Trading Strategy will help you to Make Money in Stock Market

What is Trading Strategy?

If you have talked to traders or searched the internet for stock market trading/training guide,
then you must have come across the term “Trading Strategy” very often.
So the question in your mind would be, what is this “Trading Strategy” all about and why does one need it?

Theoretically put, a trading strategy is quite simply a set of rules used to buy and sell shares.

These strategies use signals called ‘indicators’ which tell you when to buy shares and then different indicators that tell you when to sell your shares.

Indicators here refer to either chart pattern formations(Technical Indicators) or other indicators, which may be formed from the fundamental analysis of the company.

Some examples of technical indicators are:
1. RSI overbought-oversold indications
2. MACD positive-negative crossovers
3. ADX, etc…

Some examples of fundamental indicators could be:
1. EPS
2. PE ratio
3. Net profit, etc…

Make Money in Stock Market by using Right Trading Strategy.

Buy low, sell high. Short high, cover low. Traders are like surfers,trying to catch good waves, only their beach is rocky, not sandy.Professionals wait for opportunities but amateurs jump in, driven by emotions—they keep buying strength and selling weakness, bleeding their equity into the markets. Buy low, sell high sounds like a simple rule, but greed and fear can override the best intentions. A professional waits for familiar patterns to emerge from the market.He may notice a new trend with rising momentum, indicating higher prices ahead. Or he may detect the feebleness of momentum during a rally, indicating weakness. Once he recognizes a pattern, he puts on a trade. He has a clear notion of how he’ll get in, where he’ll take profits,and where he’ll accept a loss if the market turns against him.

A trade is a bet on a price change, but there is a paradox. Each price reflects the latest consensus of value of market participants. Putting on a trade challenges that consensus. A buyer disagrees with the collective wisdom by saying the market is underpriced. A seller disagrees with the wisdom of the entire group, believing the market is overpriced. Both the buyer and the seller expect the consensus to change, but meanwhile they defy the market. That market includes some of the most brilliant minds and some of the deepest pockets on Earth. Arguing with this group is dangerous business, and it has to be done very cautiously.

An intelligent trader looks for holes in the efficient market theory.He scans the market for brief periods of inefficiency. When the crowd is gripped by greed, the newcomers jump in and load up on stocks.When falling prices squeeze the fingers of thousands of buyers, they dump their holdings in a panic, disregarding fundamental values. Those episodes of emotional behavior dilute the cold efficiency of the market,creating opportunities for disciplined traders. When markets are calm and efficient, trading becomes a crapshoot, with commissions and slippage worsening the odds.

Crowd mentality changes slowly, and price patterns recur, albeit with variations. Emotional swings provide trading opportunities, while efficient markets chop up and down, offering no edge to traders, only piling up their costs. Technical analysis tools will work for you only if you have the discipline to wait for patterns to emerge. Professionals trade only when markets offer them special advantages.

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Tagged as: ADX, EPS, MACD, Momentum, Net Profit, RSI, stock market trading, Technical Analysis, Technical Indicators, Trading Plan, Trading Strategy