Robinhood Trading Strategies: Everything You Need to Know (2020)

Robinhood is a company that was first introduced in 2013 but has experienced a significant amount of growth over the past year. As the market has become increasingly volatile—with 2020 already being the most volatile year to date—many individuals across the world have begun exploring opportunities to begin investing and experimenting with various trading strategies.

In a time where the markets are moving quite drastically, there will be plenty of opportunities for savvy and fast-acting traders to find lucrative positions and increase their wealth. Of course, increased volatility also means there will be greater exposure to risk. Just because you happen to earn a 10 percent daily return on a good day does not mean you should expect such returns to continue over time or that you should consider yourself to be the new Jordan Belfort.

Still, there are quite a few reasons why the use of Robinhood has been steadily increasing and why this platform has begun putting pressure on older trading platforms such as E-Trade or TD Ameritrade. The platform’s affordability, accessibility, and general ease of use have all caused it to gain popularity, particularly among younger audiences.

Currently, there are an estimated 6 million Robinhood users (as of December 2019) and this figure has been steadily increasing. In this article, we will discuss the most important things to know about Robinhood and will also help introduce some of the most effective Robinhood trading strategies.

What is Robinhood? What assets can I trade using Robinhood?

Robinhood is a mobile and desktop app—which has been approved and supported by FINRA and the SEC—that makes it easy for traders to trade a variety of different assets. The most attractive feature of Robinhood is that the company does not charge any commissions, which has helped it distinguish itself from some of the more traditional alternatives.

Instead, the company generates profits by generating interest from its customers’ cash holdings and from margin lending. The platform can be used to trade thousands of different stocks, exchange-traded funds (ETF), stock options, and cryptocurrencies. However, it is important to note that not all publicly traded companies can be accessed using Robinhood. Still, most major companies can be found on the platform, including companies with stocks worth more than $300,000 each, such as Berkshire Hathaway (Class A).

What are the pros of using Robinhood?

As suggested, the leading benefit of using Robinhood is that the platform has no trading fees nor does it have any minimum account balances. The platform can be accessed for free, and even if all you are hoping to do is buy a single $.05 stock, you can easily choose to do so. The benefits of holding on to certain stocks, such as quarterly dividends and the right to vote in shareholder meetings, are also offered to all Robinhood stockholders.

The diverse array of assets also makes Robinhood very attractive. The platform is ideal for individuals who want to experiment with trading cryptocurrency, but do not want to go through the hassle of creating their own crypto wallets. Issuing stop orders, limit orders, and trading stock options can all be done by users, though you will need to sign an agreement saying that you understand the inherent risks of trading.

What are the cons of using Robinhood?

Of course, with all the pros that Robinhood provides, there will also be some drawbacks. For starters, Robinhood cannot be used for trading bonds, which can limit the risk-management aspect of many common trading strategies. It also cannot be used to trade mutual funds, nor does the platform enable users to build a retirement account (they can accumulate wealth through trading, but that’s it).

 Additionally, Robinhood has limited customer support and has also run into a few issues in the past. For example, during one of the year’s most chaotic trading days (March 2, 2020), the platform experienced a “system-wide outage”, causing traders to miss an entire trading day. Some traders sued due to their inability to access funds, but Robinhood’s fine print ultimately protected them.

The final con of using Robinhood, if you want to call it a “con”, is that it is almost too easy to use. This has caused some users to get in over their heads, become overly confident in their abilities, and lose quite a bit of money. Many people also do not realize the tax obligations they are accumulating, which can create issues down the line. However, if you can develop a sense of awareness and use proven Robinhood trading strategies, you can still be very successful.

Understanding Your Personal Trading Objectives and Constraints

Before trading on any platform, the first thing you should do is identify your personal trading constraints and objectives. Are you a novice or an experienced trader? Do you want to trade every day or are you more concerned about long-term savings? Are there certain assets you are comfortable trading and others you’ll want to avoid? How much risk are you willing to assume and how much return are you hoping to generate?

By answering these questions, you’ll be in a much better position to achieve your long-term goals.

The Keys to Developing an Effective Robinhood Trading Strategy

Robinhood has many tools that make it easy to conduct both technical and fundamental analysis. Setting up notifications can help you make quick decisions and strike when the iron is hot. Additionally, using candlestick charts and monitoring crucial technical indicators such as moving averages, exponential moving averages, MACD, and trading volume can also help you make more informed decisions.

When trading using Robinhood, be sure to issue stop-limit orders to help decrease your ongoing exposure to risk. Additionally, you can also limit your exposure to risk by trading assets with reverse correlations, such as cryptocurrencies and petroleum ETFs.

Be sure to stay informed and take advantage of Robinhood’s very useful news aggregators (you’ll also probably want to find an additional trading source of your own for help). The platform also offers useful groupings of stocks such as “Biggest Movers”, “Top 100”, “ETF”, “Energy”, and countless others. Taking advantage of all of these tools at once will help increase your probability of actually achieving your goals.

Conclusion – Robinhood Trading Strategies

Robinhood cannot guarantee that you can make money, but it can make it easy to enter into the market with limited costs and risks. If you can continue learning about the driving forces of the market and learning about the best trading strategies, in general, this unique, low-frills platform can be a very effective tool.