Want to trade in the stock market but are worried about whether you will be able to earn consistent profits? Check out this post for some strategies that are very commonly used by professional traders.
With the Lok Sabha elections around the corner and Nifty ready to breach its all-time high, this can be an excellent time to enter the stock market. But while many do want to invest and trade, they prefer staying away due to the fear of capital loss. While there is no denying that trading in the stock market is indeed risky, the risk can be significantly reduced with the help of effective trading strategies.
While you can find hundreds of strategies on the internet, it is generally better to rely on a few of them that have been around for a long time and are still a favourite of professionals. Five such pro strategies are as follows-
- Follow the Trend
This is probably the simplest and still one of the most effective trading strategies. No matter if you want to be an intraday or a short-term trader, it is essential to always move with the stock and market trend.
If a stock is in a major bull rally, avoid short selling it. Similarly, if a stock has been falling consistently, do not purchase it unless it reaches a major support level. The overall trend of the market should also be taken into consideration before placing a buy/sell order.
- Trade the Support and Resistance
Go through the daily, weekly, and monthly charts of liquid stocks, and you will see that the stock price bounces back from a price range and often fails to break a high point. These are known as support and resistance of the stock.
It is generally advised that you should buy the stock when it reaches its support level, and sell the same when it reaches the resistance. To improve the accuracy of the trade, also consider the fundamentals of the stock and the overall market trend.
- Breakout Trading
The breakout strategy is when you enter a trade when the price of a stock moves higher or lower than a specific price range, generally its support and resistance, with high volume. If you see a stock breaking its resistance or support level with high volume, you can place a buy or sell order.
You can use a candle chart for this and place a buy order when the resistance is broken and a sell order when the price falls below the support. VWMA or Volume Weighted Moving Average is generally used to monitor such breakouts.
- SMA Crossover Strategy
Technical analysis is something that every trader looking for consistent profits should start learning. One of the most popular technical trading strategies is the SMA or Simple Moving Average crossover. SMA is based on the average price of the stock within a fixed duration.
For this strategy, most people prefer 50 days SMA and 200 days SMA. So, on a chart when the 50 days SMA crosses the 200 days SMA from the top, it is considered as a buy signal. If it does so from the bottom, it is considered as a sell signal. Most trading platforms now offer the SMA indicator.
- Momentum Trading
Intraday and short-term trading is all about finding stocks with potential momentum. In this strategy, you look for stocks that are trading at a price higher than their moving averages with the resistance still far away from the current price. High trading volume is an added advantage.
In many cases, this momentum is due to fundamental news such as earnings or just technical breakouts. For best results, you should try to find stocks with such potential momentum before they start making the big move. Also, most professional traders agree that this strategy works best around the opening bell of the share market as much movement can generally be seen within 30-60 minutes of when the market opens.
Learn the Art of Trading
Trading is an art which can only be mastered with time. However, ask any professional trader, and they will surely agree that winning and losing are part of stock market trading. You only need to make sure that your win percentage is considerably higher than the losses.
Moreover, stock trading is all about trying and testing what works best for you. No single strategy works for everyone. You can try the strategies discussed above to see whether they suit your trading style. Try to learn as much as possible and start small to avoid any major setbacks early in your trading journey.
