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Trading Strategies Everyone Should Know

If you’re like most everyday traders and investors, you probably have a half-dozen or so strategies that are your go-to techniques for playing the securities markets. There’s nothing wrong with that approach, but sometimes it’s wise to venture out and experiment with new skills and methods. For many people, learning basic strategies can be helpful. For instance, moving average crossovers, morning gap plays, news-based trading, and others have been around for decades, and many use them with good results. Consider brushing up on the following four trading skills no matter how long you’ve been buying and selling for your account.

Following Overnight News

News enthusiasts often make excellent traders. That’s because so much of the everyday price action is based on economic conditions, specific news reports on corporations, and quarterly earnings reports. Stocks tend to react quickly to news, so people who use this approach need to place trades rapidly and accurately. This is also a great way to get your finances in shape because you will be up to date and well versed on what is happening in the financial world in general. 

The Short Squeeze

Don’t be shocked if you’ve never heard of a short squeeze. The strategy is popular among experienced investors but is gaining ground with newcomers. However, playing the short squeeze calls for an attentive eye and quick reflexes. When a stock’s price begins to rise naturally, investors who bet on it to drop in value are forced to cover their short positions by purchasing shares as quickly as possible.

That puts even more upward pressure on prices and can result in rapid price increases within just a few hours. Fortunately, there are easy ways to identify shares experiencing a short squeeze and profit from the quick action. To learn more about this intriguing and potentially profitable technique, review an informative online guide about short squeeze stocks that explains why they happen and how to earn from them.

Playing the Gap

When the morning bell opens the trading day, watch for price gaps from the previous day’s close. If, for example, ABC Corp shares closed at $30 yesterday and open at $32 on low volume, then the upswing is said to be weak. It will likely retrace back to the $30 mark within the early hours of the session. At least that’s the theory behind playing early morning gaps.

Practice the technique for a few weeks on several of your favorite companies, and see if you can find a pattern in how the gaps behave after the morning bell. Some traders specialize in gap techniques, but be aware that there is risk involved. There are dozens of books on the theory and practice of this unusual approach, so do plenty of research before putting your capital on the line.

Reading the 50-200 Crossover

The 50-day and 200-day moving averages are two of the most frequently used indicators in existence. One reason is that they’re easy to use. The other is that the indicator is revealing. To use the 50-200 moving average method, set your chart to show those two lines only. Then, watch for the point where the 50-day line rises above the 200-day line. Often, that crossover marks the beginning of a period of rising prices. Of course, the reverse pattern usually portends a price drop.

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