What do you mean by trading strategies?
Trading strategies are essentially the predefined process or tactics used to buy and sell securities to generate profits. Traders should know the best profitable strategies to reduce their loss and maximize the profit
Day traders use different strategies in their trading plans. But each trading strategies has its own merits and demerits. Traders should stick to a strategy that works for them. If you are using right strategy in right way you can gain good profits. Some of the best trading strategies are specified below.
Momentum Trading Strategy(Trend strategy)
Momentum trading strategy can be similar to trend strategy. Trend trading is a strategy that involves using technical indicators to identify the direction of market momentum. When the price is moving in one direction, such as up or down, that is called a trend. The trend trading strategy is one of the simplest and most commonly used strategies for novice trader. Here traders look for strong market trends that are backed by a significant volume of the security being traded.
In simple terms, trend trading strategies use trend signals to generate entry and exit conditions based on the stock’s trend. If the price continues in the direction of the trend, buy during an uptrend and shorts during a downtrend. Once the trend reverses, the trade should be exited. They perform best when used over the long-term, as trends take weeks and months to develop, and may extend for years .
Gap and Go Trading Strategy
Gaps are basically a jump in opening price of a financial asset like stock in upward or downward direction compared to previous day close. Such situations occur when an important news came, earning , management changes ,merger and acquisition, top analyst pick etc.
If the gap opens higher than the previous day, then it is called the gap up, and if it opens lower , then it is called gap down. This strategy is great for one who wants quick profits with out much risk.
Reversal Trading Strategy
Most of the time, when a trend ends, the market ends up consolidating in a range for a period before a new trend begins as shown in the picture.
It’s difficult to predict when stocks will make big move, but we know that almost all big moves, both upward or downward eventually get corrected . That means the highest or lowest prices in a market are temporary and that, over time, each movement will tend to return to its mean value. An expert trader can easily identify the market reversal point. This is the point at which a trend begins to lose strength and change direction from bullish to bearish or vice versa.
Moving Average Crossover Strategy
Another excellent beginner intraday trading strategy is the moving average crossover strategy. When two different moving average lines cross over one another, this is referred to as a moving average crossover.
The moving average crossover strategy is based on the simple fact that smaller moving averages follow price faster than larger moving averages (for example, 5 SMA follows price faster than 20 SMA), and when the crossover occurs, we can have a small trend formation until reverse crossover occurs.
The crossover strategy will assist you in identifying the formation of a trend and trading in that direction. When short term moving average crosses above long term moving average then uptrend begins, and traders can go for long position and when short term moving average crosses below long term moving average then it indicates downtrend.
Moving averages are lagging indicator as they lag behind movements in the price/volume charts. By the time the moving average may show a noticeable trend, it may be too late to enter or exit the market effectively .
News linked trading
This is also a very basic trading strategy Under this strategy, traders track the impact of the news on the stocks and take suitable trading positions. The initial release of news about current events often directly and substantially influences the prices of stocks, commodities and currency pairs Important news events include management decisions, share buybacks, and company earnings report etc .The news events can be tracked from official company websites , other major news sources or download one of the best stock news app. There is a high probability the market will make a big move after their release.
But traders should keep in mind that the markets can be exceptionally volatile when important news comes. News traders should not forget to place correct stop loss orders since they can be subject to substantial slippage in such fast markets.
Breakout Trading Strategy
The breakout trading strategy is one of the most popular day trading strategies for selecting good intraday stocks. The word’ breakout’ means to move below support or above resistance .This is an excellent trading strategy that involves involves identifying the threshold points when the stock prices rise above or falls below the specified time. These are known as support and resistance level and once the price moves above resistance, you can go for long position. Similarly, if the price falls below support levels, you can enter a short position in the stocks, assuming the price will continue to fall.
Break outs are followed by heavy volumes and increase the amount of volatility have a higher chance of success, than one that forms with little volume. .Breakout has a high probability rate when traded in direction of the main trend. However, while trading breakouts there are chances where most of them end up as false breakouts. This means that the market just goes slightly beyond the breakout level, and then reverts and the breakout fails.
Conclusion
In this article, we have seen a wide variety of different trading strategies. Before deciding about engaging in any of the strategies, the costs and risks which are associated with each one are to be considered and explored. In order to succeed at trading, you need discipline, patience and proper risk management. Remember that no indicator can give you the certainty of how the market will move but can give the probability of market movements. Wishing you all the best
FAQs
What is intraday trading?
Intraday trading means buying and selling stocks on the same day. Intraday trading is risky ,however we can make the trade profitable by using some of the above strategies.
What are the best intraday trading strategy ?
The best intraday trading strategies will depend on various factors, such as market conditions, the trader’s risk tolerance, and their investment goals. Some popular intraday trading strategies include momentum trading, moving average cross over trading ,breakout trading, and reversal trading. News trading is also a good strategy for those who keep track on daily business news and events.