Strategies for successful traders

Trading stocks and shares can be a great way to boost your income or add to your savings, but it is not a form of activity that should be undertaken lightly.

Many successful traders take a long time to learn the skills and strategies that enable them to profit from market movements. One place to start is to seek out trading forums and blogs that offer useful advice and even share tips. Your education as a trader should include reading about the widest possible variety of ideas and strategies.

But when the time comes to start trading, what are the best strategies? You won’t be surprised to learn that there are many ways of making money through trading, but here is a brief guide to the principal strategies that successful traders use.

The Basics

Traders aim to make money through exploiting price movements in stocks, currencies, options and futures. When choosing where to focus, traders look for three things:

Liquidity

This refers to the extent to which a stock can be bought or sold without affecting its price. High liquidity will enable you to buy and sell a stock at a good price.

Volatility

This refers to the daily price range of a stock. More volatility means bigger profit or loss.

Trading volume

How often a stock is bought and sold during a particular time span. High trading volume reveals a lot of interest and can signal an imminent price change.

Entry Point

Successful traders have well-defined plans for when they will buy or sell a stock. The point at which they decide to enter the market is known as an entry point.

The important fact to remember is that traders have specific triggers for their entry points. Strategies such as ‘buy during an uptrend’ are not sufficient. They will have more specific plans such as buying when the price of a particular stock goes over the upper trendline on a particular chart during the opening hour of the day’s trading.

Identifying these entry points takes practice and research, but there are numerous tools available to help you, including news services, which keep you up to date with the latest economic and business developments and a host of trading charts.

Strategies for profit

There are numerous ways in which traders make a profit, once they have become familiar with a market or a stock.

Scalping

Scalping is a well-known strategy and involves selling a stock immediately when the trade turns profitable. It produces small profits, but limits risk.

Fading

Fading is the process of shorting stocks after their price has moved upward quickly, based on the logical assumption that the stocks have been overbought and buyers will either be scared off or be ready to start taking profits. It can be a risky strategy, but potentially lucrative.

Daily Pivots

This is a simple strategy that consists of attempting to make money from the daily volatility of a particular stock by buying it at its lowest point and selling at its highest.

Momentum

Momentum trading focuses on spotting strong moves in a stock’s price signaled by an increase in volume. Some momentum traders try to spot a rising price trend at an early stage while others attempt to fade the rising price.

Whatever strategy you choose to adopt, it is important to build up your knowledge and experience before you begin to risk real money. By following the methods of successful traders, you will give yourself the best chance of making a profit in the long-term.