The trouble with being a trader is that it’s very easy to delude yourself that there’s a holy grail trading system just waiting to be discovered. You try out lots of different technical indicators and lots of different combinations in an attempt to find a highly profitable system but the fact is that you will generally do a lot better if you simplify your trading.
Many professional traders use very straight-forward logical systems. For instance one of the most profitable methods of trading is simply to trade in the direction of the overall trend. You start off by looking for shares that are trending upwards, then you simply wait for a retracement so you can jump on board and ride the trend if the price continues to head higher.
One of the ways you can do this is to use either the parabolic SAR, exponential moving averages, or both together. Usually when a share price is in a strong upward trend and comes down slightly then the EMA (5) will cross down below the EMA (20) and the parabolic SAR indicator will turn bearish.
So therefore if you want to jump on board with a long position when the price bounces back and the trend resumes, you simply wait for the EMA (5) to cross back above the EMA (20) or for the parabolic SAR to turn bullish once more.
Similarly another approach is to enter a long position when the RSI and stochastics reach oversold levels in a strong uptrend. However this is a lot riskier because you are speculating that the upwards trend will continue rather than waiting for confirmation. Furthermore if the trend is quite strong you may find that the price doesn’t retrace enough to get down to these oversold positions so you will miss out completely.
However both these methods of trading can be very profitable and you can of course use these methods when shares are trending downwards as well in order to find profitable shorting opportunities. It just goes to show that you don’t need to use a lot of complicated technical indicators in order to make money. You just need to devise a system that trades in the direction of the overall trend.
Successful share trading is not that difficult because there will always be shares trending upwards or downwards. The hard part is actually learning how to trade these trends but if you create a system that looks for positions after a slight counter-trend, then there are big profits to be made.
Article Source: Articles Engine