Trading becomes more advantageous and beneficial if you know the right strategies and how you make use of these. Finding the right strategy is a very essential step for both beginners and seasoned traders. It is important that you understand well the options presented to you and how you can maximize these for your gains.
In this article you can learn about the several popular trading strategies to aid you be in a tactical position, determine the risks involved, initiate your play and even predict the trend of volatility. Understanding the pros and cons of every action can help you decide the best trading style that suits your style and preference. The popular trading strategies are as follows:
Using the Breakout Strategy
Using breakout as a strategy can be considered as one of the most common techniques being employed in the market when people do trading. In a breakout strategy, traders identify a major price level – they then buy or sell once the price breaks the set level. The major argument in a breakout strategy is that, when the price is forceful enough to break the set level then it probably will continue to move towards that direction.
You can use the breakout strategy if you see the strong trend and movement of the market in a uniform direction. You surely would not regret the move. Historically speaking, breakouts are being employed when the market is at its extreme highs and lows. You just have to be aware of false trades – or when the market is not strongly trending and you make your move; this in turn can result into losses.
Using Retracements as Strategy
Retracement is somehow a slight opposite of the breakout strategy. The skill solely depends on the trader himself. The trader will be the one to identify the direction of the price. He must then be able to see if the price will continue to move in that direction and do his move. The major assertion of the retracement strategy is that, when the price moved in the anticipated direction, the price will momentarily reverse since experienced traders withdraw their profits and beginners will try to trade in the reverse direction. Fundamental analysis must be applied when you employ this strategy. Usually, retracement is used after release of vital economic events and news since these can cause temporary distress to the market.
Using Reversals as a Strategy
Use of reversals is a kind of approach when there is a little fundamental activity that traders can analyze and take advantage. The market in this time tends to move without any clear direction. In here, traders must have an in-depth look to see a key price level which they can use to make a direct trade. Traders will then wait for a “bounce” which is a quick and short opportunity to take a return from a low volume market movement. Since use of reversals is applicable for short term trading only, you have to make sure that there are no major news being released at the moment and that there are no monetary policies being talked about by the press. These events can trigger movements or decisions from other traders and can result into losses.
Using the Momentum Strategy
When you employ the momentum strategy in trading, it does not need to have precise facts and information. You can just go with the prevailing force and continuation of the trend. In this strategy, it does not matter if you look into the price or not. You can start making your move and simply follow the established and main trend. What you can consider in this type of trading is to look into indicators like moving averages and oscillators and use these as your trading signals.
As a trader, whether you are a seasoned one, a beginner or an aspiring one, you can employ the strategies mentioned in this article. However, before engaging with one of these, be sure to know the risks and costs linked with each strategy. Explore all of your options first and consider them carefully. There are a lot more other strategies that you can consider, yet these four are the most commonly used in the market.