Indices trading strategies

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Day Trading
Day trading is simply the method of buying and selling assets within the same day. The main tenet of day trading is that none of your positions should remain open after the market closes, therefore avoiding the added costs and risks often associated with holding a position overnight.

A day trader will try to generate quick profits from small price movements. That means this type of trading is only really suitable for those that have the time to pay constant attention to the markets.

The main disadvantage is that this strategy can be very time consuming. Day traders will have to monitor markets constantly and being prepared to make decisions quickly if a price moves in a certain direction. Price changes are normally as a result of news and being informed in good time is normally the key to understanding why a price has moved, allowing the trader to make a decision to either buy or sell an asset.

Day trading examples
Day traders will typically trade assets that are volatile and move continuously, an example of this is
trading index, commodities and forex contracts.
There are various short term strategies usually based on current market conditions and the time of day that can give traders the best chance of capitalising on market fluctuations.

Financial Announcements
The prices of indices can be particularly volatile around announcements, especially if the figures are better or worse than expected. If the announcement outperforms expectations the price will generally rise, however if the announcement disappoints, the price is likely to fall. Investors will use charts to determine how an index price has performed in recent weeks to establish what might happen after
financial announcements.

A breakout occurs when a price breaks through a defined support or resistance level. A support level is where a share price has shown a tendency to bounce back after falling and the resistance level is where the price has shown a tendency to rebound towards the down-side after the price has risen. Once the price moves beyond one of these barriers the market will tend to become more volatile and the price should continue along the directional trend.

Technical indicators
Stochastic Oscillator – This indicator reveals if a price has undergone an extreme move and may potentially reverse in the short term. This indicator shows where an instrument might have been oversold or overbought suggesting that a price reversal might be about to occur. You will see from the chart below there are two points, for both overbought and oversold, with prices moving in the opposite direction once the indicator shows these readings. Using stop losses will help to reduce losses should the technical indicator turn out to be incorrect, for example when a share price experiences a “break-out”.

Remember that these examples are simply a guide and offer no guarantee that the prices will move in a predicted direction. You should be aware that losses can exceed deposits and the use of guaranteed stop losses and non-guaranteed stop losses can help to reduce losses.

Position Trading
Position trading involves holding onto an index for a longer period of time. This can be for several days, weeks, or even longer.
Position traders will make far fewer trades than day traders, with each trade carrying a greater potential for profit. However, holding a position for a long time can also increase the inherent risk. Position traders might take a position in an index before or even after a critical event, such as nonfarm payrolls. This is typically when the market might see the largest price movements also adding to the risk of the trade.

Trend Trading
Trend traders attempt to profit from market trends. Traders will analyse the price of an asset by studying a chart to determine if the asset is an upward trend or a downward trend. Positions are kept open as long as the trend continues, meaning that trend trading can be a short, medium, or long term strategy. Stop losses and guaranteed stops can be used to protect profits/reduce losses should the trend fail to continue. You will need a good platform that is able to offer these types of stops to help reduce your risks. A trader might go long in an upward trend or take short position if the asset is in a declining trend.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit.


All trading involves risk.

The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.

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