There are many trading strategies in the industry, varying in levels of risk, investment, and lead times for profit. They also vary in terms of who should perform them, which depends on the investor’s experience and sense of adventure, as well as how much they can spare to lose if things go south. That being said, it’s good to keep in mind that the simple trading strategy remains one of the top winning trading strategies out there. But why exactly is this?
In this article, we discuss more why you should consider this approach for your trading.
The Process is Easy
Contrary to popular belief, easy access to news releases, trading forums, trading indicators, squawk boxes, and everything trading related, actually leads to information overload which can be counterproductive. This is because when trading decisions are made through consulting every indicator on the charts leads to avoidable clutter which may be overwhelming, causing paralysis in the decision altogether.
Simple trading enables you to utilize trading indicators as they frame price action and give some context to the market while freeing your charts from redundant trading indicators that can make you miss the bulk of a price move.
You Need to Know the Basics
When developing a simple approach to trading, a good way to start is to gain a high-level knowledge of how markets trade in a trading range; the breakout of ranges and momentums; and mean reversion when price extends too far too fast.
To find out if the market is in a trading range, use a simple price action approach taking into consideration lower highs and lows in a downtrend to higher highs and lows in an uptrend. When that stair stepping stops, this is considered a trading range. You could also refer to a moving average, and when the price is oscillating back and forth around the moving averages, consider a trading range.
Breakouts and Momentum
Trends always start with a breakout of a trading range, and even though you can see that actual breakout (and sometimes even the probability of a breakout), you can use momentum as an indicator that something is changing in the market.
Here you are looking for a market to be extended from an average price, followed by a snapback. This can be a trade opportunity or just information. Simple trend channels can assist you in identifying a market that is ready for mean reversion as price moves in a rhythm.
Is Simple the Best Strategy for You?
Only you can decide, especially if you are new to the whole trading arena. While some investors are happy with profits and results they are getting with clutter or convoluted trading strategies, others think they can be improved with simplifying their approach to trading.
A good exercise for indication is that you can look through your last run of trades and identify whether or not you used (or ignored) all or some of the information your chart gave you. If it wasn’t all useful, then you might want to consider simplifying your approach to reap better results. It’s always wise to read more about how markets move and base your trading strategy around those mechanics. You may find simple trading a winner for you.