Have you been trying to get into the world of trading? It might be difficult at first, but as you move forward, you’ll find your way through it.
When you come across the term index or indices, it just means that it’s a collection or list of all major companies in a certain place. For instance, ASX 200 (which is an index) is composed of different assets or stocks ranked by market capitalisation. It means that the companies, including Breville Group and Coca-cola, have met the minimum requirements to be included in the index.
Since the group of stocks is tracked together, whenever a share price of a particular market goes up, the index also goes up. So basically, in indices trading, you invest in an underlying market potion. Furthermore, indices trading works through buy and sell instead of exchanges. Traders can buy long or sell short through CDFs and other investing opportunities.
So if you’ve already chosen the index you want to trade, you’ll need strategies to help you win. If you want to get to know the most popular strategies, then you should check the list below!
1. Day Trading
As the name suggests, day trading is the act of trading indices within the day. However, it doesn’t mean that the traders only trade once a day. Instead, they do it as if it’s a full-time job which means they open and close all the positions on the same day. If you’re going to be a day trader, you should never forget to be flat at the end of the day. It means that you’ll need to close the trades you opened for the day. Otherwise, you can’t consider it day trading.
If you chose indices trading daily, you’ll just need to predict if the market will appreciate or depreciate. If your predictions are correct, then you’ll gain money more often. Day trading is beneficial in the sense that you don’t have to face overnight risks, and you can be as flexible as you like. Just place 1 to 6 positions a day, and you’re good to go!
2. Position Trading
Are you not a fan of short-term trading? Then you should try the position trading strategy as it enables you to position indices for a longer period. Whether it’s weeks or months, you’ll be able to analyse charts to get the bigger picture of how the market works.
Furthermore, this strategy ignores the minor fluctuations in prices since they’re aiming to profit from long trends. So when you chose position trading, you’ll be able to slow down but gain a bigger profit. As compared to short-term trading strategies, position trading also allows you to manage your time efficiently since you don’t need to be on screen most of the time. It also takes you away from all market noises as you don’t have to monitor daily charts and fluctuations.
3. Trend Trading
If you enjoy following the trend, you should use it as a strategy. Trend trading is when you trade indices based on the pre-determined trend. Usually, traders use technical analysis to know the direction of the trend.
Once the trend goes up, traders start to enter or place a position, provided that the trend remains upward. Meanwhile, when the trend goes down and continuously does so, traders tend to sell short. So as a trend trader, you’ll need to be constantly aware of the market direction and adapt easily whenever the direction changes. Moreover, you should have a system so that you’ll know what to do during certain times.
4. Scalping Trading
Do you want to get results in a matter of minutes? If you try the scalping trading strategy, you’ll be able to get small profits and have them accumulate through time. This means you’ll place positions to gather a bigger profit slowly.
It’s a bit similar to day trading, but it’s much faster. However, it also doesn’t take overnight risks and you can trade at a flexible time. Usually, scalping traders do it as a hobby, and not as the main source of living. It’s mainly because they just have a 50% chance of gain or loss in a given time.
5. Swing Trading
Swing trading is the most popular recommended indices trading strategy for beginners. It allows traders to trade on both sides of the market movement. When the movement of the market goes up, traders tend to sell their security. On the other hand, when the market goes down, and they suspect that it’ll rise again, they buy back the security.
However, since you can’t predict the movement of the market, you should analyse it based on a technical approach, which is also what other traders do. It means you’ll need to study charts and movements, and be familiarised with the bigger picture.
Now that you have an idea of how different strategies will work, you should try them out to find what’s best for you. Don’t forget to share with us your go-to indices trading strategy, and a few tips to make it work by leaving a comment below!