The Best Stock Trading Strategies for 2019

The Best Stock Trading Strategies for 2019

Following a disappointing end to the year 2018, the Dow Jones Industrial Average has already enjoyed a more than 10% increase to begin 2019. While a significant portion of these gains are likely the index returning to where it “should have” been in the first place. It remains clear that there is plenty of money to be made in the stock market.

In order to become a successful stock trader. You will need to find opportunities where you can sell your securities for more than you initially paid for them. While this approach to the market may sound intuitive. Finding where these opportunities actually exist is something that is a bit more difficult.

What are the best stock trading strategies for 2019?

The best stock trading strategies are the ones that can carefully balance your exposure to risk. And the possibility of earning a strong return on your investments. If you are going to take risks, naturally, you will want to be compensated for doing so. You should also look for strategies that are compatible with your experience as a trader and the amount of time you can commit to trading each day.

In this article, we will discuss some of the best stock trading strategies for 2019. These strategies are not mutually exclusive, meaning—depending on your personal circumstances—you may want to consider using multiple strategies at once. By taking the time to understand these trading techniques, their risks, and their potential benefits. You should be able to find one that effectively works for you.

Credit: admiralmarkets

1. Index Diversification

In order to reduce the risk of holding onto any given position, you should try to create a portfolio that is as diverse as it can possibly be. This way, even if a given stock fails, only a small portion of your portfolio will actually suffer. The only risk that you will be holding onto will be the risk that is common to every stock on the market (beta risk).

One of the easiest ways to diversify your portfolio is to actively trade using index-tracking funds. These funds hold a position in every stock on a given index—such as the Dow, S&P 500, Russell 2000, and various others—allowing you to enjoy the general rises of the market without needing to do too much research. Historically, the S&P 500 has risen by about 10% per year; if this is an acceptable level of return for you, then index diversification may be your best approach to the market.

2. Swing Trading

Swing trading is an active approach to the market, meaning that it will be up to you to identify the specific stocks that are about to increase in price. Most swing traders will hold their positions for 2 to 10 trading days. The general goal of swing trading is to identify stocks that are about to “swing” in a given direction.

When swing trading, using both technical indicators and fundamental indicators will be very important. Technical indicators such as the Ichimoku Cloud, the Relative Strength Index (RSI), and Simple Moving Average (SMA) can help isolate strong trends from an otherwise noisy price chart. Paying attention to price channels will also be important.

3. Scalping Trading

Scalping strategies involve a different approach to the market but, when done correctly, it can enable you to earn consistent small profits without needing to take any major risks. Essentially, scalpers are looking for opportunities for arbitrage. When prices are mismatched, traders will simultaneously open and close a position at once. This allows them to exploit the spread and keep the difference as their profit.

Typically, scalping will only yield a few pennies per share. However, when scalping is done with thousands of shares multiple times per day, these profits can really begin to add up. If you are going to give scalping a try, you will need to find a broker who does not charge per trade—otherwise, your profits will be significantly diminished.

4. Volume Trading

Volume trading is a unique approach to stock trading that looks beyond price trends and attempts to understand the complex relationship between price and volume. While increased trading volume is usually correlated with an increase in a security’s price, these events do not always occur simultaneously. Instead, volume traders will try to exploit the “gap” where trading volume is high and prices are still low.

There are quite a few technical indicators that can be used while volume trading. Both the Money Volume and On Balance Volume can help you determine if an asset is about to increase in value. Even if you do not consider yourself to be a “volume trader”, occasionally tracking changes in these indicators will still be quite useful.

5. Channel and Breakout Trading

As time goes on, securities will typically begin to be contained within a very specific price channel. For example, even if you do not know whether security will increase or decrease in value over the course of a day, you may be confident in knowing that—based on recent data—the price will be somewhere between $30 and $45. When this is the case, as the price begins to move towards its $45 “ceiling” a reversal will be likely and you should consider closing your position (or opening a short position). Similarly, when the price approaches its $30 “floor”, opening a long position may be appropriate.

A breakout occurs when an asset’s price has moved beyond the established floor or ceiling and has enough momentum to continue its current trend. Breakouts indicate to traders that the value of the security has fundamentally changed.

6. Derivatives Trading

Instead of holding onto the underlying security, derivatives trading makes it possible to hold an indirect stake in a security’s future performance. Derivatives can be used to either hedge your current positions (decreasing overall risk) or to “double down” on a position you already have open.