The indices market provides numerous trading opportunities and can generate potential profit. Like any other market, it also requires a good understanding of the fundamentals, which affects the price movement of indices. These fundamentals play a vital role while trading. Data releases, recognising trends and events which could prompt moments in price will come with more significant experience as traders become habitual to some of the regular events that may influence the indices market. Here are the top 10 indices trading strategies for you. Read the well-researched list to understand and operate with a better approach in the indices market.
Top 10 Indices Trading Strategies
Day Trading Strategies
As the name indicates, day trading is a process of selling and purchasing indexes within the same trading day. The primary idea behind day trading is to shut all the already opened positions before the end of the trading day. It helps you to avoid any risk and additional costs charged by the broker when you hold the position overnight. Day trading strategies aim at spawning quick, still earning profits from tiny market price shifts.
Remember the day trading strategies are suitable for that trader who has enough time to monitor the market regularly. To fulfil this purpose, you must be aware of all the geopolitical and economic news and stay updated with the top events happening in the financial market. It helps you to anticipate the price trends and hence allows you to make a profit from small changes.
Corporate financial announcements
Because of the influence, some significant individual shares have on an index, the cost of indexes can be specifically volatile around key announcements, earning reports, especially in case the figures fall or beat behind expectations.
The next in the list of indices trading strategies is the breakout trading strategy. Active traders usually use it for taking a position within the early stage of the trend. It acts as an initial point for expansions in volatility, bigger price shifts and when managed well can provide limited downside risk.
Technical indices trading includes making decisions (depending on the indicators and patterns) and closely reviewing graphs and charts. These patterns and indicators reflect the required information about the future price movements in a particular index. There are four major indicators which include:
1) Trend: It includes indicators like exponential moving average, the Bollinger band, Fibonacci retracement, simple moving average, moving average convergence divergence or in short MACD and parabolic SAR.
2) Momentum: The three fundamental trading signals generated by the momentum indicator include the divergence signal, 100 line cross and the momentum crossover.
3) Volume: It includes Chaikin money flow, market facilitation index, on-balance-volume, acceleration bands and Klinger volume oscillator
4) Volatility: The volatility reflects the level of change in the price of indices over an interval of time. The more volatility, the higher is the rate of change of price of indices indicating more opportunities for capitalisation.
One of the indices, trading strategies usually includes holding and buying indices for an extended interval of time. It can range from several days, weeks or can extend longer than this. As an outcome, a position investor does not take the short-term market movements into account. They make fewer trades as compared to that of day traders, but these trades have a more significant potential to generate profit. Though holding a certain position for an extended interval can also surge the internal risk.
The trend investors just like the day traders try to gain from medium-term and short-term market trends which affect the indices. Here, investors need to hold a bearish or bullish position, depending on overall or wider market emotions.
When one trades with the trend, he or she opens the position till the trend continues. In the case of a trend reversal, you can reduce losses or protect profits by guaranteeing stops and applying stop losses. There are several trend trading strategies.
Understanding Market Correlations
As you may know that indices are an important entity of industrial stocks, there are many vital correlations between index prices and other correlated markets.
The most commonly known asset which can affect price movements of the indices market is the share market. The larger change in the prices of the share market can lead to a change in prices of indices, mainly if the concerned sector makes up a distressfully large share of the indices you have finalised to trade.
Another entity that impacts the price movement of the indices market is the forex market. There is a robust relationship between the performance of the currency of a particular country and the relative strength of its domestic stock indices.
Thus analysis and research are the fundamental factors that make sure that you understand all the fundamentals related to the selected indices and also how the market situations of correlated markets can influence these.
Making use of market information to your advantage
While trading in indices markets the economic data act as the crucial factor. It drives indices performance and is essential for your success in trading. With this financial information, one can easily predict the events of the financial market, which may accelerate the price.
For this, you can use the economic calendar and report session calendar. There are various financial service providers which provide these research tools along with the online trading account. One such trusted firm is HFTrading.
It is a leading firm providing the best online services with an advanced trading platform such as Meta Trader 4. It offers trading on more than 350 tradable asset classes including indices trading on top assets such as DOW 30, DAX 30, ASX 100 and several others.
Adopt risk management techniques
Like any investment or financial market, there is risk associated or inherited within the indices trading. However, the volatility in the indices market may be less as compared to other inconsistent markets like cryptocurrencies, shares etc. The only key factor for avoiding them is to build a proper risk management plan before entering.
Planning before starting a trade
The foremost thing a trader should keep in his mind is creating a plan. It allows and paves the way for traders whenever he faces the dilemma related to trade. This plan also protects him from being too greedy or taking huge losses on a trade.
The Bottom Line
Many people ask which is best among the indices trading strategies. This question does not have any definite answer. There is no definition of best indices trading strategies; it all depends on the style, available and personality of the trader. It can choose the one which suits its trading demand the most. Hence, every trader can pick the one as per its situation and can also create his own.