The 3 Most Common Trading Strategies
The 3 Most Common Trading Strategies
The point of trading is to earn money and therefore, there’s more to trading than simply earning cash from trading alone. In fact, by utilizing effective trading strategies, you could dramatically increase your potential profit and reduce your risk at the same time. But then, you have to know, though, that utilizing trading strategies alone does not guarantee victory. That’s why following a few rules could also help you along your way to becoming a successful trader.
The most important aspect of a trading strategy is a reliable indicator or tool to help you with your decision-making. Some traders choose to use technical or fundamental indicators, while others prefer to stick to a simple moving average or RSI strategy. However, whichever strategy you choose, it should be easy enough for you to execute.
Moving averages and other popular trading strategies tend to be quite effective in determining market direction. This is because the simple moving averages (SMA) can indicate a sideways trend, whereas the RSI indicator can signal an uptrend. Therefore, a trader may decide to employ both types of indicators in his strategy, so long as they are able to detect a possible reversal in price.
Another good strategy is called divergence trading. Divergence trading strategies simply follow the same logic as any standard strategy, but with one caveat: price action should diverge sharply from the average price. If this occurs, sellers may decide to push the price higher. However, buyers will likely prevent this from happening by pushing the price lower. By taking advantage of this divergence in price, a trader could make big profits on short-term moves, but he has to be aware that this strategy could fail if he is depending too much on the price action itself.
One more of the common trading strategies is called high-volatility trading. It differs from volatility in that it focuses on price fluctuations instead of the overall market direction. With high-volatility, traders are looking to take advantage of small price fluctuations, particularly in response to technical indicators. One of the advantages of high-volatility trading strategies is that they offer greater profit potential than other strategies. But just like any other type of strategy, it also requires constant monitoring of market conditions to determine when it’s appropriate to enter or exit the market. This can be quite a challenge, especially for those who don’t have the luxury of time.
The third common strategy used in forex trading is support and resistance trading. In this strategy, traders look to identify support and resistance levels on a daily chart and look to place trades within these levels. Support and resistance are considered to be important indicators for the forex trading, especially in bullish markets, as they can help identify potential breakouts, which eventually helps traders earn bigger profits.
Moving averages is another important tool in tracking forex trading indicators. Moving averages, which are simply moving averages over a specified period, can provide useful information about currency price action. But before you get too carried away with them, remember that a simple moving average over a one-week period may not necessarily give you the full picture about the movement of prices. For that, you would need to use other types of forex trading indicators, such as oscillators.
Lastly, traders should also make use of reliable exit indicators. The most widely used exit indicators are relative volume measures, which help traders determine how liquid a currency is and accordingly determine entry and exit criteria. Relative volume measures the overall average pressure level on the traded currency. And while relative volume can provide traders with an indication of current trends, it isn’t advisable to rely solely on this indicator when it comes to choosing entry criteria.