Successful trading can be quite lucrative as long as it’s done professionally with proper risk management techniques. Short term options trading is a full time job for many traders across the globe. To be able to succeed with such a strategy, one must be adept at the fundaments of short term trading, which will allow them to protect themselves from unpredictable events while making a decent profit at the end of the month.
There are a few basic concepts which the trader must familiarize with for successful trading. Following these concepts can be the difference between a loss and a profitable endeavor.
Developing an Eye
Every successful trader must develop a decent understanding of the markets and how they behave. Many believe that reading the financial news paper or watching financial news would give them sufficient knowledge to trade. However, by the time the news has been published, it has already reached million and provides you with no real edge over the market, it might actually make you over-confident and make you lose money.
Traders must be able to identify trends in prices and other variables associated with technical analysis. Technical analysis is the analysis of a share’s price such as its resistance and support levels or trend oscillators, indicators, chart patterns, and cycles.
The moving averages are an extremely important tool for determining the trend of the market. It also helps in determining trend reversals. Moving Averages take into account a stock’s average price over a period of time and plot it on a chart for identifications of trends and reversals.
Market Patterns and Cycles
If anyone examines a market over a long period of time, they will be able to identify prevalent cycles in the market, which the price tends to follow. Price always moves in cycles and patterns, hence, it’s extremely important to understand all patterns and cycles associated with the financial markets.
Price movement is associated with human behavior. This is due to investors and traders causing the movements in price through their involvement in the market. Being able to successfully identify trends will significantly help a trader make profitable trades. Trading against the trend increases the chances of making an unprofitable trade.
Risk management is extremely important and not just in terms of trading the financial market but in almost every perspective of life. One can successfully limit their risk through trading tools, such as stop-loss orders. These tools limit the adverse affect of a downward slide. As a general rule in trading, always use sell and buy stop orders which will minimize risk and ensure profit if the price increases.
Technical analysis is a financial discipline, which allows a trader to analyze the chart of a share, as opposed to analyzing the company’s operation, i.e. the fundamentals. The ability to analyze the charts helps in determining or forecasting the future price. This is an extremely important tool for short term traders. It also helps determining entry and exit levels. Learning technical analysis will allow a trader to be able to use the following:
Sell and Buy Indicators
Traders can use indicators such as the relative strength index or stochastic oscillator. These indicators help a trader determine the right time to buy or sell a share, it indicates if the share is overbought or oversold.
A lot of times, a trader will notice similar patterns being formed in the market such as the head and shoulder pattern. If the trader is able to determine which pattern is being formed, they can trade according to it and easily make a quick profit.
Trading can be an extremely profitable activity, especially if you use it along with your long term investing activities. Financial Market Wizards offers buy and sell alerts based on optimum usage of technical analysis. The advisory service has helped thousands generate huge profits in the market.