Picking the best Stock trading strategy consists of analysing the advantages and disadvantages of a strategy for you as an individual trader. The most popular Stock trading strategy is referred to as the Breakouts strategy. Breakouts are based on recognising a price level and then choosing to either ‘buy’ or ‘sell’ as the price breaks at your pre-determined level. Traders assume that if a price is about it break a level, then it will continue to move in the same direction. Traders identify support and resistance. If your market is strongly moving in a certain direction, Breakout trading makes sure you do not miss the move. Breakouts are typically used when a market is nearing the extreme highs or the extreme lows of its movement history. Traders expect that the price will continue to move with the trend and break extreme highs or extreme lows.
Retracements are another popular Stock trading strategy. This is involves the trader recognising a clear direction for a market price to move in. The trader then expects that this price will continue to move in the same direction. Retracements is based on the assumption that after each move in an expected direction, a price should temporarily reverse. At this point traders can take their profits and assume that other traders will begin to trade in the opposite direction. This strategy demands fundamental analysis.
Reversal trading is also a top Stock trading strategy. Reversal trading is commonly used by technical based traders when there are periods of small fundamental, price activity in markets. In this time, markets are inclined to ‘range’ or move in unclear directions. Reversal traders search for entry levels which they can use to trade directly from, in the expectation that a ‘bounce’ may occur when a price hits. ‘Bounces’ mean that there are small opportunities to take advantage of low volume market activity.
Another option for a Stock trading strategy is known as Momentum trading. Momentum trading in not as interested in key price entries into markets but instead on force and continuations of price movements. Traders seek movements which show signs of moving more or less in the direction of their existing trend. This style of trading relies on indicators to give trading signals for example, moving averages. This type of trading is based on the perception of long term movements.
Position trading is a further Stock trading strategy which is similar to Momentum trading as it removes the importance of entry positions. Instead the trader is concerned with being in the market when prices eventually move. Traders typically build their positions in markets over a substantial amount of time. This could be over the period of a few days or a few weeks. It is based on the anticipation that markets will eventually move in their desired direction.
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