Trading Techniques Overview
Professional traders will know that trading strategies involve a well-considered and thoroughly constructed investing and trading plan. It specifies not only the trading objectives but also risk tolerance, time horizon, and tax implications.
Trading techniques are mainly based on either technical or fundamentals or a combination of both, for some traders.
Also, professional traders are acquainted with the skill sets required to ensure long term profitability. These involve identifying strategies that make more profits than they stand to lose and using them as part of the trading plan.
After identifying these strategies, they need to perform well in both bull and bear market situations especially considering that market conditions can change at any given time due to the driving factors involved with price movements and changes.
Very few traders endure long enough to become professional traders, and while nearly 80% of traders fail and quit, the other 20% have unique and rare characteristics that result in profitable trading.
Trading is not, and never will be, a get-rich-quick scheme, and a lot of traders fail to understand this, resulting in various traders entering the markets with unrealistic expectations and no dedication to trial and error factors surrounding testing strategies. You need to learn to trade first, and stick with the trading strategies.
Professional traders have learned, through trial and error, that trading techniques need to be adapted and adjusted so that they can be used despite the changing market conditions.
Trading Techniques used by Professional Traders
Trading strategies are a little more about how to trade and a lot more about profitability, in the long run, consistently and sustainably. Although profit is not always guaranteed, these trading strategies may minimize the chances of loss or avoid great losses in capital.
Some of the more commonly used trading techniques used include, but is not limited to:
- Swing trading setups
- Day trading
- Trading on the news
- Pairs trading
- Range trading
- Selling short
- Momentum trading
These are but a few techniques that can be used across the board by both beginners and professionals alike. Still, there are specific trading strategies more commonly used by professionals as they have been tried and tested in various conditions.
Trend Following
When trading Forex, numerous traders choose to Market trends, which can be short, medium, or long term depending on the trader’s preference. In developing a trend following strategy, traders opt to use of the following indicators:
- Moving averages
- Bollinger Bands
- MACD
- RSI, and
- OBV
Trading strategies focus on making use of trend-following aim to leverage market scenarios profitably.
With the opinions of influencers, along with market leaders, formulating the general perception creates an on-going ‘buzz’ regarding any matters of interest.
The technical indicators mentioned do not provide a secure way to buy or sell securities, and the combination of technical indicators used to formulate a trend following strategy will depend on the trader.
Beginner traders may be confused when using this strategy when trading due to the influx of information. In contrast, professional traders have learned to identify their sources of information and what information will dictate their use of this strategy.
RSI Trading Technique
This trading technique has the purpose of indicating overbought signals along with showing the trader when the price is in oversold territory.
Professional traders often use the RSI indicator in combination with pivot points along with a good candlestick pattern. This strategy is incorporated into daily charts to find the best trading opportunities.
Moving Averages
Making use of a Moving Averages, or MA, indicator, the trader will be able to determine the direction of trends and possible reversals along with a flat market where the price is neither rising nor declining.
The MA indicators are curve calculated, and they are based on price changes to assist traders in confirming a trend.
Counter-trend Strategies
Instead of merely following a trend, professional traders who use these strategies look at a specific trend that may be switching or going in reverse to seek profit from the reversal of a trend.
Professional using this strategy mainly depend on technical analysis instead of fundamental analysis as a way to make gains through a series of trades before the market swing can be recognized.
Professional traders make purchases when they are low and sell them once they have reached a certain price.
This trading strategy has several benefits, one of which is that trading opportunities are increased when the price of security oscillates within a particular trading range. It presents the trader with more opportunities to buy at support and selling short at resistance.
Another benefit is that traders can take smaller profits more regularly as there are shallower drawdowns than when utilizing trend-following strategies.
Price Action
When using this trading strategy, professional traders rely on both technical and fundamental analysis where technical analysis identifies the trader when a trade begins and how it develops.
Fundamental analysis indicates the strength and the length of a trend. Certain trading techniques require either technical analysis or a fundamental analysis where price action requires a trader to use both.
The price action strategy relies on historical prices along with the use of indicators and algorithms in addition to the analysis being done to give the trader an idea of what the market is doing as opposed to what the trader should do.
There are several advantages to using price action techniques, including that it can be applied to multiple asset classes and not just to Forex, and it is easy to use this trading strategy on a variety of trading software applications.
Final Thoughts
There is a great variety of trading strategies that can be used by professional traders, and some use a combination depending on the market conditions on the set day in which they trade, amidst other factors.
There is no single trading strategy that will guarantee success, and trading strategies need to be tested and backtested thoroughly in addition to adapting them to changing market conditions.
