5 Effective Trading Strategy for Traders | Trading has undergone a metamorphosis over the years, becoming less complex due to technology. Trading apps have taken over the expensive and complicated affair of trading that dominated the past. People can now access many markets at the stroke of their fingers in whatever device is staring at them.
However, before going long or short in any position, traders must have a working strategy to get the most out of their investment. Trading is not a day-by-day affair that relies purely on instinct and speculation. Experienced traders undergo a series of failures that help mold their approaches toward the perfect strategy that works.
That said, the volatility of many markets could void some strategies as explained in this source, so it is imperative to know the specifics of the stock market before making a significant investment. The following are five strategies to consider that have proven successful.
Five Strategies That Increase Trading Effectiveness
The Moving Average Strategy
Trading is a risky issue, as the security prices drop and rise frequently. However, knowing the moving averages of stock for a period can give a better picture of the price dynamics. Weighted moving averages carry more weight, as they consider the final days before the end of the period when the trader places their stakes. However, the typical moving average can tell a lot about stock movement.
A period is a significant factor in the moving average strategy—the longer the period for the averages, the better the chances of success. For Iowan traders, it is best to set a 200-day moving average and watch for a price dip within any ten-day period. Peaks, sustained within a 10-day period after plummeting, with strong support, are an important buying signal.
The ABC Strategy
The ABC strategy attempts to identify the highest price point of security from each dip. Stock prices often rise and fall, the strategy follows the highs and marks each low limit encountered in a trading period. The lows will lead to new highs and subsequent lows.
For every low, the price climbs higher than before, setting the start point for A. Point B marks the highest point of a line graph—it is the highest security price after point A. The C gives the buy signal. If C is lower than point B but higher than A, then an investor should start buying.
Markets have many dynamics. While this is the case, swing trading is a strategy that holds for many of them, which have little activity or are range-bound. Range bound markets have little up and down movement, but heightened sideways activities. Swing traders take advantage of the small changes and try their luck in the almost stagnant market. Nevertheless, this strategy is suitable for experienced traders who can pick out tiny trends.
The high-low strategy begins by setting a period—10 days for example. In the selected period, the high-low is the highest and lowest possible points the plot lines can reach. A high of $3 and a low of $1 in stock price gives an average of $2. When the price of security touches $3, the highest point, it is time to buy. The moment the price dips below the average price, which is 1.5—it is time to sell. Conversely, a trader can go short when the price nears $1.
Price Signal Trading
Price signal trading requires keen eyes beyond following the prices in a graph as other strategies do. Traders in this method identify resistance or strong support from data collected over several weeks, which becomes point X. The X helps investors to identify patterns in daily market trends that might lead to strong support. Once there is enough confidence for a point X, Investors take action by buying new stocks.
The method also helps identify the right moment to sell.
Trading strategies are techniques used by pros to beat the markets. However, investors must understand where an approach works better and the level of skill required for better results.