The term “trading strategies” refers to a wide range of approaches, many of which have become the cornerstones of successful investing and trading. Technical analysis has been used as an analytical tool for years. However, over the last several years, more comprehensive and sophisticated trading strategies have evolved, which have yielded consistently better results.
Technical indicators are used primarily to view past market fluctuations and predict future movements. Examples of technical analysis tools are moving averages, natural moving averages, relative Strength Index (RSI), and historical volatility indicators. Many trading strategies, such as entry, exit, stop loss, and trade management rules, utilize one or more technical indicators to guide decision making. For example, traders may choose to implement a stop-loss strategy, when a certain price level is reached, in order to limit the losses incurred in a trading position.
Most forex trading strategies begin with an entry strategy. This is the first step in any trading strategy. Once buyers begin purchasing, the buying action can be followed by a selling strategy. In a fundamental trading strategy, the main focus is on the fundamental factors that affect the value of a currency. One of the most widely-used technical analysis tools, however, is the Moving Average Convergence/Divergence, or MACD, which utilizes a moving average equity index.
Breakout strategies are used after a currency pair has established a strong trend. These breakout strategies occur as an upward continuation in the direction of the trend, which is usually accompanied by price activity that is suggestive of an upcoming breakout. Traders who employ these types of trading strategies look to take advantage of price fluctuations that appear likely to result in an upward turn. However, it is important to keep in mind that the likelihood of an actual breakout move being possible is not necessarily high.
Momentum trading strategies refer to a particular type of technical analysis that utilizes the concept of counter-trend resistance. The purpose of this strategy is to exploit short-term price changes for the purpose of maximizing day profits. These strategies begin by utilizing breakouts as a way to open up short positions. As the price of the security begins to move in the expected direction, traders set their positions for maximum gains before quickly reversing direction, pushing the broken prices higher and re-establishing potential day profits.
One of the more risk management strategies used in forex trading strategies is the Trend Trader. In this strategy, traders look to anticipate market changes before they happen so that they may be able to trade ahead of the curve. Because of the potential for massive gains, the trader must often employ extreme caution. Although the strategy can generate some significant day profits, the risks are often extremely high. It is not uncommon for traders to suffer heavy losses.
A combination of these risk management and trend-churn trading strategies is commonly referred to as Price/Volume Trading or PVT. Although this particular strategy is not widely used, it does have its advantages. Using this method enables the trader to find day trades based on relative price movements in the market. Although there is some risk involved in implementing this strategy, it can generate a consistent profit over time.
Regardless of the specific trading strategies used, a general guideline should be followed. Stocks should be bought when the price is low and sold when the price is high. Individual stocks should be monitored individually and managed according to their own rules and strategies.
One of the most popular trading strategies is called the In-Depth Technical Analysis. Developed by two traders named Wallace Swarup and George Soros, the In Depth Technical Analysis uses a combination of indicators and technical analysis techniques in order to determine the direction of a stock price movement. For example, the two used an “A” board called the ARI and a chart called the MACD. The first technique is designed to look at price movements using support and resistance indicators. The second technique uses an “I” chart that compares stock movements with respect to key Indicators. Both techniques require the knowledge of where and when certain price movements occur.
Another common trading strategies is called relative strength index (RSI) trading strategies. The theory behind this strategy is that price movement can be predicted using statistical analysis of the relative strength index patterns on different time frames. By using relative strength index patterns, traders will be able to predict future trends. The most widely used technical indicators are the MACD, Stochastics, and moving averages.
Traders use a combination of technical indicators and stop-loss orders to find day trading strategies that work. These best day trading strategies should be developed around a particular indicator or method. For example, a trader may find he best strategies using the Relative Strength Index (RSI), the MACD, and the moving averages. However, if all three of these methods fail, a trader may decide to use stop-loss orders to force a sell-off if the trend reverses direction. This would mean that he cut his losses early and take advantage of a potential gain if the trend continues.