Best Stock Trading Strategy

The best stock trading strategy is speculating, watching the market trends,patience and clear, practical thinking. The trends must be mapped, long term charts analyzed. The monthly and weekly charts of several years must be minutely followed. This provides better market visibility and a long term perspective.

Following a short term market view is not the best way because it can be deceptive. After the trend has been understood, following it is the most prudent thing to do. Market trends are long-term, intermediate term and short term. If trend is up, the trend is to buy dips, rallies should be sold if the trend is down. For day traders, daily and intra-day charts must be followed.

The support and resistance levels must be checked. The best place to buy in a market is near support levels. That support is usually a previous reaction low. The best place to sell a market is near resistance levels. Resistance is usually a previous peak. After a resistance peak has been broken, it will usually provide support on subsequent pullbacks.

Measuring percentage retracements are done by measuring corrections of an existing trend in simple percentages. The most common retracement rate is 50% of a previous trend. A minimum retracement is 1/3rd and a maximum is 2/3rd of a prior trend. Fibonacci retracements of 38% and 62% are among the best.

A straight edge and two points on the chart are all one needs to draw trend lines. Prices do often pull back to trend lines before resuming their trend. The most time a trend line has been tested and the longer it has been in effect, the more important it becomes.

Following moving averages helps in locating objective buying and selling signals, existence of a particular trend and helps in confirming a trend change. A combination of two moving average charts is the best way of finding major trend changes. Some popular futures combinations are 4- and 9-day moving averages, 9- and 18-day, 5- and 20-day.

The best way to locate overbought and oversold markets is to track oscillators. They accurately confirm the market turns and ups and downs. The best oscillators are Relative Strength Index and Stochastics. With the RSI, readings over 70 are overbought while readings below 30 are oversold. The overbought and oversold values for Stochastics are 80 and 20. divergences in oscillators warn of market turns. The Moving Average Convergence Divergence indicator also warns about trend changes in advance.

To know whether the market is in trending or trading phase, the best way is to use Average Directional Moving Index. It measures the degree of trend or direction in market. A falling ADX line reveals the presence of a trading market and the absence of a trend and the rising line suggests the presence of a strong trend. A rising ADX line favors moving averages while a falling line favors oscillation.

These are precisely the best stock trading strategies that one needs to keep in mind.