As an amateur investor, you enter the stock market with a lot of aspirations and though initially, it may seem like an incomprehensible task for most of you – with precision and complete strategy formation, trading becomes an easy game to play.
Now, you must be wondering why there is a need to strategise?
The simple answer to this would be that trading strategies could be used to enhance one’s abilities or to help one embark upon the journey of trading.
For most of us who are new to the idea of trading but wish to acquire skills to trade, the complicated terminologies throw us off track and make us doubt about whether we can do it at all.
If we ask an experienced trader or take help from the articles available online, both conversations would end in complex terms coming at you at bullets – making you doubt your intentions of trading further more.
Like all ways of money making in the world, trading stocks can also be very rewarding or painfully unprofitable. Swinging between the two extremes is a trader, whose decisions along with the trends determine his luck. Formulating a fool-proof trading plan and trying to keep in mind the things which could go wrong usually help traders to make well-though of trading moves.
For beginners, the need to strategize is more since they are new to the trading mechanisms and they must learn as they move on further in the trading world.
Strategies once listed can be looked through repeatedly to help a novice or an experienced trader from committing mistakes that could cost him a grave financial loss. Some of the strategies listed in this report are well suited for an experienced trader while beginners would take a while to get attuned to them.
So, this post would work towards defining certain fundamentals in stock trading which have been found to have increased the success rate amongst most traders across the world. These fundamentals have been tried and tested – through the years, they have gained quick popularity amongst many seasoned traders.
As a novice, you would require all the help you could and there is a detailed report in our website – http://stockmarketsignals.com/reports/ , which accentuates each and every trading strategy which could prove useful to you.
Through this post, we would give you a quick summary of those fundamentals that could smoothen your trading ride.
Position Trading – The major problem a new trader faces is to understand when to buy or to sell a particular stock?
The stock does not arrive with a rulebook which sets a right time to buy or sell a stock – and this is because each trade is as unique as its trader. Each person would view a stock differently; each person would possess different amount of capital and each trader would wish to trade using different trading mechanisms.
Most financial analysts would provide a Partial Sell as a solution to such a problem.
What do we mean by the term Partial Sell?
In case of uncertainty, always sell a fraction of your position. How does this help?
Such a move ensures that you get to tie down some of your profits available at the current price since you will not be selling your whole position. Thus, enabling you to save some of your shares. These shares in your clasp can help you gain further profit, if the price in this position later moves up.
Momentum Trading – Momentum Trading helps you focus on stocks that are moving incomparably in one direction on high volume.
Momentum traders may hold their positions for a few minutes, a couple of hours or even the entire length of the trading day, depending on the how the stocks may move.
Such a strategy would enable you to list out some of the strongest up trends shown by a stock and narrowing down on which ones you would want to place your bet on. It is vital to remember that traders using momentum mechanisms only do so for a limited time bracket. This requires for the trader to be vigilant about the stocks which are constantly on the move – to know when exactly to strike. Buying and selling of stocks becomes an easier exercise due to such serious vigilance.
Momentum Trading uses charts as a means to trade in the direction of the bigger trend. This strategy is thus designed lower the risk and find out what the higher reward opportunities are by waiting for correctional methods. The constant moving average helps us understand whether the is bullish or bearish.
In such cases, The Stochastic Oscillator is used to identify when to pull back during an uptrend and when to bounce back during a down trend.
At the same time, The MACD-Histogram (Moving Average Convergence Divergence) is used measure buy and sell signals and to signal the end of such a pullback or bounce.
Six Month MACD Cycle – Based on an analysis made by Yale Hirsch – the founder of the Stock Trader’s Almanac, the six month cycle describes a Bullish cycle, running from November to April and a Bearish cycle running from May to October.
Thus, the phrase in the stock market “Sell in May and go away” originates from their analysis.
The analysis was based on the statistics made by the Stock Trader’s Almanac which show the Stock Market performing very well in the Bullish six months and underperforming during six months long Bearish period.
Understanding Breakouts– Breakout is one of the most common stock trading strategies.
So, what are breakouts?
Breakouts majorly work with the identification of a key price as well as buying or selling price as soon as the stock price breaks a particular pre-determined level. This is helpful as in case the stock price has enough strength to break that pre-determined level, it will in most probabilities continue to move in the particular direction.
To put breakouts into good use, one must know the function of resistance and support.
Gap Trading – To know Gap Trading, you must know the meaning of the term “gap” in the stock market. A gap is a change in price levels between the close and open ends of two consecutive days.
A Gap can be of the following types – “Full Gap Up” (Full Gap Up-Long, Full Gap Up-Short, Full Gap Down- Long, Full Gap Down-Up) and “Partial Gap Down” (Partial Gap Down-Long, Partial Gap Down-Long, Partial Gap Up- Long and Partial Gap Down – Short)
Keeping the chart pattern in mind, technical analysts divide gap patterns into four types Common, Breakaway, Continuation and Exhaustion.
Gap Trading can be defined as a methodical approach to buying and short selling stocks.
Traders can watch a price gap from the previous close of a stock and identify the trading range to understand when to buy or sell a stock. When the stock rises above the trading range, it signals a buy and when the stock falls below the trading range, it signals a sell.
Retracing Strategy – Usually a part of Fundamental Analysis, another stock trading strategy which is very common with stock traders is that of retracement.
It requires a slightly different skill set and revolves around stock traders determining the direction the stock price is headed towards and how it would continue to move. The Retracement strategy is based on the understanding that after every direction the price may move in, the stock price might reverse its move for a short period of time as stock traders gain profit and rookie traders attempt to trade in the opposite direction.
These retracements or pull backs can help experienced stock traders track a better price for which they begin in the initial direction.
As mentioned before, for a more detailed understanding of these trading strategies, there are reports available on our website, as part of our E-Learning Console on: http://stockmarketsignals.com/reports/
Hope this post helps you gather more profits and do provide your views on the same!