Stock Market Trading Strategies
Many inexperienced traders make the mistake of venturing into the world of trading without first doing their homework.
The end result is that they trade on an ad hoc basis, without a clear system. When they lose they do not really understand why and when they make a profit the same is often true.
In the end trading is very much like any other type of business. You need a business plan and you need to stick to that plan if you want to be successful. Below we will look into some of the most important components of winning stock market trading strategies.
Stock Market Trading Strategies - Know Your Time Frame
If you work full-time, you will most likely not have time to watch stock prices throughout the day. In that case swing trading, with a time frame of a few days to a few weeks, might be closest to your trading needs.
If you have lots of time available, you could be at home with day trading. Most day traders open their positions in the morning and try to close them before the end of trading on the same day in order to avoid overnight financing fees.
The time frame you choose will, to a very large extent, influence the trading strategy that works for you.
Stock Market Trading Strategies - Stop Losses
Your financial situation and your risk appetite will determine how much you are prepared to lose on a specific trade and during a specific day, week or month.
The important thing is that you should determine a stop loss level before you enter a trade and never stay in that trade if it drops below that price.
Stock Market Trading Strategies - Number of Open Positions
As a rule, the law of diminishing returns often applies to the number of open trades you have.
While it is important to diversify, i.e. not put all your money in one trade, the more trades you have open at any given moment, the more commissions you are going to pay and the more difficult it becomes to properly monitor your trades.
Stock Market Trading Strategies - Example of a Trading Strategy
There are literally thousands of potential trading strategies and ultimately you have to find one or two that work for you and stick with them.
A potential trading strategy is to use the well-known Japanese chart system called Ichimoku Kinko Hyo. When the price of a stock breaks out above the Ichimoku cloud, wait for a confirmation signal, such as the red Tenkan Sen line also breaking out above the cloud. When that happens, buy the stock.
Make sure you have a stop loss that you are comfortable with. As soon as the price drops below the blue Kijun Sen line again, get out of the trade.
This simple strategy cannot guarantee you a profit, but, if followed consistently, it can help to improve your chances of making successful trades. For more details see Index Spread Betting Strategies.
Spread Betting Strategies and Tips
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'Stock Market Trading Strategies' by DB, updated 19-Jul-11
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