Every beginner trader must process a wide range of information before they start trading. Various markets, types of analysis, asset management rules, indicators, and data lead to a dead end. It’s interesting that in 1985, Hersh Shefrin and Meir Statman discovered the disposition effect. It’s an anomaly showing that investors usually sell assets that have risen in value while keeping depreciated assets. The disposition effect mostly makes day traders close profitable trades.
However, by knowing the foundations of trading, you can minimize such cases. In this article, you will find three promising trading strategies that will help you start trading online. Remember that these strategies don’t guarantee benefits.
Top 3 online trading strategies
There are numerous trading strategies that differ according to the criteria you apply. They may depend on the financial instruments you trade, your goals, the trading approach, the amount of funds you have, etc. These three strategies are considered basic. Thus, they work for most assets on all timeframes for traders with different budgets. Let’s have a look at them.
1. Pivot points
This strategy is based on one of the easiest and most popular indicators: pivot points. It helps traders define support and resistance levels which are crucial for any trade.
Support is a level that is expected to prevent the price from falling further. The price is supposed to rebound from it and move up. Resistance is a boundary that limits the price’s rise. The price is expected to decline after it approaches the resistance level.
The indicator is applied by range-bound traders to determine entry points. Trend and breakout traders also use it to place levels where a price breakout is expected to happen.
The classic pivot point indicator consists of five levels: the main pivot point, two support, and two resistance levels. As all indicators are applied to a price chart automatically, you don’t need to calculate the levels yourself.
The indicator’s idea is quite simple: the pivot point levels are updated regarding the timeframe the indicator is applied on. The price is supposed to move around the major pivot most of the time within the session. Support and resistance boundaries are just additional targets that can be achieved during increased market volatility.
2. Reversal points
The idea is to determine reversal points and trade against the overall trend. A trader should define pullbacks accurately. Moreover, it’s vital to measure the strength of the price after the reversal, as it may be a change in the trend or a short-term correction.
To determine a price reversal, it’s widely recommended to find reversal chart patterns, as they provide accurate signals. The leading reversal patterns are head and shoulders, inverse head and shoulders, double top and bottom, and triple top and bottom. However, you must confirm these patterns’ signals. For instance, you can use RSI, MACD, or Oscillator indicators that provide alerts on the price reversal.
The momentum strategy is widely used by newbies and professional traders. It aims to determine significant trend movements based on the high volume. Price volatility increases either within a strong trend or when the market changes its direction. The idea is to hold a position open until you get a signal on the market reversal.
You can also use the strategy to enter the market. If you are ready to trade on increased market volatility, then you should open a position when the price fluctuations increase and leave the market when volume indicators signal the market is calming down.
Signals of momentum strategy are mostly triggered by the news. Market volatility rises due to significant fundamental events, such as releases of economic data or political news. Therefore, before you use this strategy, you need to learn the basics of fundamental analysis. Stock and cryptocurrency markets are considered the most volatile. Thus, you will always find a trading opportunity there.
Tips for newbies
You have learned the top 3 trading strategies. However, there are some tips you need to know to improve your trading approach.
- Learn constantly. Although you know the three strategies, it’s not enough to have a long-term trading career. You should study and practice constantly. It’s also recommended to write down all your successful and losing trades. This will help to increase the effectiveness of your trades and build your own trading strategy.
- Focus on a few assets. Although there are many financial instruments you can try out, you should begin with just a few. Each instrument has features. These are fundamental factors that may affect its price direction and technical metrics, including average volatility. That’s why it’s so important to do a comprehensive analysis. You won’t be able to do that by trading too many assets.
- Control emotions. First, you should always analyze potential benefits and losses realistically. Don’t overestimate your experience. At the same time, you shouldn’t doubt your decisions. Control your emotions. Even if you see the market is moving in the opposite direction, you shouldn’t close trades immediately. Before closing a losing trade, analyze the market conditions and be sure the market won’t recover.
- Follow the plan. This piece of advice relates to the previous one. It’s worth sticking to your initial plan. If you have determined certain entry and exit points, it may be a mistake to change your decision based on short-term price fluctuations.
Trading strategies help newbies and professional traders. You have learned the top 3 trading approaches, but you shouldn’t stop. Continue learning and broadening your tools with more strategies.
Disclaimer: No strategy can guarantee a 100% correct outcome of the trade.