Trading strategies are established approaches to trading, designed to give you the best chance of achieving a profitable return.
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Trading Strategies for all traders
A trading strategy should suit your attitude to the markets. Before you settle on one, consider whether it works with your time available to trade, risk appetite and technical knowledge. Here are six strategies to consider.
Strategy 1: Day Trading
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 full-time traders, who have the time to pay constant attention to the markets. The main disadvantage is that this strategy can be very time consuming.
Monitor markets constantly, be 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.
Guardian Stockbrokers can provide traders with our Breaking News Service to help you receive market moving news to your inbox or by telephone, in a timely manner, to help you make those decisions based on the latest information available.
Day trading examples
Day traders will typically trade assets that are volatile and move continuously, an example of this is trading index, commodity and forex contracts.
Day Trading is the buying and selling of a financial instrument on the same day in an attempt to profit in small changes in that instruments price. Traders will frequently use leveraged products to do this as it allows easy access to a broader set of instruments such as; index, forex, commodity and more recently the crypto-currency markets. Trading with leverage can help traders maximise gains but it can also result in substantial losses. Traders should always consider their knowledge, experience and risk appetite before considering trading CFD’s or Spread-Bets.
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.
How to identify promising day trades
A firm’s share price can be particularly volatile around an announcement, especially if the figures are better or worse than expected. If the earnings outperform expectations the share price generally rise, however if the earnings disappoint, the share price is likely to fall. Investors will use charts to determine how a firm’s share price has performed in recent weeks to establish what might happen after a company has announced results.
Here is an example. This firm announced results in Feb 2015 and they were worse than market expectations and the share price as you can see dropped significantly on that morning when the shares started trading post the announcement.
Data taken from a RIO TINTO chart dated 17/10/2015 to 01/03/2016 IG
Once the trade is placed the stop loss can provide some protection to the downside and guaranteed stops can be used to limit losses to a specific sum.