Share trading strategies for success

by Pooja Late so cut

There are several types of investors in the stock market. Broadly, they are long-term investors, swing traders, and intraday traders. A day trader is one who prefers to earn money from their investment in a shorter duration. Intraday trading is riskier due to high volatility and price fluctuations that take place during the day. Any trader must learn trading strategies for success in the market. There are various trading strategies to choose from. However, it is important that one finds a strategy or a group of strategies that works for them.

What is a trading strategy?

A trading strategy is a pre-defined detailed plan for making trading decisions. It considers various factors such as an individual’s risk tolerance level, goal, time horizon, investment style, tax consideration, fundamental analysis, technical analysis, and so on. Technical analysis of a stock is related to studying and analyzing the price movement of the stock by plotting it on a chart. For example: in momentum trading, if the stock is going up then the trader will buy it and sell once it's peaked.

On the other hand, a fundamental analysis takes into account various factors such as the company’s revenue growth, profitability, global market trends, etc.

These strategies are used to overcome behavioral finance biases and ensure consistent results.

There are several strategies for intraday trading. Some of the popular ones are the momentum trading strategy, Breakout trading strategy, Moving average crossover strategy, Gap and Go trading strategy and Reversal trading strategy.

Momentum Trading Strategy:

In Momentum trading strategy a trader invests in stock that is on an upward momentum and sells it off once the momentum around it cools down. In other words, due to any news in the media, rating upgrade or any positive news about the company, the stock of the company will suddenly start to rise as more and more people will buy, at this point, the investor will enter the stock and exit once they look to have peaked. Although this sounds very simple, however timing the entry and exit is key here as entering too soon or exiting too late will prove risky.

 

Reversal Trading Strategy:

A reversal is when the stock starts to move in the opposite direction from its previous run. If a stock is on an upward journey it will start to move downwards and vice-versa. In this strategy, the trader makes an investment against the trend.

 

Breakout Trading Strategy:

In a breakout strategy, the trader enters the trade as soon as the stock breaks out of its price range (either support or resistance). For example, a trader may enter into a trade when the stock breaks the resistance level. This assumes that prices have the potential to go upwards. Similarly, when the stock has breached the support level, it indicates that prices are likely to move downwards and the trader can take advantage of the fall in prices.

Gap and Go Trading Strategy:

Gap and Go strategy involves taking advantage of the price difference between a stock's closing price on the previous day and its opening price on the current day. If it opens higher than the previous day it is called gap up and if it opens lower than it is called gap down. This strategy assumes that the gap will close by the end of the day. For example, if a trader is expecting a company to report positive earnings, he will buy the company’s stock after market closing hours when the report is released, hoping for a gap up on the following trading day, if it hasn’t already happened in after-hours trading.

Moving average strategy:

A Moving Average is the average market price of a security over a specified period of time. If the moving average is up then the price is moving up and vice-versa. If the moving average is sideways then it is likely in a range.

One of the main moving average strategies is the crossover strategy. A crossover happens when two different moving average lines cross over one another. This may help the trader to identify if the trend is about to change. Another strategy is applying two different moving averages: one longer-term moving average and one short-term moving average to a chart. When the shorter moving average crosses above the longer term, it indicates that the trend is moving upward and should be bought into. This is known as a golden cross. Alternatively, when the shorter-term moving average crosses below the longer-term, it indicates that the trend is moving downward and should be sold. This is known as a death cross.

 

Conclusion:

While all the above strategies will definitely benefit the trader, It is equally important to have a strict risk management strategy. Together, these will help you on your way to becoming a successful trader.

Open a free demat account with Samco and start your trading journey now .

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Created on Sep 26th 2023 04:42. Viewed 59 times.

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