Updated: Jun 8
New to trading or curious? This may be for you.
When trading in the financial markets, you will read about promising & eventually, perhaps, practice numerous trading methods. There are hundreds if not thousands of strategies and too many technical indicators to mention. It is important to get to grips with a strategy that works for you and each trader is unique.
Unfortunately, it’s not an exact science and no one has invented a 100% successful trading system.
Why? The markets are fluid, and they move at different deviations, when one may be buying another may be selling due to each one’s circumstance.
In reference to technical analysis in trading and investing, a technical indicator is a mathematical calculation based on historic price, volume, or open interest information that aims to forecast financial market direction. It can be beneficial to forecasting long term patterns and potential changes in direction, assisting for example fund managers to direct their portfolios at any given time.
With this blog, I am writing about a shorter time frame, usually associated with CFD leveraged trading.
Why, simple, if you leverage an asset and it goes your way, you make big gains, straightforward, right?
Within the fast-paced environment of breaking news and the quick transfers of funds, trades and assets can often move sharply when certain economic data is released, or importantly, relevant news is announced that influences the investors decision making. This is fundamental news and in recent times we can see numerous examples of sharp volatility. (Rapid Price Movement)
One glaring example is after the exit polls for the UK referendum, leaving the European Union,
BBC News headline. “The pound has fallen to levels not seen since 1985 following the UK's referendum vote to leave the EU”.
Another recent one is the sharp drop in Alibaba stock price when the Chinese regulators warned of intervention.
This enormous movement is rare in developed economies, but we do get opportunities to trade the news on numerous occasions. It could be the release of economic data, such as an Earnings Report of a listed company or an interest rate decision by a Central Bank.
One that seems to be popular with day traders, is the NFP, basically, the latest employment data released by the biggest economy, the USA. That often moves the market in the short term and can cause volatility.
“Day trading” is a form of speculation in securities in which a trader buys and sells a financial instrument within the same trading day, such that all positions are closed before the market closes for the trading day to avoid unmanageable risks and negative price gaps between one day's close and the next day's price at the open".
Ultimately, it is up to the individual to decide which is the best trading strategy. Some important factors to consider include your personality type, lifestyle, and available resources. Are you looking for quick fast returns, or are you more conservative? if the latter, day trading is not for you. “Day trading” is trying to find quick movement and catch the trend and make fast returns, as simple as that.
The Fundamental trading strategy
A news flash trading strategy involves trading based on news and market expectations, both before and following the news report releases. Trading on news announcements can be risky as news can travel very quickly on digital media. Traders will need to assess the news immediately after it’s released and make a quick judgement on how to trade it.
Some key considerations include:
Is the news already fully factored into the price of an asset or only partially priced in?
Did we already expect the results and the market already moved accordingly?
Does the news match market expectations?
Is the data as expected, if so, no real change, if better or worse, bigger volatility, sharp quick price variations?
Understanding these differences in market expectations is crucial to success when using a fundamental trading strategy
What to look out for.