Stock Trading Strategies
Why do traders need strategies when trading stocks?
Stock trading is a form of investing that puts short-term profits a priority over long-term gains. However, diving in without proper knowledge can be risky. This is why all traders should have a solid trading strategy in place. When trading the financial markets, such as the stock market, you will come across several popular trading styles and techniques but ultimately, it will be up to the trader to decide which is the best trading strategy. In order to make up your mind though, there are some important factors to consider including personality type, lifestyle and available resources. In this article, Forexonline fx portrays the top and most common trading strategies which can be utilised as new trading techniques or as improved version of existing ones.
Top stock trading techniques
News strategy
This strategy refers to trading based on latest market news and expectations before and after they are released. As news travels quickly, traders should be skilful enough to follow it properly. This means that they will need to access the news and act upon it right away. This process will require some critical thinking as well, in order to define and understand the accuracy of the information conveyed.
End-of-day strategy
This type of strategy refers to trading when the markets are about to close. Such kind of traders perform their trade when they are certain that the price is about to close. This also means that traders should study price action compared to the previous day’s price movement and create a set of risk management plans, which will include a limit-order, a stop-loss order and a take-profit order so as to reduce any risk over the night. This strategy is less time-consuming as traders work on charts at the opening and closing times only.
Swing strategy
This strategy refers to trading based on both sides of price movement. Trades of swing traders aim at buying an asset depending on the suspicion that the market will rise and vice versa. This is a more technical approach of analysing markets, which requires studying forex patterns and analysing price movements. In order for swing trades to be successful, there must be correct interpretation of the length and duration of each swing, as these define important support and resistance levels. Also, traders will need to identify trends where the markets go through increasing levels of supply or demand.
Scalping strategy
Scalping strategy is used with very short-term trades with small price movements. It aims at gaining a small profit from each. This strategy will require to have an exit plan in place as there might be potentially large losses. However, there is no overnight risk as most trades only last for a few minutes maximum. Additionally, this is suitable for people who want to trade flexibly and it gives multiple trading opportunities.
How to choose a trading strategy?
Choosing a stock trading strategy is not a complicated procedure as long as traders stick with just one. A key tip to remember is that good traders are those who are able to adapt and adjust each strategy accordingly depending on their needs and rising opportunities. Combining different approaches can facilitate this.
Nevertheless, patience is key in the event that traders encounter losses. Mistakes are what will eventually help them improve their strategy. It is best if they track both profits and losses so as to maintain consistency and discipline across all trades.