.

Sector Rotation & Stocks to Watch During a Recession or Recovery

Global macro strategies

Investing based on macroeconomic, geopolitical, and other systemic factors that impact broad asset classes, regions, or countries.

Event-driven investing

Exploiting opportunities created by corporate events, such as mergers, acquisitions, earnings announcements, or regulatory changes.

Contrarian investing

Going against prevailing market trends, buying undervalued assets when others are selling, and selling overvalued assets when others are buying.

Income investing

Focusing on securities that generate a steady stream of income, such as dividend-paying stocks, bonds, or real estate investment trusts (REITs).

Technical analysis

Analyzing past market data, such as price and volume, to identify patterns and predict future price movements.

Fundamental analysis

Evaluating a security’s intrinsic value based on financial and economic factors, including revenues, earnings, industry trends, and macroeconomic indicators.

Options trading

Buying and selling options contracts, which give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price before a specific date.

Futures trading

Buying and selling futures contracts, which are agreements to buy or sell an asset at a predetermined price on a specific date in the future.

Forex trading

Trading currencies in the foreign exchange market, attempting to profit from fluctuations in exchange rates.

Commodity trading

Trading physical commodities, such as oil, gold, or agricultural products, or their financial derivatives.

ETFs

Investing in exchange-traded funds, which are baskets of securities that trade like individual stocks and track an underlying index or investment.

Real estate investing

Buying, managing, and selling properties to generate income or capital appreciation, including residential, commercial, or industrial properties.

REITs

Investing in real estate investment trusts, which are companies that own, operate, or finance income-producing properties and distribute dividends to shareholders.

Market timing

Attempting to predict market movements and make investment decisions based on these predictions, often using technical or economic indicators.

Pair trading

Buying a long position in one security and selling short a related security, aiming to profit from the relative price movements.

Risk arbitrage

Profiting from the price differences of securities involved in corporate events, such as mergers, acquisitions, or spin-offs, by taking a position in the affected companies.

Merger arbitrage

Capitalizing on price discrepancies between target and acquiring companies during a merger or acquisition, typically by buying the target company’s stock and shorting the acquiring company’s stock.

Convertible arbitrage

Exploiting pricing inefficiencies between convertible securities and their underlying stocks, typically by buying the convertible bond and shorting the stock.

Relative value strategies

Identifying and profiting from pricing discrepancies between related securities, typically through long and short positions.

Distressed debt investing

Investing in debt securities of financially troubled companies, often at a significant discount, with the potential for high returns if the company recovers.

Long/short equity

Taking long positions in undervalued stocks and short positions in overvalued stocks, aiming to profit from both upward and downward price movements.

Volatility trading

Trading strategies based on the expected volatility of an asset or market, often using options, futures, or other derivatives.

Credit trading

Trading in fixed-income securities or their derivatives, based on the creditworthiness of the issuer and interest rate movements.

Interest rate trading

Trading in interest rate-sensitive securities or derivatives, attempting to profit from changes in interest rates.

Emerging market investing

Investing in countries with developing economies, often characterized by rapid growth, increased foreign investment, and expanding consumer markets.

Frontier market investing

Investing in countries with less developed economies and capital markets, often characterized by higher risks and potential for high returns.

Small-cap investing

Focusing on companies with relatively small market capitalizations, which may offer higher growth potential and increased risk compared to larger companies.

Mid-cap investing

Investing in medium-sized companies, often seen as a balance between the growth potential of small-cap stocks and the stability of large-cap stocks.

Large-cap investing

Investing in companies with large market capitalizations, often characterized by more stable returns, lower risk, and slower growth compared to smaller companies.

Micro-cap investing

Focusing on companies with extremely small market capitalizations, often characterized by high growth potential, increased risk, and less liquidity.

Socially responsible investing (SRI)

Selecting investments based on ethical, social, or environmental criteria, often avoiding companies involved in controversial industries.

Environmental, social, and governance (ESG) investing

Incorporating environmental, social, and corporate governance factors into investment decisions, aiming to generate sustainable, long-term returns.

Impact investing

Investing in companies, organizations, or funds with the intention of generating measurable social or environmental impact alongside financial returns.

Thematic investing

Focusing on specific themes or trends, such as clean energy, aging population, or technological innovation, to identify investment

Tactical asset allocation

Adjusting a portfolio’s asset allocation based on short-term market conditions or economic indicators, aiming to capitalize on opportunities or reduce risk.

Strategic asset allocation

Setting long-term asset allocation targets based on an investor’s risk tolerance, investment objectives, and time horizon, generally maintaining a consistent allocation.

Insider trading

Trading securities based on non-public, material information, which is illegal and punishable by law.

Short selling

Borrowing and selling a security with the expectation that its price will decline, allowing the investor to buy it back at a lower price and profit from the difference.

Market neutral strategies

Employing long and short positions to achieve a net exposure of zero, aiming to profit from individual security performance rather than broader market trends.

Covered call writing

Selling call options on a security the investor owns, generating income from option premiums and limiting potential upside gains.

Protective put buying

Buying put options on a security the investor owns, providing downside protection in case of a decline in the security’s price.

Iron condor

An options strategy involving the simultaneous sale of an out-of-the-money call and put, along with the purchase of a further out-of-the-money call and put, a trade structure that benefits from low volatility.

Straddle

Buying a call and put option on the same security with the same strike price and expiration date, looking to profit from large price movements in either direction.

Strangle

Buying out-of-the-money call and put options on the same security with the same expiration date, which does best with large price movements in either direction.

Butterfly spread

An options strategy involving the simultaneous purchase and sale of options contracts with different strike prices but the same expiration date, which performs the best with low volatility.

Calendar spread

Buying and selling options contracts on the same security with the same strike price but different expiration dates, benefiting from time decay and changes in implied volatility.

Diagonal spread

Buying and selling options contracts on the same security with different strike prices and expiration dates, looking to profit from changes in implied volatility and time decay.

Vertical spread

Buying and selling options contracts on the same security with the same expiration date but different strike prices, aiming to profit from changes in the underlying security’s price.

Collar

Combining a protective put and covered call on the same security, limiting both potential gains and losses while generating income from option premiums.

Ratio spread

Buying and selling multiple options contracts on the same security with different strike prices, aiming to profit from changes in the underlying security’s price while managing risk.

For example, a trader might pay $3 in premium for an upside of $7 in net profits.

Cash-secured put selling

Selling put options on a security while holding enough cash to cover the potential purchase of the security if assigned, generating income from option premiums.

Naked call/put writing

Selling call or put options without owning the underlying security or having cash to cover potential obligations, increasing potential gains but also carrying significant risk.

Asset-backed securities investing

Buying securities backed by a pool of underlying assets, such as mortgages, car loans, or credit card receivables, looking to make the cash flows generated by these assets.

Mortgage-backed securities investing

Buying securities backed by a pool of residential or commercial mortgages, aiming to profit from the cash flows generated by mortgage payments.

Tax lien investing

Purchasing tax liens on properties with delinquent taxes, potentially earning interest on the lien or acquiring the property if the owner fails to repay the taxes.

Private equity investing

Investing in private companies through direct investments, buyouts, or other transactions

Venture capital investing

Providing financing to early-stage, high-potential companies in exchange for equity, with the goal of earning significant returns if the company succeeds.

Angel investing

Individual investors providing capital to start-ups or early-stage companies in exchange for equity or debt, aiming to profit from the company’s growth and eventual exit.

Cryptocurrency investing

Buying and holding digital currencies, such as Bitcoin, Ethereum, or other altcoins, aiming to profit from price appreciation or use in transactions.

Initial coin offerings (ICOs)

Investing in new cryptocurrency projects by purchasing tokens during the initial fundraising phase, with the hope that the tokens will appreciate in value.

Security token offerings (STOs)

Investing in tokens representing ownership in underlying assets, such as real estate or shares in a company, aiming to profit from asset appreciation or income generation.

Utility token investing

Purchasing tokens that grant access to a specific platform, product, or service, aiming to profit from increased demand and token appreciation.

Crowdfunding investing

Providing capital to start-ups or projects through online platforms, potentially receiving equity, debt, or other rewards in exchange for the investment.

Peer-to-peer lending

Lending money directly to individuals or businesses through online platforms, earning interest on the loans and diversifying risk across multiple borrowers.

Direct stock purchase plans (DSPPs)

Buying shares of a company directly from the company, often without a broker and with lower fees, in some cases allowing for fractional share purchases.

Dividend reinvestment plans (DRIPs)

Automatically reinvesting dividends received from a security back into additional shares of the same security, compounding returns over time.

Leveraged investing

Using borrowed funds or financial instruments, such as margin or options, to increase investment exposure and potential returns, while also increasing risk.

Inverse ETF investing

Investing in exchange-traded funds designed to move in the opposite direction of their underlying index, looking to make money from market declines.

Tax-loss harvesting

Selling losing investments to offset capital gains tax liability, potentially improving portfolio returns while maintaining a consistent investment strategy.

Tactical trading

Actively adjusting a portfolio’s positions based on short-term market trends, indicators, or events, aiming to capitalize on opportunities or reduce risk.

Mezzanine financing

Providing subordinated debt or preferred equity to companies, often with higher interest rates or potential equity conversion, in exchange for higher returns and risk.

Asset allocation funds

Investing in a diversified mix of asset classes, such as stocks, bonds, and cash, often designed to meet specific risk profiles or investment objectives.

Target-date funds

Mutual funds that automatically adjust their asset allocation over time, becoming more conservative as the target retirement date approaches.

Lifecycle funds

Mutual funds that work to provide a diversified and age-appropriate investment strategy, automatically adjusting asset allocation based on the investor’s age or risk tolerance.

Infrastructure investing

Investing in physical assets that provide essential services, such as transportation, energy, or utilities, aiming to generate income and long-term capital appreciation.

Royalty trust investing

Buying shares in a trust that holds and manages royalty interests in natural resources, such as oil, gas, or minerals, looking to profit from the income generated by these resources.

Master limited partnerships (MLPs)

Investing in publicly traded partnerships that primarily operate in the energy industry, offering potential tax benefits, income, and capital appreciation.

Long-term equity anticipation securities (LEAPS)

Buying long-dated options contracts, often with expiration dates one to three years in the future, looking to profit from long-term price movements with lower time decay.

Inflation-protected securities investing

Purchasing government-issued bonds, such as Treasury Inflation-Protected Securities (TIPS), which adjust their principal and interest payments based on inflation, aiming to preserve purchasing power.

Special situation investing

Focusing on unique opportunities created by corporate events or situations, such as spin-offs, restructurings, or management changes, aiming to profit from mispriced securities.

Unit investment trusts (UITs)

Investing in a fixed portfolio of securities that are held for a predetermined time period, aiming to provide income, capital appreciation, or both.

Closed-end fund investing

Buying shares in a closed-end investment fund, which is traded on a stock exchange and has a fixed number of shares, aiming to profit from the fund’s underlying investments and potential discounts to net asset value.

Open-end fund investing

Investing in mutual funds that issue and redeem shares on demand, with the fund’s net asset value calculated daily, aiming to benefit from professional management and diversification.

Real assets investing

Allocating capital to tangible assets, such as real estate, commodities, infrastructure, or natural resources, aiming to preserve capital, generate income, or hedge against inflation.

Short-term bond investing

Focusing on bonds with shorter maturities, typically less than five years, aiming to provide income and lower interest rate risk compared to long-term bonds.

Long-term bond investing

Investing in bonds with longer maturities, often more than ten years, aiming to generate higher income and potentially higher capital appreciation, but with increased interest rate risk.

Investment-grade bond investing

Purchasing bonds issued by companies or governments with high credit ratings, aiming to generate income with relatively low credit risk.

High-yield bond investing

Buying bonds issued by companies with lower credit ratings, often called junk bonds, aiming to generate higher income but with increased credit risk.

Municipal bond investing

Investing in debt securities issued by state or local governments, often offering tax-free interest income and relatively low credit risk.

Zero-coupon bond investing

Purchasing bonds that do not pay periodic interest but are sold at a deep discount to their face value, aiming to profit from the difference between the purchase price and face value at maturity.

Laddered bond investing

Building a bond portfolio with staggered maturities, aiming to reduce interest rate risk and provide a consistent stream of income.

Annuity investing

Purchasing an insurance product that provides a guaranteed stream of income during retirement, either immediately or at a future date, in exchange for an initial premium or series of premiums.

Smart beta investing

Employing a rules-based approach to construct a portfolio that combines elements of active and passive investing, aiming to outperform traditional market-capitalization-weighted indices while managing risk.

Systematic Investing Strategies

Below are investing strategies that tend to be more “systematic” in nature:

Factor investing

Focusing on specific factors, such as value, growth, momentum, or quality, that have historically demonstrated the potential to generate excess returns.

Momentum trading

Buying securities that exhibit strong price or earnings momentum, with the expectation that the trend will continue.

Dollar-cost averaging

Investing a fixed amount at regular intervals, regardless of market conditions, to reduce the impact of market volatility.

Quantitative analysis

Using mathematical and statistical models to analyze financial data and identify investment opportunities.

High-frequency trading

Algorithm-driven trading exploits tiny price differences or market inefficiencies, often using ultra-low-latency connections and holding positions for milliseconds.

Algorithmic trading

Automating the trading process using predefined rules and algorithms to execute trades, often based on technical analysis or quantitative models.

Arbitrage

Exploiting price discrepancies between related assets or markets, buying in one market and simultaneously selling in another, with minimal risk.

Statistical arbitrage

Using quantitative models and historical price data to identify and exploit short-term pricing inefficiencies in the market.

Dynamic asset allocation

Continuously adjusting asset allocation based on market conditions, economic indicators, or changes in an investor’s financial situation.

Market making

Providing liquidity to financial markets by simultaneously quoting bid and ask prices for securities, profiting from the bid-ask spread.

Managed futures (Commodity Trading Advisors (CTA))

Investing in futures contracts across various asset classes, often using systematic trading strategies to capitalize on market trends or inefficiencies.

Conclusion

Discretionary investment strategies rely on human judgment and subjective analysis, offering greater flexibility but potentially less consistency.

In contrast, systematic investing strategies follow a rule-based approach that is more objective, consistent, and replicable but may be less adaptive to changing market conditions.

The choice between these strategies depends on the investor’s goals, risk tolerance, and investment philosophy.