In “The art of war”, Sun Tzu states that “Winning Warriors win first and then go to war, while the losers warriors go to war first and then seek to win”.
As we have already mentioned in the previous article, after reviewing common mistakes in online trading, now we analyze the best strategies to be implemented.
As time goes by guru-traders develop a repertoire of technical skills they use to beat the market.
These skills consist in reading the market correctly, coming and going from this, opening positions with a proper amount based on their liquidity, setting the exit strategy or increase and decrease their positions in the case the market follows a different path from what they had imagined, optimizing the profits and keep down the losses.
Thanks to this set of skills, a trader can make the right moves in the market and earn in the long run. But, what are the best strategies in online trading?
The preparation is the basis of the best strategy. It is important to have studied the market and the basics of trading to begin and to take the first steps on online platforms. That is why one of the best strategies is: trading fundamentals and/or technicals.
Technicals refers to the use of charts and graphs to identify potential buy and sell levels. Trading on the fundamentals is the study of news events and economic statistics to determine trading opportunities. Thanks to technicals and fundamentals, traders pay close attention to changes in economic indicators such as interest rates, employment rates, inflation, etc…
The ability to read prior data from charts is highly critical to Forex trading.
If the trader identifies a clear direction for the price to move in and he is confident that the price will continue moving in then we are in the case of a retracement. This strategy is based on the fact that after each move in the expected direction, the price will temporarily reverse as traders take their profits and beginners attempt to trade in the opposite direction.
To this type of strategy is important analyzing the fundamentals and it is only used by traders during times when short term sentiment is altered by economic events and news.
When the fundamental activity is little, the best strategy to use is the reversal. This is the case when the markets tend to move with no clear direction.
Before trading reversals, it is important to be sure that there is no major news expected to be released during that session. Once the fundamental picture is clear, it is important to focus on the technical analysis and in particular the support and resistance levels that are near the current price.
Breakouts are one of the most common techniques used in the market to trade. They consist of identifying a key price level and then buying or selling as the price breaks that pre determined level. The expectation is that if the price has enough force to break the level then it will continue to move in that direction.
This type of technique is used when the market is already at or near the extreme high / lows of the recent past.
When traders are not looking for the price to pull back or break out from any specific price, but to start moving more or less in the direction of the prevailing trend, it is time to the momentum strategy.
This strategy is less concerned with exact entries and more with the continuation of the move. Traders will use momentum strategies when they sense a long term move to be taking place on the asset that they are trading.
For those who doesn’t want to spend much time monitoring their trades, but also want the flexibility and structure that comes from a solid trading strategy, there is the position trading.
Position trading only really requires that investors pay attention to the market for perhaps a few minutes every day.
This is basically a strategy that relies on fundamental analysis far more than it does any other form because it does not require the minute-to-minute chart watching of day trading or other shorter-term trading strategies.
Those strategies might be the key for a successful trading, but there is only a “right way” to trade, which is to make the right decision. It must be so, in the most efficient manner, in order to maximize the profits.