Technical trading strategies should be mastered by individuals who are new to trading in the financial markets as they can be quite intricate. Such strategies are based on an assessment of price charts, price movement, and various indicators utilized in making trading decisions. Here are some quite some practical strategies for technical trading that can be put into practice by the neophyte and take off.
1. Support and the Resistance Levels
Overview: Support and resistance are key psychological price levels at which the price of the asset tends to pause and/or reverse. Support is that level at which the volume of buying exceeds the selling volume and further decrease in price does not occur. Resistance is a level where there is selling pressure which is more than the buying pressure thus making the price remain unchanged or fall.
Strategy:
Identify Key Levels: Historical data has some price levels where it has gone up or down with the price frequently revisiting those points.
Buy Near Support, Sell Near Resistance: A position can be opened just before the price gets to the support level and a closing of the position can be done with in the price reaches close to the resistance point.
Set Stop-Losses: Set a protective stop-loss order a fraction below a support level or a fraction above a resistance level and hope that the market does not penetrate it in either direction.
Psychological Insight: Since many traders view such levels as important, they become self-fulfilling as the players in the market act in a predetermined sense to these levels.
2. Moving Averages Crossover Strategy
Overview: Moving averages helps to find out an average of price action over a certain period of time and helps in determining the direction of a trend. The Moving Average Crossover involves a short-term and a long-term one.
Strategy: Choose Your Moving Averages: A common setup is the 50-day MA (long-term) and the 20-day MA (short-term).
Buy Signal: Short term MA moving with up pattern will cross high of longer term MA, which confirms shift in upward trend.
Sell Signal: Short term MA moving with downward trend will cut bottom trend, which confirms shift in downward trend.
Psychological Insight: This is the reason why traders are able to make an entry based on the cross over. When traders’ eyes land upon these crossovers, it usually leads to excessive buying or selling.
3. RSI renewal Relative Strength Index Strategy
Overview: The RSI refers to a momentum oscillator, i.e. the speed and the change in the price readings, which is between 0 and 100. Whenever the RSI is greater than 70, the stock in question is overbought, whereas below 30 indicates the stock is in oversold condition.
Strategy:
Identify Overbought/Oversold Conditions: Buy on RSI below 30, sell on RSI above 70.
Divergence: Temporary price movements are often faced by the RSI alongside positive or negative divergences. So when the price increased and makes a high, if the RSI does not make anything close to that then such a scenario could lead to a reversal.
Psychological Insight: It becomes useful for traders to assess the emotion of buyers and sellers by using an indicator known as the RSI which determines whether the market is over bought or over sold.
4. Breakout Strategy
Overview: Breakout is defined as the shift in price from a predetermined support/resistance level, but accompanied by increased volatility. Such events are treated as breaking through previous sentiments in the market and as pushing the price to another level.
Strategy:
Identify Key Levels: Draw support lines and resistance lines or chart patterns like triangles, channels.
Trade the Breakout. It has to be noted that a position will be taken only when there is a break above the resistance or below the support line or level rather with heavy volume with it.
Confirm with Volume: However, this should not be confused with a buying signal or any other since the volume has to be high when such breakouts are attempted.
Psychological Insight: Breakouts are usually accompanied by a change of attitude in the market, which is quite strong and in most cases when such levels are broken, price movements occur in an abrupt manner.
5. Technical Analysis: Trend Following with MACD (Moving Average Convergence Divergence)
Definition: Basically speaking, MACD is a trend-following momentum indicator that attempts to show the relationship between two moving averages of a security’s price. It comprises of MACD line, signal line and a histogram.
About this strategy:
MACD Line Crosses Signal Line: Traders are encouraged to buy any time the MACD line crosses above the signal line and get out any time the cross reverses itself.
Zero Line Cross: A cross above the zero line while crossing shows a likely chance of an uptrend while a cross below the zero line shows a likely chance of the descending trend taking place.
Psychological Insight: The MACD can measure relative momentum swings which is usually important as it shows when traders are starting to either want to begin buying the asset or starting to sell the assets.
6. Strategy Using Bollinger Bands
Overview: The Bollinger Bands are made up of a middle band which is a 20 day MA and two outer bands which range two standard deviations from the middle band. The enhance assists in measuring the volatility and areas where the market could reverse.
Strategy:
Buy Near the Lower Band: If the price level reaches or close to touching the lower band, this indicates that the market is in an oversold position.
Sell Near the Upper Band: If the price level reaches or close to touching the upper band, this means that the asset is in an overbought condition.
Use the Middle Band for Trend Confirmation: The middle band can also be treated as a line which can be used to support or hinder price action.
Psychological Insight: In acceptance and for reversal purposes, Bollinger Bands allow traders to ascertain which prices are too high or too low based on average prices within a specific period.
Conclusion
Such technical trading strategies are easy to understand for newbies allowing them to begin the steps towards them. The only missing piece in the situational picture is the main psychological aspect and the most important part of the strategy: the market structure. Repeated application of the above methods complemented by a money management strategy involving placing appropriate stop losses and careful entries and exits will allow the novices to gain self-assurance and enhance their performance progressively over the long term.