Strategies for trading on the stock exchange: basic approaches and tips for choosing

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

To have a stable profit as a trader, you need to test different strategies and choose the one that gives the best results. Also, initially it is worth determining your personal algorithm of actions: the conditions for entering the market and exiting the transaction, the most productive trading time, acceptable risks, etc.

Preparation

Strategies for trading on the stock exchange may include different algorithms of actions, but there are rules that remain unchanged

Before you start trading, you need to clearly define the style of the strategy and the goal to be achieved.

Regardless of the market, goal setting has a common structure:

• Planned level of income. Many traders have lost money due to greed, wanting to earn more. Therefore, it is important to determine how much profit is sufficient to stop trading intraday or weekly.
• Determining the entry and exit points of a trade. Before an order is opened, you need to clearly understand exactly where the exit point is andset take profit. You can enter a trade well, but, failing to exit correctly, end up losing a tangible part of the profit.
• Maximum risk allowed for a particular deposit. To survive in the stock and currency markets, you must clearly define the level of losses below which you can not fall. Such figure should be set for one month, week and day. Know your limit and never go over it. Without risk control, it will not be possible to stay on the market for a long time.

Risk management

When planning specific trades, you should always use the 1/3 principle. This means that the profit must be at least three times higher than the established level of possible losses. If the stop loss is $50, then the profit should be $150. e. and more.

This approach will allow you to consistently go positive, since one successful trade will compensate for three losing ones.

Some traders use the ratio 1/4 or 1/5, increasing the level of planned profit. As a result, regardless of the strategy on the stock exchange, the chances of earning and not losing significantly increase.

Scalping

The essence of such trading comes down to working with small timeframes (1 m) and concluding a large number of transactions. When choosing this stock trading strategy, you need to be prepared for a heavy load, as you will have to process significant amounts of information and constantly monitor the market.

When scalping, price fluctuations on small timeframes are used, which allows you to get profit even whenrelatively calm movement chart. Within a single trade, both profit and risk are significantly reduced.

For this reason, in order to obtain a stable financial flow, it is necessary to open many orders. As a result, this style of trading quickly exhausts.

Because technical analysis does not always provide an entry point, indicators are often used.

Intraday

As part of this trading strategy on the exchange, price fluctuations within one day are used. This style of trading is relevant for both the stock and foreign exchange markets.

Here you can use technical analysis with a significantly greater degree of efficiency than in scalping. As for fundamental analysis, it is not a priority in this case.

Intraday, you can earn on the timely opening of short positions both for buying and when the market falls. When using this style, you must remember to set a stop loss, which allows you to limit losses.

It is also important to keep trading statistics. It is necessary to identify the most effective time within the day.

It may not be noticeable at first, but many intraday traders have the most productive part of the day. And it can be revealed by fixing all the features of the trading process. You need to write everything: the time of opening and closing the transaction, stop loss, take profit, how many times it turned out to work in plus and minus. That is, a complete detailed picture of each trading day.

Determining your best time,you have to bet on it. If you ignore this principle, then even using a profitable trading strategy on the exchange, you can have bad results.

Mid-term trading

In this case, the currency and shares are bought for a period of several days to four weeks. To select an entry point, an analysis of large timeframes is used - daily, hourly and H4. For a more accurate entry into the market, you can analyze the five-minute chart.

Strategies for trading stocks on the stock exchange within the medium-term style are considered the most profitable and stable. One stop loss in this case can bring more losses than with scalping, but the profit is also higher.

With medium-term trading, you can afford to look for good entry points and set a high take profit without haste. Therefore, this style is well suited for those who cannot trade all day.

Long-term trading

This style is distinguished by working with orders for a period of one month to several years. Such a scheme of working with the market is more like investing than active trading.

With a competent approach to such a trading strategy on the stock exchange, you can increase your capital several times in 2-3 years. To successfully trade in a long-term style, you need to be able to correctly analyze financial indicators and predict changes in the part of the market where the company whose shares were acquired is active.

Support and resistance levels

With all the abundance of trading strategies on the stock exchangethe use of levels is the basic scheme for profit. To find them, you need to pay attention to the maximum upper and lower values of the price, beyond which it does not go for a long time.

To determine support and resistance levels, you should use the hourly chart and larger timeframes. But it is best to focus on daily candles.

This scheme of work is well suited for the formation of stock trading strategies on the stock exchange. The foreign exchange market also allows you to use levels for profit.

The entry point in this case is a rebound from the level or its breakdown.

If we talk about the rebound, it should be noted that it is formed by several candles. When the price has touched the designated level and its movement has slowed down, there is no need to open an order, since the reversal is not confirmed. The chart could go further. It is necessary to make sure that it is the price rebound from the level to which it approached earlier. In this case, the stop is set slightly above the level line.

You can also use pending orders.

In the case of a breakout, the scheme is the same - the market is entered only after several candles close above the resistance level or below the support line.

Using this classic stock trading strategy can be combined with indicators and other trading styles. The levels are well suited for intratrading, medium-term and help to have a stable profit in long-term trading.

There are other strategies that are often used by traders.

Drier

It boils down to channel building. It is formed with the help of lines that are drawn along the last three extremums - the lower and upper points of the chart.

As soon as the price approaches one of the two channel borders, an order is opened in the opposite direction, because according to this trading strategy on the exchange, the price should bounce off the border and go in the opposite direction.

You only need to open one order and set a small stop loss, about 50 points.

Momentum Pinball

This strategy focuses on entering an overvalued or undervalued market.

To use it, you need to install the Momentum indicator. A trade is opened only after receiving a signal from the indicator. To do this, you need to open an hourly timeframe and, after closing the last bar/candle, create a pending order at a price lower by 20 points from the low of the bar.

Stop loss is set 20 units above the high. The minimum profit is 60 pips.

Inside bar

Here the emphasis is on analytics without the use of special indicators.

The essence of the analysis is to work with an inside bar, the boundaries of which do not go beyond the previous one. The very fact of its appearance indicates a possible change in the direction of movement of the graph. For this reason, the formation of an inside bar can serve as a signal to enter the market.

With this strategytrading on the stock exchange, the stop loss is set at the level of the previous high if a sell order is opened, and the minimum when it comes to buying.

Support and resistance levels are used to determine take profit - profit fixation. The calculation is that the chart will move at least to the next level.

How to work with cryptocurrency

It is possible to successfully trade bitcoin and other types of digital money. To do this, you need to build your strategy based on a few simple principles:

- Don't ignore the news. Whatever trading strategy on the cryptocurrency exchange is used, you must always follow the news. Since digital money has appeared recently, unexpected events are possible that can collapse Bitcoin by 1000 USD in a day. e. and raise its price by $2,000 the next day. The news is also important for the reason that the cryptocurrency does not have a single legal status. For example, Australia plans to create its own digital money, while China bans bitcoin. All this affects the price movement, and if you ignore such events, you can make a mistake leading to the loss of a significant part of the deposit.

- Pay attention to volumes. To get a stable profit, it is worth tracking ten cryptocurrencies with the largest trading volumes. This is necessary in order to reduce risks and always have a fallback option if, for example, the situation with bitcoin worsens.

- Competently respond to a drawdown. If the price has gone down, then, of course, you do not need to buy. But also immediately make a choice in favor of selling toonot worth it. It is better to use leverage to wait and see how the price changes. Despite the fact that chart fluctuations are sometimes very noticeable, Bitcoin is predicted to grow in the near future. Therefore, a quick sale may be a mistake.

It is important to remember that any trading strategy on the cryptocurrency exchange includes risk control.

In general, when working with digital money, you can use such a style as scalping or intraday. A strategy based on support and resistance levels can also give good results.

Options

This type of trading has increased risks. At the same time, there are good option trading strategies. The exchange, regardless of the name and the chosen currency, is, first of all, a market. Therefore, when working with options, nothing prevents you from using the same action patterns as when trading currencies.

You can make money in several ways:

- Short call (selling a call option). This action should be taken when there is reason to believe that the price of the underlying asset will go down on the spot market.

- Long call (option purchase). Buy when market signals indicate an increase in the price of the underlying commodity.

- Bull Call Spread. The essence of the strategy is to buy and sell a call option at the same time. At the same time, the execution time must be the same, but the strikes are different - the one that is being bought has less. This strategy is relevant when there is an expectation of a limited price increase.

Results

Howstatistics show that most people lose money on the stock exchange due to neglect of risk management principles. As for the choice of strategies, it is better to test them on an account with a small deposit. And you need to stop at the one that allows you to have stable results.