The financial sphere in the UAE is booming like never before with the efforts put in by the Dubai International Financial Centre and with the advent of easy-to-use trading applications, but as an absolute beginner, you must have been hearing about many people losing their shirts while others have made a fortune overnight. It seems as if it takes a genius of an economist to read the charts let alone earn from your trading activities.
But here’s the thing: You do not have to become a genius to start trading.
Many beginners get into the foreign exchange and stock markets. In order to succeed, you need a trading strategy – a plan telling you when to get into the market and more importantly, when to exit. And if you want to learn the basics of financial trading without drowning in technicalities, then you are at the right place.
Now let us analyze the top five trading strategies which are proven effective for newbies.
1. Trend Following Strategy: “The Trend is Your Friend”
It may seem old-fashioned, but this rule has become one of the most powerful trading strategies due to its high efficiency. The market moves in one direction: upward, downward, or sideways. Trying to catch falling knives and predicting the exact turning point of market movements can be really risky.
Your role as a newbie is to recognize the direction of the movement and act according to it.
How it works: You need to observe the market graph and see if the prices show any uptrends or downtrends. For instance, if the prices are increasing and forming higher highs and higher lows, it means you have an uptrend, so you search for buying opportunities. In case of downtrend, lower lows appear, meaning that it is time to sell.
- Support and Resistance Trading Strategies
Before you start using complicated technical tools, become an expert in Support and Resistance trading strategies. Imagine Support as the bottom of the price, while Resistance is the roof of the price.
- Support Level: The point where the falling price reverses because of buyer activity.
- Resistance Level: The point where the rising price reverses due to seller activity.
- The Trading Strategy: The trader buys the stock when the price reaches the Support level and sells when the price touches the Resistance level. The approach is based on Technical Analysis. It provides the trader with the ability to estimate his risks accurately. For instance, if the price breaches Support level, the trade is definitely wrong.
- Breakout Trading Strategy
What does it mean if the stock breaches its resistance point? Normally, it goes down. However, in some cases, it breaks through with heavy trading volume. In this case, a breakout occurs.
Explanation: All you need to do is wait for the stock to clearly penetrate an identified resistance area. This indicates that the bulls have triumphed over the bears and a new higher price level has been created.
- Moving Average Crossover
When you need a tool that helps you visualize your trading trend, then the Moving Average cannot be overlooked. This is an important smoothing tool, which helps you see the real trend.
How it works: A trader uses two different lines, for example, a 50-day MA, and a 200-day MA. When one line goes above the other, then it signals a Buy. If it goes below the other, then a Sell signal will come up.
Why it works: There are no emotions involved. You do not have to wonder about whether it is a buying or selling period.
- Risk Management: The Survival Strategy
It is not a means to enter into a trading position; however, it ranks as the most significant strategy here. You can have the best trade-in the world but will still be wiped out by risk management failure.
Professional financial education teaches that risk management comes first always, and this entails:
- Position Sizing: Avoid risking more than 1-2% of capital in one trade.
- Stop-Loss Orders: A predetermined level where you leave the trade in case it works against you.
- Diversification: Not risking all your eggs in one basket, for example, mixing foreign exchange, commodities, and equities.
Why Theory Is Not Enough
Learning about all of these approaches and methodologies is always very helpful and useful, but implementing them into real-life situations can become tricky. The UAE financial market operates very quickly. Stock prices tend to change drastically due to oil industry news, central banks’ decisions, and geopolitical factors all over the world. This is when the difference between knowledge and practical application becomes obvious.
Unfortunately, many traders make mistakes when trying to enter the market, simply treating the stock exchange as a hobby. To become a professional trader, it is crucial for you to gain some kind of professional knowledge. You have to understand what makes stock prices move; simply memorizing theories is not enough.
And here is when our platform comes in handy. At Tradepedia UAE, we focus primarily on helping you overcome this knowledge gap. Instead of giving you just another book to read, we aim to offer some practical market experience.
Conclusion
The key point here is that trading is a process, and not an event. Begin by utilizing these five approaches – trend following, support and resistance analysis, breakouts, moving averages, and most importantly, risk management. Learn each technique thoroughly.
Is it time for you to get rid of the uncertainty? Do you have any desire to become an expert at foreign exchange, commodities, and equities trading? Then sign up with Tradepedia UAE today!
Let us teach you the techniques required to analyze and trade the markets effectively.
