Trading Strategy

Stock indices track the performance of the best stocks in a particular market. Because stocks which are being tracked and monitored include the top traded and most liquid stocks of the best companies chosen/selected from the best sectors/industries in a particular economy, then what it means is that the market value of these top selected stocks is more likely to keep going upward over the long run and therefore the Stock Market Index that tracks these stocks will in turn also keep going and moving upward.

In the market there is one consensus among all traders & that is prices always go up over time. Historically, market has proven this theory over & over again. Our strategy will be based on this theory.

Our stocks strategy is to only open buy trades when trading the stock indices. The trades will be opened when there is a pull back in the Stock Indices level.

Strategy

Wait for price pullback
Open a buy position

The Pull Back Setup is Shown Below - Retracement

As a stock index trader even before opening a position, you as the trader want to wait out for a pull-back, but how does a pull back look like - The price pull-back is shown and displayed below.

Retracement Stock Index Trading Strategy - Index Strategies Indicators Strategies

This is the point at which as a stock indices trader you open a buy trade transaction. Using this setup gives and provides you the best risk : reward ratio that ensures your strategy is profitable.

Example Trades Using This Strategy

The example laid-out below shows a few trade transactions that were opened using this trading strategy.

This example shows that even though the trend is in general moves upward, there's 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 and thus chances of you strategy becoming more profitable are increased.

Trade Systems - Index Strategies Indicators Strategies

In the above exemplification the first trade transaction opened after the pull-back was opened at 4325 level, second trade was placed at 4350 level. The index value then went up to 4381 level where it's now. One that waited for the pull back to buy this stock index is already in profit as compared to another that bought near the top & are now in draw-down & they now have to wait for price to go back to break even.

Where to Take-Profit

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

Open Trades - Time to Take-Profit While the market is still heading upward

Strategy - Index Strategies Indicators Strategies

Trades Closed - Take-Profit executed and profits booked

The Pull Back Setup Retracement Strategy - Indicators Strategies

As a trader you want to follow the above strategy when trading Index, as you reduce the drawdown and you spend less time to make profits because you do not have to wait out for the retracements with open trades, but you wait out for retracements while outside the market, enter when the pull-back momentum has faded and the market upwards market trend is resuming.

Also as a indices trader, never trade the pull-backs, pull-backs are not in the direction of the trend, pull-backs are counter trend, and counter trend is the worst strategy to use to make money - you might catch one trade, but 9 times out of 10 you'll be on the wrong side of the trade.

It is best to wait out the retracements & open buy trades after these pull-backs. Remember Indices keep heading up because these indices track the best shares from the world leading economies. Therefore, because people in these top world economies have money to invest & they keep buying the stocks - with the most preferred stocks being these top Indices tracked by these indices. This fact that the stocks tracked by these indices are the most sought after Indices & most traded and most lucrative, meaning that their value is likely to keep going up means that the Stock Index that track these stocks are also likely to keep going up & up & maintain this upward trend.

To increase your odds of making a profit as a trader it is best to trade in the direction of trend and this is the upward market trend direction. At the same time always wait out for a pull back before opening a trade and close your trades when the index level has moved a good number of points in your favor such as displayed and illustrated 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 & look for these setups among the 14 most popular Indices, this way if a particular index doesn't have a good trade setup, you can check another one to see if it has got a better trade setup & then trade the top 3 or top 4 or top 5 indices that have the best trade setup for the day.

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