Beginner Strategies: Trend Following, Support and Resistance Trading

Trend Following

Trend following is one of the easiest trading strategies that can be employed in the market and therefore it is commonly used even by new entrants in the market. The main concept of the trend following is to trade in the direction of the trend. This strategy is premised on the fact that the markets, in their most natural state, are inclined to follow trends and once a given trend is set, it is most probable to last for some time. It can assist traders in making profitable trades in the long term by enabling them to trade with the trend instead of against it.

When using the trend following system the traders use moving averages, trend lines and Relative Strength Indexes. They are particularly useful at it helps in averaging the price data and also shows the trend of the price. There are quite many ways, but one of the most frequently used is to use both short-term and long-term moving averages. It also produces a buy signal when the short term moving average crosses the long term moving average. On the other hand, when the short-term moving average crosses below the long-term moving average it gives a bearish signal (sell signal). Therefore, in line with such signals, traders can coordinate their trades with the movements within the market, and therefore, increase the chances of success.

Implementing Moving Averages

The two common tools that traders can use in trend following moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). The SMA calculates the average of the price over a particular period where the EMA gives a higher weight to the recent price, and therefore, it is more sensitive to new information. This is because the two moving averages capture different aspects of the trend enabling the trader to make the right decision on when to buy or sell. For example, a 50-day SMA and a 200-day EMA can be used to determine the longer-term trends and the possible points of buying and selling.

Support and Resistance Trading

Another simple trading strategy that any rookie can employ is the trading based on support and resistance levels that are the price ranges that an asset fluctuates between. These levels are significant because being psychological levels for the traders, the future price movements can be influenced by them.

To identify support and resistance levels, traders examine historical price charts to pinpoint areas where the price has previously reversed. These levels can be identified through horizontal lines drawn on the chart at the previous highs and lows. Once these levels are identified, traders can make decisions based on how the price reacts to them. For instance, if the price approaches a support level and bounces back, it may be a good buying opportunity. Conversely, if the price hits a resistance level and starts to fall, it could signal a selling opportunity. Understanding and utilizing these levels can help traders make more informed decisions and improve their trading outcomes.

Combining Trend Following and Support and Resistance

Combining trend following with support and resistance trading can enhance the effectiveness of both strategies. For example, in an uptrend, buying near support levels can increase the likelihood of a successful trade, while selling near resistance levels can help capture potential profits. By integrating these strategies, traders can develop a comprehensive approach to pocket options trading and better navigate the market dynamics.

Conclusion

Mastering beginner strategies such as trend following and support and resistance trading is essential for new traders entering the pocket options market. These strategies provide a solid foundation for understanding market trends and key price levels, helping traders make informed decisions and improve their chances of success.