Stock traders have an array of decision-making strategies. To an outsider, the world of indices and curves is daunting. In reality, navigation is not rocket science. Based on volumes and your own style, it is quite straightforward to find the most appropriate course of action. Forex website has put together a list of preferred strategies.
Here are five categories to consider. These are tips every trader should know and apply. First, consider the big picture. Zoom in on the most promising names and examine their chart patterns. Answer these questions.
What is in the media?
Stockholders should follow the news closely. A single announcement or media report can bring about dramatic changes. It may cause the share price to skyrocket or nosedive, depending on its nature. Keep track of industry news and stay in the loop. This way, you may anticipate future dynamics and monetise your foresight.
How large are the volumes?
This is something short-term traders should focus on. In their decision-making, they may be guided by a momentum indicator or a chart pattern. With diminishing volumes, these tactics lose meaning as the market generally dries up. It is crucial to check that the current volume is better than the relative average. Until then, trades should be postponed.
How favourable is general market sentiment?
This describes the general atmosphere in the market. In times of crises, the trading community is anxious. In times like these, you need to adjust strategies accordingly. For instance, take the breakout strategy. You would set a price level you expect to be broken through. Once the target is reached, your purchase or sale is executed at the predetermined price.
One of the most popular methods, a breakout, is most advisable when the market is approaching the peak or bottom that was observed recently. When an uptrend or downtrend persists, this is only reasonable. However, in times of financial uncertainty, you would not keep a breakout trade open for long.
Remember about correlation
Today stocks are increasingly correlated. This was achieved thanks to the advent of high-frequency trading (HFT). Trading methods that engage powerful computers can execute multiple orders almost immediately. As a result, when you feel the market moving against you, it is likely (albeit not certain) to hurt you.
In conclusion, it is important to compare the time frame for the current market sentiment with the time frame for the planned trade. For instance, the sentiment on a morning may not matter much for the general direction over the week. On the other hand, results observed over the past several days will matter.
Have you checked the daily charts?
Visual aids are key for traders of all assets. Whichever strategy is your favourite, pay close attention to daily charts. This should help you spot the most likely winners. If you conclude that the daily potential is fulfilled, you have grounds for intraday expectations. With this knowledge, it is easier to anticipate longer trends.
Importantly, the best opportunities start as day trades. As they perform well, you can reap your profit for the day and leave a portion for the future. Subsequently, you execute a swing trade, making sure the stop is set to a break-even point. Swing trades are longer term and may span several days.
Another advantage is that swing trades do not require constant monitoring of charts. They are suitable for traders who have only a few spare hours every night. As you observe the daily pattern being fulfilled, the stop loss limit may be increased.
Have you checked the intraday charts?
The second step is the analysis of the longer intraday dynamics. Even if the volumes are promising and daily patterns seem to hold, nothing is certain. Are you sure the trade will not turn against you immediately after the purchase? An ideal solution is to use pullback periods or consolidate.
Once you see a spike, a pullback phase is likely to follow. This means there is a temporary reversal. In any uptrend situation, the value will experience at least occasional drops. Although insignificant, they open buying opportunities for traders who can evaluate the big picture.
After a pullback, the price is likely to reach new highs. Similar logic is followed in a downtrend environment. During the general fall, there will be periods of growth. These short-term segments are exactly when the asset should be traded.
What is the takeaway?
These five steps are simple yet effective. Stick to the rules to increase the accuracy of your market moves. Follow the media to understand the current sentiment, and zoom in on short-term charts to make informed decisions. An organised approach is bound to improve performance. Although this is no universal recipe, it works in most cases.