Stock Trading Strategies

By Author: jessica smith
Total Articles: 18
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Stock trading strategies

Stock trading strategies, and we will be talking exclusively about active trading strategies, are considered to be more productive when deployed by investors that are not passive/indexed. While the approach of the latter is to hold assets, active traders believe in taking profit from short price movements. Thus, the best stock trading strategies they believe help them capture the market trend.

The relevance of the technical analysis for stock trading strategies
Day trading goes hand in glove with stock trading strategies generally. Day traders deploy technical analysis by breaking down and making sense of price charts. These are the advocates of decluttering. They focus only on price action trading. As far as the approach goes, undoubtedly previous reference; points come in handy when planning for future trading.

The preceding day’s highs and lows, taken together with the market consensus, can form the basis of the day’s trading. Since factors such as these are understood best through technical analysis, stock trading strategies must invariably concern ...
... themselves with technical indicators.

Technical indicators - MA, RSI, MACD
Technical indicators search for particular parameters, such as support and resistance levels.

Moving Averages

The indicator concerns itself with the average stock price over a given period of time. The 100 days and 200 days MAs are the most frequently used. The market sentiment feels positive if the stock under consideration is above both the MAs. This stands for an ongoing upward swing or one that is in the offing.

Relative Strength Indicator

The RSI, measured in percentages, concerns itself with buyer/seller volumes. Consider a scenario where stock is being overbought. This implies that a short term market correction is expected. The price will go down, till there time the trend starts picking up steam again. In this case, the RSI could yield a percentage of 70%+.
Moving average convergence divergence

MACD permits the best stock price momentum assessment. It examines the trend’s current strength and duration. Traders are advised to buy a stock if the MACD is above the current signal line.

The best stock trading strategies

The best stock trading strategies are enumerated below.

Trend trading

Trend traders study asset price direction. Subsequently, they buy/sell contingent upon the trend direction. For example, the buying of the asset following the traders’ long-term position depends on the trend being upwards, with prices demonstrating higher highs. traders would sell, having taken up a short position, following the trend going downwards, with prices demonstrating lower lows.

swing trading

If a trader can assume that a trend never keeps moving continually in one direction, he can take advantage of short term price patterns. Swing raiders are ambitious, intending to profit from both sorts of movement taking place in a short term window.

Scalping

Concentrating on a high win rate, scalping is a short term trading strategy concerned with tiny but frequent profits. The assumption here is that you can still have handsome returns with small increments at high frequency, and the outcome is the same as when you let profits run after having placed a handful of trades. Swing trading can be demanding if you find it hard to have a strict exit policy. Precision and timing are of the essence. Losses can potentially offset any gains garnered over time.

Mean reversion

Mean reversion hypothesises that prices generally come back to average levels, and extreme price moves are unsustainable in the long term. Thus, trading with the assumption that prices will come back to the average, traders may also bet that extreme levels of volatility, growth, technical indicator, and the price will, too, be returning to the average.

Money flows

Rather than just the asset’s price, the money flows indicator uses both volume and price both. It signals if an asset might be overbought/oversold. The number of trades across dates are compared to determine if the money flow was positive or negative. An 80+ reading shows overbought conditions, while a 20- reading implies oversold conditions.

Momentum trading strategy

Momentum is the price change frequency in a stock. Asset volume and market volatility determine momentum. Momentum traders prefer high volatility since they must enter and exit positions swiftly. By definition, such conditions are attended by high liquid. Unsurprisingly, there’s much scope for momentum traders to indulge in short trades via price swings.

Conclusion

Once you have wrapped the above-discussed stock trading strategies around your head, an important aspect of trading is already in your kitty. The offsetting set of concepts would be those related to risk management, hedging and diversification. The thing is, you have to be sure you understand the costs that a strategy or a combination of strategies might weigh down upon you. To be fully profitable, you will also have to control costs incurred in the course of trading.