Trading can be overwhelming, especially for beginners. However, it doesn’t have to be difficult. Among others, one thing that can help is to use a simple strategy.
With the right strategy, you can gain valuable insights from available data. Consequently, you can use such to make the right decisions and increase the likelihood of making a profit.
In today’s post, we’ll be talking about using a simple trading strategy, including its benefits. We’ll also talk about exponential and moving averages. Finally, we’ll share some tips on finding stocks that you can trade using a simple strategy.
What is a Simple Trading Strategy and Why Should You Use One?
Less is more, which makes a simple strategy better than one that’s complex.
In a nutshell, a simple strategy is one that contains minimal variables. The more variables are present, the most complicated trading becomes. Hence, the goal is to reduce the variables to the bare minimum without compromising the outcome.
The reason for using a simple strategy in trading is that it makes things easier. Stocks or options made simple is beneficial if you’re a newbie or someone who only has a basic understanding of trading. In addition, a simple strategy relies on readily available and accessible data.
Further, starting with a simple strategy makes it easier to begin on the right foot. From here, you can work your way towards using more complex strategies. However, you must do so only once you already have an understanding of the simple strategies.
Exponential vs Simple Moving Average, Which One to Choose?
If you’re looking for the simplest day trading strategy, it’s hard to go wrong with moving averages. Two kinds are available, which we’ll compare in this section — exponential and simple moving averages.
An exponential moving average is a moving average that puts a greater weight on the most recent data. It is more reactive to price changes compared to simple moving average. Because of such, it can also reduce lag.
Meanwhile, what is the simple moving average? It’s the simplest among the moving averages. A simple moving average trading strategy adds the prices and divides them over the number of the prices being measured.
For instance, let’s say that you’re calculating a 20 simple moving average. You’ll need to add the last 20 trading prices and divide them by 20.
If you want to be a simple trader pro, choose the right moving average. While both are good, many prefer the exponential moving average since it’s more timely.
How to Use Simple Trading Strategy
Whether for simple options, stocks, forex, or other asset classes, using a simple strategy is pretty straightforward.
One thing that you might want to consider is using a simple trading platform. The options abound, you can just do a quick Google search, and you’ll be able to explore the possibilities. There are platforms where you can access live trading rooms, trade alert services, and research tools, among others.
It’s also to your advantage to get started with simple strategies and learn from there until you are ready for more complex variables of trading.
More so, the use of a simple strategy depends on the specific strategy you’ll implement. Price-signal trading is one example. To use this strategy, you’ll need to look at past performance to determine the support or resistance level.
Another simple swing trading strategy is a moving average. This simple stock trading strategy smooths out price data by constantly updating an asset’s average price.
How to Find the Best Stocks for Your Simple Strategy?
Finding the best stocks is a crucial part of your trading journey. Among others, one of the things you can use is a simple stock screener. You can define specific metrics, and from here, a tool will categorize stocks, and you can gain valuable recommendations.
Do your research. Check the fundamentals and read about the stock predictions from experts. Learn from the insights shared by more experienced traders.
It’s also important to identify a profitable sector. Choose an industry that has a huge potential for growth based on current market conditions.