Indices Trading Strategies: Detailed Guide For Beginners

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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 quickly, 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 fulfill 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.
Breakout strategy
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 capitalization.
Position trading
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.
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 finalized to trade.
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.
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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 Primefin.
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.
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.