Effective Trading Techniques
Traders may spend hours on end studying trading techniques but still end up making monumental blunders by implementing a good strategy at the wrong time. Together with a good and effective trading technique, the element of probability is very crucial in trading. Probability is the name of the game and the simplest way to make sure the odds are in your favour is to master fundamental analysis, a lot of large CFD & spreadbetting providers such as CMC Markets host regular webinars and events. Maintain your market edge by employing tested and reliable trading technical and analysis tools and you can’t go too far wrong, just remember any one measurement framework can give false positives – wait for confirmation.
This is one of the most popular and widely used trading techniques. Breakouts entails identifying (or setting) a key price level after which you only buy or sell as the trading price breaks your pre established level. It is hoped that if the price has got sufficient force or momentum of breaking the set level, then hopefully it will continue moving in that particular direction.
It is critical that you avoid trading breakouts if the market is not currently trending as this could result in false trades leading to losses.
This is a strategy that is based on the fact that following each move in the anticipated direction the trading price is bound to reverse temporarily as the traders grab their profits and ‘newbies’ attempt trading in the other direction.
The retracements trading technique is used by traders only during times when economic news and events alter short term sentiment, like causing temporary market shocks that can alter price direction.
Trading reversals are generally employed during times when there is little fundamental price activity. The markets during such times tend to move sideways without any clear direction. Technical traders will look for key price levels which they could use in trading, in expectation that when the price hits that price, there will be a ‘bounce’. Such bounces offer quick and small opportunities to make some profit during times of low market activity.
Before you engage in trading reversals, be sure that no major economic news are expected during that session as they could trigger price moves which could result in short term trade losses. These are news or events like influential and key monetary policy makers commenting or speaking to the press.
The momentum trading technique is more concerned with the movement force and its continuation than with ‘precise’ entries. Traders using this strategy are looking for the price to begin moving less or more in the prevailing trend direction. This method also heavily relies on market indicators like oscillators and moving averages for trading signals.
With this technique, your primary concern here is to be well positioned in the market whenever the price eventually makes its move. The key element of this technique is maintaining a strong confidence in the current fundamental market conditions that are driving the price, in the hope that eventually the market will move in the direction you desire.
The Bottom Line
A trading technique that is effective builds your skills and boosts profitability. The most vital aspect is to calculate the relative risk and reward levels prior to implementing any strategy. Only then will you be effectively taking advantage of the price movements for maximum profitability.