Trade Strategy

Stock indices track performance of the best stocks in a particular stock market. Because the stocks that are being tracked are the top traded stocks from the best companies chosen from the best sectors & industries in a particular economy, it means that the value of these shares is likely to keep going up over time & therefore index that track these shares will also keep going up.

Traders agree stock prices rise over time in the market. History backs this up time and again. Our strategy builds on that fact.

Our stocks strategy? Only open buy trades when trading indices. We enter positions when there's a pullback in the index level.

Strategy

Wait for price pull-back
Open a buy position

Retracement

As a indices trader even before opening a trade, you want to wait for a pull back, but how does a pull back look like - The price pull-back is displayed and illustrated below.

Technical Indicators Strategies

At this point, stock index traders should consider opening a buy position. This approach offers an optimal risk-to-reward ratio conducive to a profitable trading strategy.

Example Trade Positions Using This Trading Strategy

The illustration provided below highlights various trade transactions initiated using this strategy.

This example shows that even though the market trend is in general move upward, there is always a price pull back that traders can use to enter a buy position. Best thing about waiting for pull back is that you as a trader reduce your drawdown to a minimum & thus chances of you strategy becoming more profitable are increased.

Trading Strategies - Learn Indices Trade Strategy

In the presented example, the first trade initiated following the pullback was entered at the 4325 mark: the subsequent trade was opened at the 4350 level. The index value subsequently climbed to its current position at 4381. Those who waited for the pullback to execute a buy order on this stock index are already realizing gains, contrasting with those who bought closer to the peak and are presently showing losses, now needing to wait for the price to rebound past their entry to reach breakeven.

Where to Take-Profit

On the example - there are a few open orders that are already in profit. These trade orders are shown below. Most traders would want to keep their trade positions open & get to scheme more profits from the market and they might be right - but also it's very important for a trader to know when to take profit and you don't take profit once the market starts and begins to retrace, no - you takeprofit when the market is headed way up as is illustrated below.

Open trades. Take profit now while the market rises.

Index Strategy - Learn Indices Strategies

Trades Closed - TakeProfit executed & profits booked

Index Trade - Indicators Strategies

you want to follow the above strategy when trading stock index, as you reduce the drawdown & you spend less time to make profits because you do not have to wait out for the retracements with open trades, but you wait for retracements outside the market, enter when the pull-back momentum has faded & the market upward market trend is resuming.

As a stock index trader, avoid trading pullbacks. They go against the trend. Counter-trend trades often fail. You might win once, but lose nine out of ten times.

It's a good idea to be patient during the price dips and start buying when prices slightly recover after these dips. Keep in mind that stock market measures usually increase because they follow the strongest company stocks from the top global economies. So, because people in these leading economies have funds to invest and they continue purchasing stocks - especially those top stocks monitored by these measures. The reality that the stocks watched by these measures are the most wanted stocks, most traded, and most profitable means that their value will probably keep increasing, suggesting the measure that tracks these stocks will also likely continue rising and maintain this rising pattern.

To increase your odds of making a profit as a trader it's best to trade in the direction of the trend and this is the upwards market trend direction. At the same time always wait for a pull-back before opening a trade & close your trades when the index level has moved a good number of points in your favor such as displayed and shown in the above example.

Strategy 2: Diversify the Indices in Your Portfolio

A good second strategy to combine with the one above is to diversify your portfolio and look for these setups among the 14 most popular stock index, this way if a particular stock index does not have a good trade setup, you can check another one to see if it has got a better trade setup and then trade the top 3 or top 4 or top 5 indexes which have the best trade setup for the day.

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