There are literally thousands of technical trading strategies. They range from complex, signal-generating algorithms to dirt simple “Day Trading Breakout Strategies”. This trading strategy is so simple I can explain it fully in a single sentence:
Here is the trading strategy in a sentence!
A “Day Trading Breakout Strategy” tells you to ride daily momentum by drawing two horizontal lines, one through the “high price” and one through the “low price” of the first 30 minutes of open trade and then buying (or selling) depending on the direction of the next break.
Now, when it comes to “no news” trading strategies, the simple ones generally work the best. After all, the market is just a collection of buyers and sellers and we’re all looking at the same historical chart patterns.
So, when you look at something like a “support” and “resistance” line, you can believe every other trader, portfolio manager, asset manager is looking at the same two lines.
When a company, say Bidvest reaches its upper support, as you can see on the chart below, the tendency is for traders to begin to sell. And, it’s because everyone looking at this chart is selling, so it becomes a self-fulfilling prophecy.
Stock prices can bounce between the support and resistance levels for a long time before they breakout to set new limits.
If the support and resistance levels are clear, and you feel confident locating them, you can trade to ride between the levels, alternately going long and short. These movements can be fairly short-term and suited to CFD traders.
Now if I take your support and resistance lines and add in a few momentum indicators you’re well on your way to having a half decent technical trading strategy. I would try RSI, Stochastic Oscillators and the ever-popular MACD.
Another good rule of thumb is to trade in the direction of the trend. In the chart above you might only be buying at the lower support line, rather than selling/shorting the upper resistance.
As the old, tired and too often ignored saying goes: “The trend is your friend”.
There are several ways of defining an uptrend, and it can be as simple as inspecting a long-range chart for a steady upward movement.
Find a chart that is continually making higher “highs” and higher “lows”.
Or, if the chart is exceptionally “noisy”, you can add something like a simple moving average over 200 days and then check if it is rising or falling.
