2012-03-08

How to Trade During Different Market Conditions

stock market (Photo credit: 401K)


The status of today’s global economy is definitely different from what it was five years ago. The economy, like most things in life, is subject to change. One challenge is to know what to trade and how to trade during changing market conditions. To trade for positive results, there are a few things you can do.


Keep a Trade Journal
Most professional traders and brokers keep a trade journal. You definitely should do it as well if you want to succeed. Trade journals do many things: help you stay accountable, help track trends in the market, and help you avoid trades that can hurt you financially.

Stay Accountable
When you’re trading, every dollar is important. You’ve worked hard for each penny and don’t want it lost. You should never use funds meant for living expenses like utilities, gas, or your mortgage payment. If you lose this, you are in serious trouble. Investment money should be "free" money or money that’s otherwise unclaimed.

Track Trends
Use your journal every day to track investments you want to proceed with. Over time, you will see which investments are consistently growing and which aren’t. This can also help you decide where to put your money for short- or long-term gains.

Record Mistakes
You’re going to make mistakes trading. It’s inevitable. By documenting every trade you make, you can avoid making the same mistakes you did in the past. When you’ve traded for a long time, it’s hard to remember every trade that made or lost money.

Vary Strategies
Many veteran traders don’t use the same strategy for every transaction. They use several different strategies throughout a business day. Common trading strategies are scalping, trending, and ranging. You should use all three to succeed.

Scalping
When you buy large amounts of stocks and sell them all when the price jumps just a little, you’re scalping. Many brokers use this strategy because they feel that several small price gains are easier to find than one large gain.

Trending
Buying when a stock is rising consistently and steadily is trending. Many young companies rise continually at first as they go in an upward trend.

Ranging
Most stocks range in price because the market goes up and down. Buying when stocks are at a lower price and holding until it reaches a suitable price is ranging. Sometimes, this can take a while since the prices can range greatly and often.

Diversify
You want to invest in as many avenues as possible to reduce risk and increase profit potential. Use other options like Forex trading and commodities investing to compliment your day trading.

Whatever avenue you choose, knowing different strategies for today’s global economy will only make you a better investor.

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