Best stock trading strategy step-by-step guide will help investors to uncover opportunities in the markets. By applying professional stock market strategies, an average investor can benefit to profitable trades.
Stocks are volatile in nature. Stocks spends some time in uptrend trade and downtrend trade. Usually, stocks move sideways. A profitable strategy will help you make money, thereby help to improve personal finance. It doesn’t matter if you are a swing trader, positional trader or day trader. Thus, you should always select an appropriate strategy at a time.
Stock Trading Strategies Definition
Stock trading strategies is a discipline of finance. According to Wikipedia, “a trading strategy is a fixed plan that is designed to achieve a profitable return by going long- term or shortterm trading markets”.
Important Stock Trading Terms For Profitable Strategies
A stock market beginner constantly searches for answers to basic questions:
- what are stock trading strategies?
Stock trading is a process of buying and selling of stocks to capitalize on daily stock price fluctuations. Investing in stocks can help you make a few penny stocks in minutes, hours, days, or month. Contrary, you can also lose money due to market uncertainties when the price of a share fall. Ideally, you need a strategy before investing or trading in stocks. A profitable stock trading strategy will help you gain and minimize risk to lose.
Stock trading is further divided as active trading and day trading. An active trader is an investor who trades per month. Usually, an active trader largely depends on a day trading strategy that relies on market timing those try to benefit from short-term events. Whereas a day trader is involved in buying and selling of stocks in a single day. The main aim of a day trader to make maximum profit in a single trade.
- what is a stock market rotation?
Stock rotation happens when a trader moves their money from one sector to another, one country to another, or out of the market into cash, bonds or real estate. A stock rotation strategy involves moving of money in an attempt to beat the market.
If you are trying to your hands on investing in the stock market trading, keep it simple with these trading strategies. These trading strategies are a mix of a low-cost index to achieve long-term profitability.
Four Reasons Why You Need a Stock Trading Strategy
Stock market is constantly changing its behaviour so your strategies should evolve constantly. A profitable stock trading strategy guides is imperative for every professional trader or investor. In fact, a serious trader always prepares several trading strategies parallel to competitive market situations. Your strategies should define the use of the best market trend and situation. You need to utilise a proper trading strategy to earn profits.
- Verifiability: Properly verified trading strategy is crucial to surviving financial market competition. Any professional trader doomed to fail if adopt a plan which is based on a different asset with a lack of proven trading system tested. Therefore, a systematic approach is a way to go.
- Quantify: A trader will be able to measure, besides, will be able to maximize performance. Chaotic trading with a lack of share trading plan leaves no opportunity to perform high. Incorporating a trading system for a prolonged duration will allow building a statistical database. Thus, gauge performance once the assessment is done.
- Consistency: Sticking to trade allows you to remain focused on the hung inflow of economic data through modes like youtube, news, company balance sheet.
- Objectivity: Overtrading can result to lose money managing. Without a proper trading system with clearly defined trading strategies entry and exit rules, a trader can fall into frenzy position. Stock trading strategies for beginners tips will allow traders to initiate more trades.
Generally, if you ask a trader which stock trading strategy guides to choose from. Everyone will is likely to have different answers based on their personal finance experience. Pointing to that, we have listed a few characteristics which a typical trading strategy should have.
Three Ingredients to Build an Effective Stock Trading Strategy
Every trading strategies require three ingredients to achieve success.
- Asset to trade: Knowing what asset to trade is very important. Understand what asset you want to trade will help you determine its volume, volatility and liquidity. Few common trade asset is forex, stocks, equity, options, indices, commodities. Moreover, there is a lot to know about each market but one cannot start trading unless you choose your trading market.
- Entry/exit point: Even with the right market context, you need to trigger entry and exit point. Few useful triggers like bars, candlestick pattern, RSI, oscillators, and indicators help to identify entry and exit trigger. Thus, causing you to make a decision with confidence.
- Define your risk: Once you define entry and exit trading rules, you can now limit your risk. Primarily you need to position sizing for a giving setup. You position trade defines how much money you can put in to take a risk. Subsequently, double your position sizes will double your risk.
Two Aspects of Stock Trading Strategies
Every trading strategy is based on aspects of technical analysis and fundamental analysis.
Technical analysis is another stock trading strategies. Many technical analysts highly favor a technical approach to determine price movements. Using various chart pattern and technical tools & indicators to evaluate asset value. Few trend indicators you need to keep an eye on are moving averages, Bollinger Bands, Moving Averages Convergence divergence (MACD), Relative Strenght Index (RSI), On Balance Volume (OBV).
Moving Averages most commonly used technical indicators for validating market movements. Other indicators have proven to be definitive, practical, and unbiased. Moving average prices can be found in many trading platforms like Stock Screener.
On Balance Volume (OBV) is the best indicator for day trading bitcoin. Typically, it is used to analyse the total flow of money in an asset. Simply, it is the measure of money going in and out of the share market. OBV can be found in platforms like MT4 and Tradingview. Nonetheless, this is true for cryptocurrency trading strategy.
Fundamental analyst observes fundamental indicators of the economy. As a result to understand whether a currency is overvalued or undervalued, and how it is related to another asset class. Nevertheless, fundamental analysis is complex as it involves a diverse study of economic elements that indicate future trade and investment trends.
As a stock market beginner, start with basics by analysing securities inflows and outflows. These are often published by the nations banking sector. Moreover, an analyst may rely on data releases and news from the contrary future trend. Fundamental analysis is used for reading asset where supply and demand balances are a critical factor that alters the trend. For example crude oil, where you require to read oil price action.
Now, let’s dive into the winning trading strategies for all time:
9 Types of Stock Trading Strategies
It seems like a simple question, but the answer can get more complicated as you begin. Earning profit from stock trading is a prime goal of every trader or investor. If you are a passionate trader you should have prepared several trading strategies for different market situations. Here is a list of 6 Best Stock Trading Strategies:
# 1 Growth Investing
Growth Investing is a style of investment gaining attention to many investors. Its focus on the growth of an investors capital. Thereby, applied when companies continue to grow their profits. Companies reinvest profits back instead of using cash flow to improve operations as well as to entice investors with a dividend. Typically, in exchange for forming dividend, investors expect that share price and profits will increase. Therefore, growth investing is most successful when investors determine that profits can be easily supported by driving efficient sales.
# 2 Income Investing
Income investing is an act of picking up a good stock by putting together a collection of an asset. For instance, stocks, mutual funds, real estate, and bonds that generate the maximum annual income at the lowest risk possible. However, most of the income is paid to investors for everyday use. Especially, during an uncertain economic market situation.
# 3 Short Selling
Short selling is also referred to as shorting or going short. It means the sale of securities that a seller has borrowed to make a short sale. This type of trading strategy produces profits in a declining stock market. The method includes borrowing equity shares from a broker, selling them, and then selling then stock to return. Although the approach can be trading challenging for an average trader.
# 4 Value Investing
Value investing is an investing strategy where stocks are identified which appear to trade for less than their intrinsic value. Unlike, other investment strategies, value investing is simple. Investors buy shares and hold until the market price rise. Thus, this strategy is successful when the stock market is volatility is low.
# 5 Momentum Investing
Momentum investing is an approach to buy securities that offer high returns over the past 2 to 12 months, and selling that has poor returns over the same time. Momentum trade involves long-going stocks and future ETF showing upward trending prices. Futhermore, it includes disproportionately trading in stocks with the high bid also spreads, thus, important to evaluate momentum profitability when taking transactional cost into account.
# 6 Quality Investing
Quality investing is an investment strategy based on clearly defined fundamental criteria that help to determine companies with outstanding quality characteristics. In simple words, it is a quantitative investment approach that focuses on buying a high-quality company. The quality assessment is made both soft and hard criteria. Thus, a quality investing strategy is the best in the class approach.
# 7 Trend Following
Trend following is another trading strategy which simply rides the trend. According to the trend, follower buys when the price is going up and sell when the price starts moves own. In this strategy, a successful trader does not aim to predict the market price, but simply keep on an emerging trend.
Moreover, there are several mathematical calculations and factors that must be used to determine the stock moves. This will allow you to generate trade signals, calculate a current market price, moving averages, and channel breakouts. Therefore, the application of different techniques and time frames a trend follow is able to identify trends.
# 8 Gap Strategy
According to StockCharts.com, “trading is a simple and disciplined approach to buying and shorting stocks. Essentially, one finds stocks that have a price gap from the previous close, then watches the first hour of trading to identify the trading range. Rising above that range signals a buy while falling below it signals a short.”
Gap is classified as Breakaway Gaps, Exhaustion Gaps, Common Gaps, and Continuation Gaps. An analyst study factors of gap and accurate identification of trade results in a high probability of success.
# 9 Flag Pattern
Flag pattern is a chart pattern that is based on price action. It comprises of a small rectangle created via minor profit booking in eight uptrends or downtrend. Contrary, there are several pressure areas in a stock chart by a trader to book profit. However, trends remain unchanged. This may result in small swing trades where the price remains flat. Both support and resistance lines are downward sloping in an uptrend and upwards in a downtrend.
Performance Measurement- How To Verify A Trading Strategy
Performance of a trading strategy is measured on the basis of risk. There is several risk management performance measure strategy like Sharpe Ration. Howver, to compare expected return against return volatility you can use Maximum Drawdown.
The selection of risk-reward trade-off certainly on trade risk preferences. In fact, the performance is measured against the benchmark. This is a common exchange-traded stocks fund on a share index.
Backtesting is a process of applying a strategy to historical data to evaluate trading performance. The method offers analyst, investors, and traders to determine their trading strategies and analytical model.
Paper trading is a simulated approach. It allows investors to practice securities exchange without risking real money. An intermediate trader can make a paper trade and record them to measure their hypothetical trading positions. Similarly, help in portfolio management.
Stock Trading Strategies For Day Trading
Day trading (also known as Intraday Trading) is an act of buying and selling of securities within the same day. Taking advantage of fluctuating price movements is a lucrative game. If played correctly, can yield to huge profit. While for beginners, it may lead to losing money. Thereby, you need a well-thought Day Trading Strategies For Beginner.
Some popular day trading strategies include trend following, contrarian investing, trading on the news, and scalping. Day trading is hard to master. It requires skill, time, and knowledge. Learn to create a trading plan with IFMC Institute Uni-directional Trade Strategies Course. This online course is taught by Manish Taneja, a senior research analyst who has experience trading at Wall Street.
Learn more: Day Trading Tips For Beginners
Stock Trading Strategies For Options Strategy
Options strategy are little different from other assets. In fact, includes many strategies that limit risk and maximize return. However, a trader with little efforts can learn to take advantage of power and flexibility.
Some popular options trading strategy is Covered Call, Buy-Write, Bull Call Spread, Married Put, Bear Put Spread, Protective Collar, Long Straddle, and Iron Condor.
Traders often jump into trading options with little understanding of options strategies. There are many strategies available that limit risk and maximize return. With a little effort, traders can learn how to take advantage of the flexibility. With this in mind, we’ve put together this primer, which should shorten the learning curve and point you in the right direction.
Where To Learn Trading Strategies for Indian Stock Market
An effective approach to master share trading is through learning an easy way out. IFMC institute offers a unique stock trade courses for beginners to advanced traders.
Uni-Directional Trade Strategies
Uni-Directional Trade Strategies is a systematic approach for traders. The trading strategy is a detailed and definitive set of rules. Subsequently, the rules targets traders through the trading process in addition to entry/ exit techniques. UTS approach defines 6 sets of rules and regulation. In fact, help a trader to increase the probability to win stocks. Learn more: Why UDTS is best stock trading strategies
Alongside, outline risk and reward parameters established through the outset. Here are 9 rules:
- Disciple for your categories
- No emotions only chart
- Be in trend always
- Hedge your position always
- Patience in favourable trades only
- Averaging only up to stop loss
- Always follow certain profit style
- Only invest in quality trader with %100 confidence
- Risk management
Traders have countless strategies at their disposal. Aforementioned, trading strategies must be employed by both active traders and day traders. Indeed to interpret price movements and take advantage from trading positions. Some traders approach the market exclusively. Only a few incorporate hybrid strategies mentioned above.
However, none of the strategies works each time, traders may find it use an alternate Uni-directional trade strategy to secure a 100% success rate. UDTS offers guaranteed success. Traders can familiarise UDTS to build an arsenal of tools available for adapting market conditions.
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Learn More: Day Trading For Beginners: Strategies & Tips