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2025 Trading Guide: Three Essential Trading Categories and Strategies Every Trader Must Know

2025 Trading Guide: Three Essential Trading Categories and Strategies Every Trader Must Know

深潮深潮2025/10/28 22:06
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By:深潮TechFlow

Clearly identify the type of transaction you are participating in and make corresponding adjustments.

Clearly identify the type of trade you are engaging in and make corresponding adjustments.

Written by: Cred

Translated by: Saoirse, Foresight News

As a discretionary trader, categorizing your trades is extremely useful.

Systematic trading and discretionary trading are not binary opposites or mutually exclusive.

In extreme cases, on one end, there is a fully automated trading system—always “on,” managing every aspect of the trading process; on the other end, there is purely intuitive speculation—with no rules and no fixed trading strategy.

Technically, any exercise of discretion (such as turning off an automated system or manually adjusting position balances) can be considered “discretionary behavior,” but such a definition is too broad and lacks practical reference value.

In reality, my definition of a “discretionary trader” may apply to most readers, with core characteristics including:

  • Mainly executing trades manually;

  • Analysis focused on technicals (including key price levels, charts, order flow, news catalysts, etc.);

  • Subjectively judging whether a trading strategy is effective and worth participating in;

  • Having discretionary control over key trading elements: risk management, position sizing, entry points, stop-loss conditions, target prices, and trade management.

It is important to emphasize that “discretion” should not be equated with “laziness.”

Some traders might say: “Bro, look, no two trading strategies are exactly the same, so testing is useless—every situation is different anyway.”

However, excellent discretionary traders usually master detailed data of the markets they trade, develop trading playbooks, set market state filters, and keep trading journals to optimize performance, among other practices.

When exercising discretion, they at least follow a rough set of rules; as experience accumulates, the rules become more flexible, and the proportion of discretion in the trading process increases accordingly.

But this flexible discretion is earned through accumulation, not possessed out of thin air.

In any case, based on my experience and observation, most positive expected value (+EV) discretionary trading strategies can be categorized into the following three clear types (names are self-coined):

  • Incremental

  • Convex

  • Specialist

Each category is mainly distinguished by three core dimensions:

  • Risk-reward ratio (R:R)

  • Probability of success

  • Frequency of occurrence

(Note: By combining risk-reward ratio and probability of success, you can roughly estimate the expected value of a trade, but for simplicity, we’ll just use these three dimensions here.)

Let’s analyze these three types of trades one by one.

Incremental Trades

Core features: Low risk-reward ratio, high probability of success, medium frequency

These trades are key to keeping your account running smoothly and maintaining market sensitivity.

They may not be “eye-catching” or suitable for showing off on social media, but they are the “foundation” of a trader—so long as you have some market edge, the returns from these trades can achieve considerable compounding growth.

Typical examples include: microstructure trading, order flow trading, intraday mean reversion, statistically based trades (such as intraday time-of-day effects, weekend effects, post-news release effects), and range trading during low volatility periods.

The main risks faced by these trades are “edge decay” and “sudden market regime shifts.”

But these two risks can be seen as “necessary costs of trading”: intraday trading opportunities are inherently sporadic, and if you’re on the wrong side during a sudden market shift, the cost is often very high (refer to the fall of the Gaddafi regime as an example to understand the risk of counter-trend trading during trend reversals).

Incremental trades are highly practical: they usually deliver steady profits and occur frequently enough to smooth the P&L curve and provide traders with effective information about the market and potential trends.

Convex Trades

Core features: High risk-reward ratio, medium probability of success, low frequency

Most trades based on higher timeframes (such as daily or weekly charts)—especially those centered around volatility expansion or sudden trend changes—fall into this category.

As the name suggests, these trades do not occur often, but when they do, as long as you can capture part of the large move, you can reap substantial rewards.

Typical examples include: high timeframe breakout trades, reversal trades after failed high timeframe breakouts, high timeframe trend continuation trades, major catalyst/news-driven trades, trades based on extreme funding or open interest, and breakout trades after volatility compression.

The main risks of these trades include: false breakouts, long intervals between opportunities, and high trade management difficulty.

Again, these risks are “necessary costs of trading.”

Usually, when participating in these trades, traders may need to attempt the same strategy multiple times, endure several small losses before the strategy works (or it may never work at all). In addition, these trades tend to be more volatile and harder to manage, so traders are more prone to operational mistakes—which is precisely why they offer high returns.

In the crypto trading space, convex trades are often the main contributors to a trader’s long-term P&L. Proper position sizing, capturing major trends, and seizing breakout or trend reversal opportunities are key to keeping your equity curve from being eroded by fees.

In other words, the profits from convex trades can cover the fee losses, frequent trading costs, and volatility risks generated by incremental trades.

Put simply, these are what people often call “blockbuster trades.”

Specialist Trades

Core features: High risk-reward ratio, high probability of success, low frequency

This is a category of “once-in-a-lifetime” high-quality trading opportunities, such as the recent cascade liquidations in the perpetuals market, stablecoin depegging events, key tariff policy news (during periods of significant policy impact), major catalyst-driven trades, and markets with sharply rising volatility.

Typical examples include: capturing low timeframe entries and expanding them into high timeframe swing trades, arbitrage when spot and derivatives prices diverge significantly, cross-exchange arbitrage of large price spreads, “off-market quotes” executed at extremely low discounts, and providing liquidity in thin markets to earn returns.

Participating in these trades usually requires meeting one of the following two conditions:

  • The market experiences abnormal volatility or a “breakdown” (such as a price crash or liquidity drying up)

  • Perfectly combining high timeframe trading logic with low timeframe execution strategies to achieve “snowballing” returns

The challenge of the first condition is that opportunities are extremely rare; and when they do arise, most traders are busy dealing with margin calls or managing existing positions, leaving no time to seize new opportunities. Moreover, exchange system stability is often poor at such times, further increasing operational difficulty.

The challenge of the second condition is that high timeframe price moves often appear highly volatile and noisy on low timeframe charts. This requires traders to precisely time entries and stop-losses, while also being able to stick to low timeframe strategies and manage positions well as the high timeframe trend unfolds.

The main risks of these trades include: extremely high skill requirements, extremely low frequency of opportunities, the possibility of missing out due to being “busy surviving” when opportunities arise, and execution risk (such as slippage or liquidation risk in thin markets).

These trades are extremely difficult, but catching just one can completely change a trader’s career.

It’s worth noting that the appeal of these trades is precisely the source of their risk.

Therefore, it is advisable for traders to set aside a “crisis fund”—stablecoin funds that are not easily touched, specifically reserved for capturing such rare opportunities. This is a very wise practice.

Conclusion

I suggest you review your trading journal or playbook and try to categorize your past trades according to the three types above. If you don’t have a trading journal or playbook yet, this framework can also provide you with a starting point.

Another valuable insight (derived by process of elimination) is that many types of trades are actually not worth your time. For example, “boredom trades”—these clearly fall into the category of “low risk-reward ratio, low probability of success, high frequency,” and are an ineffective drain on your time and capital.

If you are a developing trader, I recommend focusing most of your energy on incremental trades: use these trades to accumulate market data, build your trading system, optimize your operational strategies, and thus accumulate enough capital and experience before gradually trying other types of trades.

You don’t have to confine yourself to one type of trade forever.

A more valuable approach is to develop a playbook that covers all three types of trades. More importantly, set reasonable expectations for each type’s risk-reward ratio, probability of success, frequency, potential risks, and strategy forms.

For example, using a convex trading strategy but managing it like an incremental trade is a mistake; likewise, using a convex trading strategy but sizing positions according to incremental trade standards is also a mistake (this is also my biggest weakness as a trader).

Therefore, it is very important to clearly identify the type of trade you are engaging in and make corresponding adjustments.

I have not set specific numerical standards for risk-reward ratio, probability of success, or frequency, because these metrics are highly influenced by market conditions and can vary greatly. For example, in a hot bull market, convex trading opportunities may arise every week; while in a sluggish market, even incremental trading opportunities are something to be grateful for.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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