Day trading strategies can be grouped into several main types. Some strategies involve short selling or leveraging, shorting the market, or bullish currency trading. Others involve long selling or bearish currency trading. Each of these strategies can be successful depending on the strategy itself, but they all share a common thread: Utilize technical and/or fundamental analysis to gain an edge over the market.
Technical analysis is used to view past movements and predict future movements based on the price patterns found. Relative strength index, moving averages, and stochastics are examples of mechanical technical analysis. Successful day trading strategies, incorporating entry, exit, trade management rules and one or more technical indicators, will often make use of one or more technical indicators to guide day-to-day decisions. If a trader can master the technique of choosing the right technical indicator(s) for the current conditions, then he or she will have a distinct advantage.
A technical indicator is a tool used in chart analysis to identify breakouts, ranging from simple trends to longer term price fluctuations. The technical indicator will show a trend line when the line is broken. The longer the line is broken, the closer the trend to the current price. Trading strategies that use moving averages as their main trading indicators usually target the moving average true range, as well as other smaller ranges around the larger range.
The third type of trading strategies is bullish or bearish. Bourses trading strategies are designed to exploit price differences between two quantities, with the intention of earning profit. Bounds on trading spreads are employed, in order to profit from differences in volatility between two currencies. In these strategies, the primary trade is made in anticipation of a large price change in one currency and a small price change in another currency. By making the correlation function positive, traders can exploit price differences and earn a profit on any volatility increase in one currency while taking a loss on the other currency.
Another type of trading strategies is what is called a trending stock strategy, which targets a particular market condition or economic state. Trending stock strategies have been popular for a long time, ever since the Dow Theory was first applied to equities. Investors follow market trends to predict the value of a stock or market, based on general economic conditions. When a market condition becomes known to be likely to continue for more than three months, it is termed a trend.
Moving average convergence or MA index is one such indicator used in a trending stock strategy. It draws a line between high and low prices, representing the average price change over three months. When this line crosses the lower line, the stock is considered to be overbought and can be sold in order to take advantage of any possible drop in prices.
Other trading strategies based on mathematical calculations are also widely used by investors around the world. Some of these strategies make use of indicators as well as mathematical equations, in order to determine the best time to buy or sell stock. These types of strategies can be used by anyone, regardless of his or her experience. However, it is important to understand the purpose of these mathematical equations or indicators before using them as part of your own stock price strategy.
All stock trading strategies, regardless of the techniques used or the strategies adopted, rely on some sort of fundamental or technical analysis. Fundamental analysis concerns itself with how a company’s financial performance or business model works. Technical analysis deals with the data points gathered during the analysis process. It uses the information gathered from trading strategies and compares it with the data points created by the strategy.