Devising Your Own Profitable Share Trading Strategy
Lots of people a new comer to share trading over-complicate the whole process. They load their charts with a lot of fancy technical indicators and are constantly testing out new systems in order to try and find that holy grail trading system that’s going to make sure they are rich. However it ought to be noticed that the most basic systems in many cases are probably the most profitable.
If you consider the price patterns of numerous different companies you’ll generally observe that when a stock is trending upwards it will never increase inside a straight line. Even when there’s a very long-term upwards trend there will always be pull-backs on the way.
So therefore if you are looking to trade these long-term trends a very simple but effective trading strategy would be to wait for one of these simple pull-backs and then enter a long position when the price moves back up again.
To help you with this strategy you might prefer to use a technical indicator or two to help you. For example two indicators I love to use would be the exponential moving averages (5 and 20) and also the parabolic SAR.
What exactly you do is that you simply identify shares that are in established upward trends, then you wait for pull-back in which you should hopefully see the EMA (5) cross below the EMA (20) and also the parabolic SAR turning red. Then you simply what for that price to reverse back up again and resume it’s upward trend which is often signalled through the parabolic SAR turning green again and the EMA (5) crossing back up with the EMA (20).
To provide you with a real-life example just take a look at the daily chart of Amazon (AMZN). You will find that it trended upwards between November 2008 and could 2009. The price then pulled back and we saw both parasolic SAR turning red and also the EMAs crossing downwards. This may have signalled the end from the upwards trend but since it ended up the EMAs crossed back upwards and the parabolic SAR turned green that was a great opportunity to go long again. Consequently the price raced through the $80 level and went all the way up to around $88.
To help you observe that this very simple trading strategy can produce some excellent results and it is a lot more effective than the majority of the over complicated systems that many traders use. Successful share trading isn’t actually that difficult. You just need to look for shares that are trending either upwards or downwards and then find a way of profiting from this trend.
Hope that helps.
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