Best Trading Strategies For 2022
Did you know that having a successful and effective trading strategy that helps you navigate the financial markets can dramatically improve your trading performance and decision making over time? But what makes trading strategies effective? And most importantly, how can you be aware that the most successful trading strategies of the year can be traded completely without risk.
This successful trading strategies guide consists of six different types of trading strategies and 11 examples of these trading strategies, as well as a wealth of information on how to get started using and examining the most successful online trading strategies today.
What are the trading strategies?
When trading in the global financial markets, the trader is tasked with making a decision whether to buy or sell a financial instrument, or to stay on the side of the market. The tools available to traders make these decisions wide and varied and are put into different trading strategies, and can include everything from analyzing news announcements or the fundamentals of a company, identifying statistical anomalies using historical data, or simply using technical analysis to study the past behavior of participants in Market using charts.
The most powerful and successful trading strategies are used to simplify the process of analyzing this information by creating a set of rules, or methodology, for making a trading decision. After all, the sheer amount of trading techniques and methods for creating a successful trading strategy can be overwhelming for any trader, no matter how much experience they have.
Components of a successful trading strategy may include a step-by-step process of checking fundamental news announcements, the big picture of the market and a near-term view of the market’s direction, specific trading indicators that can aid in buying and selling decisions, rules on trading volume, and overall risk management. for the investment portfolio. The individual components differ according to the types of trading strategies and the technique the trader uses, as you will discover in the examples of the most successful trading strategies in this article.
Where can I apply the best trading strategies?
Before we look at some of the different types of strategies you can use, you might consider which markets are best to apply trading strategies to. Since any successful trading strategy is a set of rules and conditions that help you decide your trades, each trading strategy can be customized to the specific market that is being traded.
That’s why many traders choose to use trading strategies in a wide variety of markets including:
Although there are many financial products that can be used to trade in these markets, one of the most popular methods is to trade Contracts for Difference, or Contracts for Difference. Using the CFD facility, these traders can speculate on the rise and fall of prices without owning the underlying asset. There are also some other advantages such as:
Leverage — The retail client can trade positions up to thirty times of his deposit. A trader who is classified as a professional client can trade positions up to five hundred times his balance.
Trade in any direction — buy or sell in the market in order to trade through different and ever-changing market conditions.
Access to global stock exchanges — trade forex, global stock market, commodities and indices of the world’s largest stock exchanges.
CFD trading is useful for most of the different trading strategies and techniques that you will learn in the next section. You can learn more about the different account types here. Now, let’s take a look at the different types of trading strategies available to you in 2022.
6 of the most successful trading strategies in 2022
The most successful trading strategies can be multiple in styles and shapes according to different markets and goals, so that you can choose from among the trading strategies available to you according to your desired goals. While the number of strategies can seem intimidating, it is one of the reasons why people from all walks of life get involved in the financial markets — there is usually something for everyone!
Whether it’s short-term trading, long-term trading or investing, most techniques and methods will fall into the following types of strategy methods:
1. Intraday strategies
Day trading is a technique in which traders buy and sell different securities on the same trading day, often exiting the trade at the end of the day. In fact, it is rare for active day traders to hold their trades overnight, let alone for several days. The most common time frames for day trading strategies are the four hour, one hour, thirty minute and fifteen minute charts.
Many new traders are attracted to day trading as they are tempted by the possibility of making profitable trades multiple times, in just one day. While day trading can certainly be profitable, it is also the most difficult to control and can lead to significant losses for the untrained. In fact, it is not advisable for one of us to make multiple risky financial decisions in a short period of time, unless the trader has the necessary capabilities and has undergone extensive training and adaptation.
How to create the best day trading strategy
Although day trading is challenging, it is possible to learn day trading techniques and practice day trading strategies until they are mastered. Whether it’s day trading stock or forex day trading, there are some key elements to formulating a successful day trading strategy, such as:
What markets will you trade? Many focus on day trading stocks, but day trading techniques can be used in any other major market. Since day traders take many trades for short-term price movements, choosing markets that offer low commissions and small spreads is essential.
What time frame will you focus on? There are several time frames for day trading to choose from. Choose a time frame that suits your time and not being busy, so you can get a feel for how the market is moving.
What tools will you use to enter and exit trades? When learning how to day trade, there are huge amounts of trading indicators available to you. Focus on one or two to master how it actually works.
How much will you risk in trades? Determining the volume of trades and managing risk is very important. You don’t want to risk too much per trade because you are likely to have a series of losing trades at some point in your experience in the markets.
Example of day trading strategies
Disclaimer: The charts for financial instruments in this article are for illustrative purposes and do not constitute investment advice or a solicitation to buy or sell any financial instrument offered by Admirals. Past performance is not necessarily indicative of future performance.
The chart above shows the price behavior of a particular market over a two-day trading period. It is very important to have a daily trading strategy, as the day trader faces a lot of random price movements that form multiple conditions and trends in the market (upward, downward, sideways price movement). Each of these require different day trading strategies.
Trading indicators, such as moving averages, are popular for day traders because they can be useful in distinguishing between changing market conditions. Let’s plot a moving average on the same price chart as above, as a day trader would.
The blue line represents a 20-period moving average of the closing price of the previous 20 bars. When creating a day trading strategy, a trader can use this to create a rule or conditions for trading:
Rule 1: When the price is above the moving average, only look for long positions.
Rule 2: When the price is below the moving average, only look for short positions.
These two simple rules can help simplify and focus the decision making process for day traders. The number of rules varies within an effective trading strategy. In this example, the moving average helped filter out the trend. However, conditions are still needed for the timing of entry and exit, as well as changing the amount of risk and overall risk management of the portfolio.
You’ll find more detailed trading strategies when we cover specific trading strategies for trading forex, stocks, commodities, and indices after you’ve studied the six main types of trading strategies, under this section. Now, let’s focus on what is swing trading — the second type of trading strategy of the year.
50 pips a day strategy
This strategy reinforces the early market moves of some highly liquid currency pairs. The GBPUSD and EURUSD currency pair are some of the best currencies to trade with this specific strategy. After the candlestick closes at 7 AM GMT, traders place two opposing positions or positions. When one of them is activated by price movements, the other position is automatically canceled.
The profit target is set at 50 pips, and the stop loss order is placed anywhere between 5 and 10 pips above or below the candlestick at 7 am GMT, after its formation. This is implemented to manage risk. With those terms defined, it is now up to the market to take over the rest. Day trading and scalping are both short term trading strategies. However, remember that the short term involves greater risks, so it is essential to ensure effective risk management.
2. Swing Trading Strategies
What is Swing Trading?
Swing trading is a method in which traders buy and sell securities with the intention of holding them for several days, and in some cases, weeks. Swing traders, also known as trend traders, often use the daily chart to enter trades in line with the general trend of the market.
Some swing trading strategies use only technical analysis of a price chart to make trading decisions. However, it is common for swing trading strategies to also use fundamental analysis, or multiple time frame analysis, where more detail is needed to help make trades for several days or more.
Weekly forex trading strategy
While many forex traders prefer intraday trading, because market volatility offers more opportunities for profits in tighter time frames, weekly forex trading strategies can provide more flexibility and stability. Weekly candles provide comprehensive market information. It contains five daily candles, changes that reflect actual market trends. Weekly forex trading strategies rely on low position sizes and avoid excessive risk.
For this strategy, we will use the Exponential Moving Average (EMA) indicator. The last daily candle of the previous week should close at a level above the EMA value. Now we have to look for the moment when the maximum level of the previous week was broken. Next, a buy stop order is placed on the closed H4 candle, at the price level of the broken level.
The stop loss should be placed at the nearest point, between 50 and 105 pips. The previous maximum value of the calculations is taken if the nearest minimum point is closer than 50 points. Here last week’s movement range is taken as profit range.
Example of swing trading strategies
One of the most popular trading methods for swing trading is the use of trading indicators. There are many different types of MetaTrader indicators in the market and they all have their pros and cons. So what are the best indicators for swing trading? Many swing traders will use the Stochastic Oscillator, the MACD indicator, or the Relative Strength Index (RSI) to determine if the price is continuing in the trend or the opposite direction.
Ultimately, the best indicators for swing trading will be the ones that you have tested and are able to get acquainted with. Let’s look at an example of a swing trading chart:
Most charts of swing trading strategies have three components:
Daily chart bars, or Japanese candles. This means that each bar, or candle, represents one day’s trading value.
direction filter. In the example chart above, the 50 moving average is used as a trend filter and is indicated by the red wavy line moving through the price bars/candles.
Overbought and oversold indicator. In the above example chart, the stochastic oscillator is used to identify overbought and oversold conditions and can be found at the bottom of the chart.
Since a successful trading strategy is simply a methodology to aid in a trader’s decision-making process, a trading strategy can be developed using the three components mentioned above. For example:
Rule 1: When the price is trading above the moving average, only enter long positions. When the market is trading below the moving average, you only enter into short positions.
Rule 2: Don’t go long unless the stochastic oscillator is below 20, as this is oversold territory. Only enter a sell trade if the stochastic oscillator is above 80, as this represents an overbought area.
Using these two basic rules may lead traders to identify entry levels for the gold funds in the chart below:
These simple rules can serve as a starting point to help the trader in trading with the trend and timing of his entry into the trades. Of course, proper swing trading strategies will include additional rules for addressing specific candlestick patterns, or support and resistance levels for entry price and stop loss placement, as well as higher time frame analysis to determine take profit levels — swing traders aim to hold trades for several days or more.
When using the best indicators for swing trading, it can help to systematize your overall trading strategy so that you are not left wondering what the indicator is actually telling you. Preparation is the key to success when trading the financial markets.
3. Hold Trading Strategies
Position trading is a pattern in which traders buy and sell securities with the intention of holding them for several weeks or months. The hold trader typically uses a combination of daily, weekly and monthly charts, along with some kind of fundamental analysis in their trading decisions. Essentially, a hold trader is an active investor, as they care less about short-term fluctuations in the market and are looking to put trades on hold for the long-term.
The main focus in hold trading strategies is the risk reward of the trade. Typically, since a hold trader is looking to hold positions for several weeks or months, they often have a lot of very small losing trades before trading one big winner. This allows the holding trader to risk small amounts per trade, in order to increase the number of trades traded over the long term so that they can diversify their portfolio.
Example of a hold trading strategy
Most of the hold trading strategy charts have three main components:
Daily time frame or higher (weekly or monthly chart).
direction filter. In the above example chart, the 100-period moving average is used as a trend filter and is indicated by the orange wavy line moving across the chart.
Trend reversal indicator. In the above example chart, the MACD oscillator is used to determine the changing momentum and can be found at the bottom of the chart.
Since trading strategies are simply a set of rules and conditions to aid in the decision-making process of a trader like you, a successful trading strategy can be developed using the three components mentioned above. For example:
Rule 1: When the price is trading above the moving average, only enter long positions. When the market is trading below average, you only enter into short positions.
Rule 2: Only enter a long trade if the MACD oscillator is above 0, as this represents an upward momentum. Only enter a sell trade if the MACD Oscillator is below 0, as this is a bearish momentum.
In the chart above, the period during which both rules are met — the price is above the 100 moving average and the MACD oscillator is above the 0 level — and represents the longest trend period. Of course, the trader still has to find the right time to execute the trade, and even if done correctly, the momentum may shift in the opposite direction, resulting in a losing trade.
However, these are the long-term conditions that a trader tries to define for the purposes of trading to hold.
4. Automated Trading Strategies
Algorithmic trading is a method in which a trader uses computer programs to enter and exit trades. The trader will program or code a set of rules and conditions for the computer program to operate. Algorithmic trading is also known as Algo trading, automated trading, black box trading or bot trading.
Most automated trading strategies try to take advantage of very small price movements in a high frequency manner. Many new traders are tempted by having algorithmic trading strategies in and out of trades when you are not there in person. Unfortunately, the lure of fortunes in algorithmic trading gives way to many trading scams.
While there are certainly more failed automated trading strategies than successful ones, there are a number of traders who have been able to harness the power of algorithmic trading with discretionary human trading to give the best result. Many traders will use investment algorithms, or stock market algorithms, to help research certain fundamental or technical conditions that are part of their trading strategies.
In fact, the algorithm acts as a scanner and focus for the selected markets. The trader can then focus on analyzing the rest of the chart, using their own strategy and trading methods.
5. Seasonal Trading Strategies
Seasonal trading includes the possibility of trading in the general trend that is repeatable during the year. Many markets often exhibit seasonal characteristics due to recurring patterns in economic sentiment, government economic indicators and corporate earnings.
A seasonal trader may use these seasonal patterns as a statistical advantage in selecting trades. Therefore, even though seasonal trading is not a buying or selling system, it can give the trader the bigger picture context they need within their trading strategies and strategy techniques.
Example of seasonal trading strategies
One of the most popular types of seasonal investment strategies is part of a popular stock trading strategy. There is an old saying in trading, “Sell in May and go away”. This trading blink represents the usual seasonal weakness experienced by the stock exchange during the summer months between May and October.
According to the Financial Analyst Journal in 2013, a study that observed this phenomenon found that it existed between 1998 and 2012 and that stocks give higher returns in the November-April period than in the May-October period. This does not necessarily mean that the summer months were completely negative.
However, this phenomenon occurs in another popular seasonal trading strategy which is “Santa Clause Rally”. This is the tendency of stock markets to rise during the last five trading days of the current year and the first two days of the new year. It is important to remember that seasonal trading provides just an additional insight into your trading strategy. The seasonal trader also looks at indicators and other tools to determine which markets provide the best trading clarity and not just rely on a single metric for analysis.
6. Investment Trading Strategies
Investment and trading strategies can have a lot of similarities, but they have one big difference. Investment strategies for investors are designed to take long-term trades, while trading strategies are designed to execute more short-term trades.
Most investment trading strategies are designed as a stock investing strategy as buying into profitable companies can, in theory, have unlimited upward potential. When buying actual shares in a company, the downside is not limited. However, if the company goes bankrupt this can mean that the investor will lose all his investment.
When investors are crafting their own rules, or terms, for their investment strategies, it is common to try to replicate the metrics of notable companies like Amazon or Facebook. However, although this is not easy, there are plenty of other companies that investors try to position themselves according to specific investment styles, such as:
Investing in growth. Strategic approaches focused on investing in growth aim to identify stocks that offer the best “growth” potential. In general, this means identifying companies that are in a mature stage of their business cycle. For example, technology stocks attract many growth-oriented investors, because this type of company usually goes public to raise capital, until the company matures more.
Investing in value. Strategic approaches focused on value investing aim to identify stocks that offer the best “value” for money. Growth stocks are usually priced high because they offer the best future prospects. Value-based stocks are companies that are usually trading at a discount due to recent negative news announcements or poor management. Value investors will look for changes in the company’s circumstances and invest in a potential transformation story in the company.
If you are thinking of investing in the stock market to build your portfolio, you need to have access to the best products available. You can learn about the types of accounts available at Admirals. With which you can trade and invest in stocks and ETFs on 15 of the largest stock exchanges in the world through the MetaTrader 5 trading platform and others. Other benefits include free real-time market data, premium market updates, no account maintenance fees, and low or no transaction commissions.
Now that you are familiar with the six main types of trading strategies you can use in 2022, we can now look at the trading strategies for this year across forex, stocks, commodities, indices and CFDs. However, before you can learn about some of these tools and start implementing them online, it is important that you have a suitable trading platform so that you can access the best trading tools for these operations.
Apply the most successful trading strategies on the best platforms
Being able to access a stable and secure trading platform is essential for implementing trading strategies in fast-moving markets. The best trading platforms allow you to view historical price charts of the instrument you are trading, as well as provide you with the order you need to place and manage orders.
Thanks to the great advances in technology, you can now have your charting and trading platform in one place thanks to Admirals MetaTrader’s suite of trading platforms which include:
MetaTrader Supreme Edition (a plug-in for MetaTrader 4 and MetaTrader 5, created by Admirals and professional trading experts)
Screenshot of an example of the Admirals MetaTrader 5 platform, accessed on April 28, 2019.
Through the above-mentioned platforms, you can trade all kinds of tools and configure the most successful trading strategies such as forex strategies, stock trading strategies, CFD trading strategies, commodity trading strategies and indices trading strategies. In fact, you get access to more than 8000 instruments, as well as news announcements and advanced trading tools.
Most importantly, with these platforms, you get access to the best MetaTrader indicators to determine the direction of trading which can be very useful when following and developing different trading strategies for different markets. Some of the most popular trading indicators in the world are available completely free of charge on all Admirals MetaTrader trading platforms, such as:
Bollinger Bands Indicator
Admirals offers professional traders the ability to dramatically improve their trading experience by enhancing the MetaTrader platform with the MetaTrader Supreme Edition. Get excellent additional features such as advanced trading indicators such as the correlation matrix — with which you can compare different currency pairs, along with other great tools, such as the Mini Trader window, which allows you to trade in a smaller window while efficiently going about your daily business. Get all this and much more by clicking on the banner below and start your free download!
Now that you have access to some of the best trading platforms on offer, let’s take a look at the different types of online trading strategies in some of the world’s most active markets.
The most powerful and successful trading strategies for 2022
In this section, you will find a variety of trading strategies for different markets. It is important to remember that every successful trading strategy is designed to simplify the trading process by creating a set of rules and methodology for making trading decisions.
Most novice traders believe that a successful trading strategy is one that wins 100% of the time, and you will spend most of your waking hours trying to find the Holy Grail system. While some websites market these “holy trading systems” to the uneducated, it should be noted here that they simply do not exist and they are just trying to mislead the uninformed.
A trading strategy with sound risk management principles can give the trader an edge, over time. However, that will come with winning and losing trades. After all, anything can happen in the market at any given time. The strategies described below are designed to demonstrate the different possibilities available to traders, as well as serve as a starting point for creating a more comprehensive and detailed set of trading rules.
Let’s get started!
The most successful forex trading strategies
The foreign exchange market is ideal for almost all different types of strategies, such as day trading, swing trading, automated trading, and more. This is due to the fact that the forex market is open 24 hours a day, five days a week, which makes it one of the most liquid markets available for trading.
Successful trading strategy for the EUR/USD currency pair
Since the currency market is open from Monday to Friday, instruments like EUR/USD can display multiple forms of market conditions in a short period of time such as uptrend, downtrend and sideways market range. This is why some traders use Bollinger Bands in their EUR/USD currency trading strategy.
Bollinger Bands are used to identify markets that are quiet, which often move sideways, as well as markets that are showing increased volatility and are about to go in a certain direction. The Bollinger Band itself consists of three lines. The middle line is a 20-day simple moving average (SMA) and is used to calculate the value of the upper and lower bands. These bars are two standard deviations from the 20 day simple moving average (SMA).
Since the standard deviation is a measure of volatility, many of the rules around the Bollinger Band focus on upper and lower band movements, such as:
Rule 1: When the Bollinger bands widen, the market is more volatile and may start to go in a direction.
Rule 2: When the bands in the Bollinger bands narrow, the market is less volatile and can develop into a sideways market.
Let’s take a look at the hourly chart of the EUR/USD currency pair with Bollinger Bands indicator.
EUR/USD price chart showing the contraction of the Bollinger Bands. Disclaimer: The charts for financial instruments in this article are for illustrative purposes and do not constitute investment advice or a solicitation to buy or sell any financial instrument provided by Admirals. Past performance is not necessarily indicative of future performance.
In the above chart, the three green lines represent the Bollinger Bands indicator. The golden colored boxes represent periods of time when the Bollinger Bands converge. In most cases, price action in the market moves in a sideways range but for different time periods. There were other periods of time where the market moved sideways, but the Bollinger bands did not converge, which means that the indicator often lags behind the real price.
Now let’s look at the time period in which the Bollinger Bands are expanding.
The EUR/USD price chart shows the Bollinger Bands expansion.
In this chart, the blue squares show times when the Bollinger Bands have expanded significantly. In most cases, the price action was excessive due to increased volatility and moving in a short-term trend, with some moving up and down. Since these trend-based moves introduce larger price movements, using Bollinger Bands expansion as a base in forex trading strategies may be more beneficial.
Since Bollinger Bands measure volatility rather than direction, some traders add a trend filter, such as a long-term moving average, within their Bollinger Bands trading strategy. This is because the moving average displays the average price for a certain number of historical bars/candles — which makes it useful to quickly determine the overall price direction. For example:
Rule 3: Only buy or trade long when price is above the 200 EMA.
Rule 4: Sell or trade short, when the price is below the 200 EMA (the 200 EMA).
The orange line in the chart below shows the 200 EMA, which shows the average price of the last 200 bars. Since the moving average is pointing down, this indicates that the price on the average is moving down, which helps us to quickly determine the general trend.
The green boxes show the time periods when the Bollinger Bands expanded and the price broke out in the downtrend, below the lower Bollinger Bands, and in the direction of the longer term moving average.
The EUR/USD price chart shows the Bollinger Bands expanding and the price breaking the lower band in the direction of the 200 SMA filter.
Although the additional rules result in lower trading opportunities, they have served their purpose as a successful trading strategy, which is to simplify the decision making process for you as a trader. At this point, you may continue to add more rules regarding the exact entry price, stop loss price, target price and trading volume to further simplify the decision-making process for any upcoming trading opportunities.
Need to test the strategy yourself? Admirals offers professional traders the ability to trade CFDs on 80 of the best currency pairs, including forex majors, forex minors, exotic pairs and more! Open your trading account today by clicking on the banner below!
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The most successful stock trading strategies
The stock market is ideal for almost all different types of strategies, such as swing trading strategy, hold trading strategy, trend following strategy, moving average strategy, price action strategy, among other trading strategies. Since investors and fund managers tend to buy shares of companies to hold them for the long term — in anticipation of a rise in the share price — trends tend to last longer in this market.
Both traders and investors participate in the global stock market, which makes room for many of them to use different trading strategies as mentioned above. While the investor will buy the actual shares in the company, the trader may speculate on the movement of the share price using CFDs that have certain advantages such as the ability to trade for both long and short periods as well.
Successful Netflix stock trading strategy
Although there are thousands of companies you can trade on, sticking with the ones you know and use on a daily basis can be the simplest place to start — as Warren Buffett said: Invest in companies you really want to own — like in Apple, Amazon, or Facebook stocks. Or Tesla or Netflix. While there are some differences in how each individual stock takes direction, there are many similarities. This makes using one successful trading strategy enough to trade stocks, such as the Hold trading strategy, tradable on a wide range of global stocks.
Although the price chart above is for Netflix stock, it may represent any other stock price. Since a company’s stock price can often trend for some time — if the demand is popular — many traders use the power of an increasing moving average to try to take advantage of trending periods.
One of the most common ways to use an increasing moving average in a successful stock trading strategy is to look for a fast moving average to cross above a slow moving average, and vice versa. A fast moving average is based on a smaller value of historical bars than a slow moving average, which is based on a higher value of historical bars. A set of rules can start with:
Rule 1: Buy when the 8 EMA exceeds the 21 EMA.
Rule 2: Sell when the 8 EMA crosses the 21 EMA.
In this case, the fast moving average is the 8-period moving average and the slow moving average is the 21-period moving average. Both numbers are Fibonacci numbers that are very popular in trading the financial markets. Let’s take a look at what this looks like on the Netflix price chart:
Netflix stock price chart with 8 exponential moving average (blue line) and 21 exponential moving average (orange line).
In the chart above, there are several points where the moving averages intersect, both in an upward direction and in a downward trend. In some cases, the price continued in a specific direction for some time, while in others, it turned in the opposite direction. Let’s mark the crosses of the moving average for further study:
Netflix stock price chart shows that 8 exponential moving average (blue line) crosses 21 exponential moving average (orange line).
The red vertical lines show cases where the fast moving average crosses below the slow average. The green vertical lines show cases where the fast moving average crossed above the slow average. What can we learn from this?
In the five cases where the 8 EMA crossed below the 21 EMA, the market only twice continued its weakness in the downtrend for an extended period. One of the problems with moving averages crossovers is that they may give you the signal for the movement late and may also give the wrong signal.
On the five occasions when the 8 EMA crossed above the 21 EMA, the market continued to go higher most of the time. In these cases, you as a trader are trying to get a higher reward compared to the risk you are taking.
The crossover of moving averages is the basis of the hold trading strategies which are well suited to the trend-following stock market strategy. While placing stop loss and take profit at discretionary levels, it is important to understand that this type of strategy will result in more losing trades than winning trades. However, the goal is to offer winning trades a bonus of greater value that covers losing trades.
Therefore, it is important to use sound risk management techniques in order to keep the risk at small levels until the possibility of a big winning trade comes in.
The most successful CFD trading strategies
Contracts for Difference (CFDs), or Contracts for Difference, allow traders to speculate on the rise and fall of market prices, without actually owning any asset. When trading CFDs there are two parties involved — the trader and the broker. Essentially, when a trader opens a buy or sell position, he enters into an agreement with the broker to pay the difference between the opening and closing price of the securities he is trading.
The simplicity of entering and exiting trades, compared to other trading options, is one of the reasons why many traders use CFD trading to trade in a variety of markets such as stocks, indices, commodities, bonds, ETFs, and cryptocurrencies. One area that has received a lot of interest in CFD trading is Bitcoin CFD trading.
Traditionally, to sell bitcoin, a specialized seller would have to borrow bitcoins that they don’t own, and then sell them on the open market at the market price. Then the seller buys those coins at a lower price in the future and their profit will be the difference between what they sold for the repurchase cost. With CFD trading, the process is now much simpler as the seller can open their platform and click sell and apply the same process but in a much easier way.
Successful Bitcoin CFD Trading Strategy
Digital currencies like Bitcoin tend to show significant price swings due to the volatile nature of the market, which is still relatively new. This aligns well with many strategic approaches, such as swing trading, hold trading, day trading, price action trading, among other trading strategies as well.
The price action itself is very popular in other markets available for CFD trading. So what is price action trading? Essentially, it is the study of price patterns to determine what is happening now, in order to make predictions of what might happen next. Let’s take a look at how you can use a price action strategy to trade Bitcoin CFDs, including selling Bitcoin contracts.
Bitcoin vs. US Dollar (BTC/USD) Chart Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute investment advice or a solicitation to buy or sell any financial instrument provided by Admirals. Past performance is not necessarily indicative of future performance.
The above chart for BTC/USD shows a 34-period moving average (34 EMA) plotted on the price chart. As we learned from the trading strategies above, we can use moving average as a trend filter within our trading rules:
Rule 1: Buy when the price is above the 34 EMA.
Rule 2: Sell when the price falls below the 34 EMA.
Even though the moving average gives a directional bias, you still need some rules for timing the potential trade. This is where price action trading becomes useful. There are many patterns that can be used in price action trading, two of the most popular being the “hammer” and the “shooting star”.
The hammer candle price action trading pattern, as shown above, is a bullish signal indicating that sellers failed to close the market at a new low and buyers are back in the market, closing near the top.
The shooting star price action trading pattern, shown above, is the opposite of the hammer pattern. It is a bearish signal indicating that the buyers failed to close the market at a new high, and the sellers returned to the market to close near the bottom. We can now more details about our rules:
Rule 1: Buy when the price is above the 34 EMA and a hammer price action pattern is formed.
Rule 2: Choose to sell when the price is below the 34 EMA and a shooting star price action pattern is formed.
BTC/USD price chart highlighting shooting star price action trading patterns (red boxes) and hammer price action patterns (green boxes) with 34 EMA (purple line).
The above chart highlights the occurrence of both the first rule and the second rule. In most cases, the market continued to trade in the direction of the moving average and price action pattern. There will be occasions when the trading rules you have chosen will be less effective, which is why risk management and the use of stop loss will prove beneficial in the long run.
One of the common reasons for price action trading is that price action patterns themselves give traders an opportunity to set entry price levels and stop loss levels. For example, the entry price can be when the market breaks through the high of a hammer price pattern or the bottom of a shooting star price action pattern. The stop loss level can then be on the other side of the price pattern and a target level one or two times the risk on the trade — which is the entry price minus the stop loss price.
By utilizing price action trading patterns and CFD trading, you are able to trade bitcoin on both buying and selling, which creates your opportunities to trade in different market conditions.
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The most successful commodity trading strategies
Trading commodities such as gold, silver and oil are very popular among traders, as they can often hold the trend for some time. All markets go through different market conditions at some point. However, commodity markets are heavily influenced by supply and demand issues stemming from weather patterns, geopolitical tensions and economic sentiment.
The types of strategies that tend to be suitable for commodity trading are usually swing trading strategies, seasonal trading strategies, and hold trading strategies. Many traders combine elements of swing trading and day trading to trade the commodity markets with very strong trends. This allows traders to use some lower time frames, such as the four-hour chart, to determine the next direction for trading opportunities.
Successful Brent Crude Trading Strategy
The MACD indicator and the RSI indicator are two popular trading indicators that help find markets that are forming a trend, markets that are about to change direction, and overbought and oversold points. Here is how both indicators appear on the four-hour chart of Brent crude:
Brent crude oil price for four hours with MACD and RSI. Disclaimer: The charts for financial instruments in this article are for illustrative purposes and do not constitute investment advice or a solicitation to buy or sell any financial instrument provided by Admirals. Past performance is not necessarily a reliable indicator of future performance.
For new traders, the price chart can seem random and fast. This is why creating a trading strategy is so important — it can help traders simplify the process of analyzing information to help make decisions. So let’s start with a set of rules to process what the schema tells us:
Rule 1: Open long positions when the MACD is above the zero line.
Rule 2: Open short positions when the MACD is below the zero line.
Basically, the MACD acts as a broad trend filter to give the trader a directional bias. The next step is to look for clues about overbought and oversold as this may provide the best time to execute the trade. We can use RSI (4-period setup) to do this:
Rule 3: Go long when the RSI is below 30 (the lower black line in the RSI window).
Rule 4: Sell when the RSI is above 70 (the upper black line in the RSI window).
Traders can add more rules for specific entry price levels and stop loss price levels. For example, it may be useful to add additional rules to look for price action patterns such as the hammer and the shooting star. Some traders may explore using other indicators such as Average True Range (ATR) to determine stop loss price levels. Now, let’s define the areas where rules 1 through 4 above occurred:
Brent crude oil price for four hours with MACD and RSI.
In the price chart above, the green boxes represent events where the first rule and the third rule are met; The MACD is above the zero line and the RSI is below the 70 line. The red squares represent points where the second rule and the fourth rule have been met; The MACD is below the zero line and the RSI is above the 30 line.
It is important to note that these conditions are best suited for very strong trend markets, as seen on the four hour chart. It is worth considering adding more rules, such as aligning moving averages, to try and identify these terms moving forward. Of course, it is inevitable that there will be losing trades when the market changes direction or conditions. This is why using stop losses and proper risk management techniques is so important.
The most successful indices trading strategies
Trading in indices is preferred by both short- and long-term traders due to its ability to provide strong trend conditions on lower time frames and higher time frames. This is why stock indices trading strategies often include day trading strategies, swing trading strategies, hold trading strategies, seasonal trading strategies, and even hedging strategies.
Since universal indicators attract all kinds of traders, trading indicators such as RSI, MACD, Stochastic Oscillator and Bollinger Bands can be very effective to trade them in the right market conditions.
Although you can trade 19 different global stock indices, short-term traders prefer to focus on the major global indices which include the DAX40, FTSE100, SP500, NQ100, DJI30 and JP225. These major indicators cover Europe, Asia and the United States. Let us now focus on the German DAX40 index trading strategies using day trading techniques.
Successful German DAX40 Trading Strategy
While some traders focus on day trading stocks, many choose to use day trading strategies on stock market indices due to the low spreads and commissions. For example, Admirals offers 24-hour CFD trading on the DAX 30, with zero commission and tight spreads across the world’s most popular trading platforms.
When learning how to day trade the DAX40 CFD indicator, it is important to remember that day trading itself involves taking several trades in a day. It is important to know that a higher number of trades means more wins and more losses. Therefore risk management should be the cornerstone of your trading strategy. For now, we will focus on using some of the indicators and techniques we used in the previous strategies, mentioned above.
Five-minute DAX40 CFD price chart with Bollinger Bands, MACD and 50-EMA. Disclaimer: The charts for financial instruments in this article are for illustrative purposes and do not constitute investment advice or a solicitation to buy or sell any financial instrument provided by Admirals. Past performance is not necessarily a reliable indicator of future performance.
The chart above displays a five-minute chart of the German DAX40 CFD over a specific time period. By using a variety of trading indicators, it can help you determine the direction of the market as well as a way to determine when to trade it. For example:
Rule 1: Buy when price is above 50 EMA + MACD is above zero line + Price rejected the lower Bollinger Band line.
Rule 2: Sell when the price is below the 50 EMA + and the MACD is below the zero line + the price rejected the upper Bollinger Band line.
The chart below shows some of the Rule 1 and 2 events in progress:
Five-minute DAX40 CFD price chart with Bollinger Bands, MACD and 50 EMA.
The fluctuations of price cycles are clearly identified at the beginning of the first half of the chart. The combination of using an exponential moving average and MACD alignment helped avoid such choppy conditions — on this occasion.
The middle part of the chart is where price cycles begin to stabilize, and the rising moving average and MACD alignment helps identify three potential trading opportunities shaded in red. While the price action in the first red box went from the upper Bollinger Band to the lower Bollinger Band (a good price target when trading short), the second and third red boxes did not break through the upper Bollinger Band — most likely resulting in two losing trades in a row .
At the end of the chart, the price cycles start to trend upwards so the EMA and MACD rise in alignment with the long positions. Trading on the bounce of the lower Bollinger Band created two potential trading opportunities for the upper Bollinger Band (a useful price target when trading long positions).
Traders may add more rules to check higher time frames to identify the best trends, as well as proper trading and risk management techniques to maximize winning trades and minimize losing trades. One of the best ways to improve trading strategies is to open a demo account and start trading in a risk-free environment so you can start practicing and developing the most successful strategies for trading the DAX40 index. You can read more about this, below.
In fact, did you know that Admirals provides professional traders with more competitive trading conditions on the DAX40 Index? Yes really! This is correct! You can trade CFDs on the DAX40 without commission, the ability to diversify your market exposure across many companies and industries, and much more!
The most successful trading strategies: how to start implementing them without risk?
In this article, we have explored a wide range of different successful trading strategies and trading styles. The best way to put this theory into practice is by trading in a risk-free environment where you practice your skills, improve your strategies, and learn to manage your emotions while trading.
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