How much time should I spend trading? Should I trade full time or part time? What kind of strategies should I follow? These questions might seem overwhelming at first, but they don’t have to be. In fact, these are some of the most common questions asked by new traders.
Trading has become a very lucrative career choice for those who want to earn extra income. The good thing about trading is that it allows you to invest your money in stocks, commodities, forex, ETFs, etc. without having to worry about the risks associated with other investments such as real estate or mutual funds.
There are two types of traders: day traders and swing traders. Day traders focus on short term gains, whereas swing traders aim to take advantage of medium term trends. If you’re looking to start trading, then you should consider both approaches.
There are also long term investors which I consider myself as. However, these strategies are specifically aimed at day traders and swing traders as the analysis is predominantly technical analysis. Aka looking at the charts. Long term investing on the other hand involves more fundamental analysis of the underlying companies.
I would like to also say that I understand some of my list entries aren't strategies in themselves as they are indicators. However some indicators are very useful and can have many strategies related to them. So feel free to explore deeper into maybe some combinations of what I have mentioned here. YouTube is a great resource to see people demonstrating these strategies.
1. Bollinger Bands
Bollinger bands are used to determine if the price of an asset is overbought or oversold. They were developed by John Bollinger in the 1980s. It is based on the premise that when prices move too far above or below their average values, they tend to correct back towards their average value. This means that there will be periods where prices are overbought (above) or oversold (below).
You can use this information to help identify whether the current market conditions are favourable for buying or selling. For example, if the price is moving up and the upper band is not crossing the lower one, this may indicate that the price is likely to continue rising. On the other hand, if the price is falling and the lower band is not crossing the upper one, this may indicate a possible reversal.
2. Moving Average
Moving averages are used to measure the strength of a trend. There are different kinds of moving averages. Some are simple while others are exponential. Moving averages are calculated using the closing prices of the previous X number of days days.
For example you may have a 20 MA which results essentially means the moving average of the previous 20 trading days. In the screenshot below we can see three moving averages:
3. Ichimoku Cloud
The Ichimoku Cloud was created by Japanese trader Yuriy Sugimoto in 1997. It is a combination of several technical indicators including support and resistance levels, moving averages, MACD and RSI. These indicators are plotted on a graph, which helps traders analyse the direction of the price movement.
The Ichimoku Cloud can look very complex. However, it is the seemingly complex look of the indicator that gives it the reliability and actually makes it a great strategy for beginners. Once you learn the multiple lines, patterns and indicators within the cloud, you will find it easy to trade with confidence.
4. EMA Crossover
EMA crossover is a strategy that looks for a cross between two exponentially weighted moving averages. The first line is the shorter EMAs, usually 14 or 21 days, whereas the second line is the longer EMAs. When the two lines cross each other, it indicates that the momentum of the security has changed from positive to negative.
When the security's momentum changes from positive to negative, it shows that the stock is about to enter a new phase of its cycle. Traders should wait until the momentum turns positive again before entering the position. If the momentum remains negative for a long time, then it might be a sign that the security is due for a correction.
5. SMA Crossover
SMA crossover is similar to EMA crossover except that instead of looking at two EMAs, it looks at two Simple Moving Averages. The difference is that the SMA is simpler than the EMA because it only uses one line.
This trading signal is also known as the "golden ratio" because it is often seen as a golden opportunity to buy stocks. It is said that whenever the SMAs cross, the stock is ready to make a big move. Therefore, traders need to watch out
6. MACD Divergence
MACD divergence is another popular trading strategy. It is also known as Signal Line Convergence/Divergence. It is a momentum oscillator that measures the speed and change of the security’s price relative to the MACD line.
Financial markets are always unpredictable and there is no telling when a trend will end. This is why it is important to know how to identify trends. One way to do this is through the use of MACD divergence.
7. MACD + 200EMA
This is an advanced version of the MACD divergences. The main difference is that the 200EMA is added to the MACD. This increases the sensitivity of the signal. The 200EMA is a smoothing factor that reduces noise.
8. CMF + MACD
CMF stands for Commodity Channel Index. It is a momentum indicator that measures the strength of the security’ s move compared to the channel. The MACD adds more weight to the security’s moves when they occur near the channel.
9. Fibonacci Retracement
Fibonacci retracement is a popular tool among swing traders. It is based on the work of Leonardo da Vinci and involves drawing parallel lines from the high point of the security’ current price action to the low point. The lines are drawn in such a way that they form a series of triangles. Each triangle represents a specific percentage of the total distance between the highs and lows.
10. ADX + MACD
ADX stands for Average Directional Movement Index. It is a directional momentum indicator that compares the overbought and oversold zones to the MACD line to determine whether the security is trending up or down.
Summary
There are many different strategies out there that you can use to help you make money in the market. Some of these strategies are simple while others are complex. As a beginner trader, you don't need to know how to do all of them. Remember that not all of these strategies will work on every instrument in every market. If you like a strategy, practice with a fake money account or run proper back tests to figure out if the strategy will work.
I hope you found this blog post helpful. If you did find it helpful then consider sharing the article on social media or leave some feedback down in the comment section below.
Thanks for Reading
FAQ
How Do I Start Active Trading?
There are various strategies when actively trading securities. Some require a highly analytical and technically sound background; others rely heavier on computing set-ups and a large dedication of time. Across all strategies, you must have sufficient capital on hand to enter into positions large enough to begin earning potential gains.
Source: (investopedia.com)
What is the best trading strategy?
When it comes to trading strategies, they can all perform well under specific market conditions; the best trading strategy is a subjective matter. However, it's recommended to pick a trading strategy based on your personality type, level of discipline, available capital, risk tolerance and availability.
Source: (cmcmarkets.com)
Is Technical Analysis or Fundamental Analysis More Appropriate for Day Trading?
Technical analysis can be more appropriate for day trading. That's because it can help a trader to identify the short-term trading patterns and trends that are essential for day trading.
Source: (investopedia.com)
What’s the best trading strategy for you?
There’s no one-size-fits-all approach when it comes to trading, and no one person’s strategy will be exactly the same. The strategy that’s going to work best for you will depend on your appetite for risk, your trading style, your level of motivation and more.
Source: (ig.com)
