Trading strategies for beginners is a very hot topic when you’re first starting out as a trader. You’ll want to know what to look out for, what approaches to use, and how to use the numbers and charts in order to hit the ground running.
At first, the world of trading can seem like a complicated space to be a part of, with many factors to consider such as: which markets to trade on, which is the best exchange for you personally, and the method of trading you want to conduct; as well as whether you wish to trade through traditional means or through contract for difference (CFD) trading.
And as CEO Michael Kamerman has remarked of the last year: “The changing lifestyles of consumers have fuelled the growth of other more fortunate industries… and a sector experiencing outsized growth in online trading is retail FX and CFD trading.”
You can visit Skilling to see how CFD trading works. But doing as much research as possible is the first step on the road to becoming an efficient trader. Continue reading as we take you through the best trading strategies for beginners, to get the ball rolling in your trading career.
Mean Reversion Strategy
The mean reversion strategy essentially refers to how the market stretches and the expectation that it will then come back to an average, or mean. This can be a gap fill, a previous high, or a moving average. In a nutshell, you are basically selling or shorting a stock that you think is too high, or buying or going long on a stock that you think is valued too low.
Using this method is considered one of the simplest but most effective ways of trading out there. When looking at financial markets, focus on prior highs and lows only. If you’re into day trading, this will be looking at the previous day’s high or the low and basing your trades on that.
If you’re into longer term trading or swing trading, you’ll need to focus on a time frame that indicates it is significant such as monthly highs, all-time highs and all-time lows.
Ultimately the aim of this strategy is to wait for a break in the highs or lows in your chosen market and enter the trade there. This works for both day trading and swing trading, and is a simple way to making sure, as a beginner, you are minimising your risks and maximising your investments.
Trend Trading Strategy
Moving onto the next strategy, this is essentially looking out for trending markets. To identify these, you can look at the markets themselves and corresponding charts in order to get an idea of which are currently trending, and base your trades on whether the market is trending upwards or downwards.
One main method of trend trading is getting involved in stocks when the market starts to pull back, therefore trending in the opposite direction it was going in. When using this strategy, it is key to consider the timing of your trades in order to maximise profits and minimise the risks involved.
To take full advantage of this strategy, keep an eye on selling cycles, overbought stock prices fall and oversold share prices will rise.
Especially when you are first starting out, it is essential to keep a clear record of the trades you have made, and want to make going forward. You want to choose a strategy that’s easy to back test – you should stay away from gut feelings and trust the numbers in order to maximise your success.
Finding a base strategy is key to your success. Focussing on some markets with these strategies, and then after you have gained experience over time, you will be able to add your own tweaks and adaptations, in order to expand your portfolio and targeted markets.
There are more occurrences of mean reversion when trading than there are of the trend trading, however, using and recognising both will be help you to identify and distinguish some of the parameters for the market you’re trading, and the best practices for maximising your investments