5 Trading Strategies Every Trader Should Know

A stop loss is an order that automatically closes your trade position at a preset price point when the market goes against your prediction. The purpose of a stop loss is to limit the amount of loss you can incur in any single position. For instance,
if you buy stock Stock-Market-Trading at $100, you can set a stop loss at $90.

A cardinal rule in trading is that you must always use stop losses. However, there is always the risk of your stop loss being triggered due to sudden market volatility and then bouncing back, resulting in you losing out on potential profits or taking a new position at a higher price.

It is, therefore, important to have an effective stop-loss strategy. Some of the ways to establish the optimal price point to place your stop loss include:

• Support and Resistance Levels - Place your stop loss above or below these important levels.
• Candlestick Patterns – Patterns, such as head and shoulders, have definitive levels where optimal stops can be placed.
• Indicator Levels – Indicators, such as Fibonacci and Pivot Points, provide good levels where you can place optimal stops.
• Trailing Stops - These stops automatically adjust your stops when prices move in your favor. They are ideal for locking in profits in trending markets.

A common maxim in trading is ‘cut your losses short, and let your profits run.’ It is easy to let your profits run, but it takes courage and great skill to know when to exit potential bad trades early.

It is a common human trait to believe that things will get better, even when they will clearly not. Traders should also be careful not to close good trades early due to irrational panic.

Some of the ways to determine when you should cut your losses early include:

• When the technical setup you relied upon to open the trade has been invalidated
• When a news release negatively impacts your position
• When you do not want to hold a position overnight or over the weekend
• When your emotions are getting the better of you
• When market price action no longer makes sense to you

Economic, social, and political news and events represent some of the biggest triggers of large price movements in any trading session. Granted, trading the news can be very profitable. But you expose yourself to risks such as:

• Increased volatility
• Price slippage
• Widening spreads

If you already have an open position, these risks can lead to your stop loss being triggered or your entire profits being wiped out. In extreme cases, if your broker does not have guaranteed stops, you may even lose more than you have planned for.

If you intend to trade during the release of the news event, then you may incur increased costs, or your orders may be filled at unfavorable prices.

By tracking the news, you can avoid these risks by closing positions that may be impacted. Alternatively, you can trade after the release of the news when price action has returned to normalcy.

One of the best ways to reduce risk in online trading is to trade higher timeframe charts. Many beginners are usually tempted to trade lower timeframes in the false belief that they will make more money.

However, lower timeframes expose traders to risks such as trading low-quality, low-probability setups. Trading on lower timeframe charts also encourages overtrading, which increases trading costs and makes traders vulnerable to negative emotions.

Some of the ways trading on a higher timeframe helps in reducing risks include:

• They help in building patience and discipline because you have to wait for quality trade setups to form.
• You do not need to spend time on your charts, and this can limit your chances of making trading mistakes. Trading signals on higher timeframe charts are more solid and can give you a better risk/reward proposition. Higher timeframes tend to filter out market ‘noise,’ which can help you keep emotions in check. They simplify your trading activity. In online trading, Trading-Courses, higher timeframes generally refer to 4-hour charts and above. Lower timeframes can be good for timing entries. The bottom line is that trading off higher timeframes gives you a better market perspective. 

  Cryptocurrency-Trading, prices can swing wildly in a matter of minutes, whereas stock prices may only shift mildly for the same timeframe.

Correlation is a measure of how prices of different assets move in relation to each other. Positively correlated assets tend to move in the same direction, whereas negatively correlated assets tend to move in opposite directions. When opening multiple positions in the market, it is important for traders not to magnify their risk exposure by trading correlated assets.

For example, the EURUSD and Gold tend to be positively correlated. So, if you take a position on both assets, you are essentially multiplying your risk exposure. Alternatively, the EURUSD and USDJPY currency pairs are negatively correlated. So, if you buy EURUSD and sell USDJPY, you are also increasing your risk exposure.

Understanding correlation can also help in building a well-balanced portfolio.

Using trading calculators is a practical way of reducing risk while trading. Trading calculators are useful tools that can help traders plan their trading activity efficiently.

Some of the types of trading calculators that can help traders minimize trading risks include:

Ultimately, the best way to reduce risks in the market is to treat online trading like a real business. This means having a trading plan that will guide your entire decision-making when you are trading online. Some of the elements that will be included in your trading plan are:

• Trading goals
• Trading strategy
• Risk management plan
• Your trading journal
• Your trading psychology

How will a trading plan help you enhance risk management while trading?

• It will keep you accountable.
• It promotes discipline and consistency in your trading actions.
• Will help you identify weaknesses in your trading skills so you can improve on them.
• Ensures you maintain objectivity with your trading decisions, and thus avoid the negative impact of subjective emotions.