There are many trading strategies but only a few are easy to implement. So, in this article, you will get to know about the best trading strategy that every trader must know. In this post, you will learn about 50 % Retracement Swing Trading Strategy.
You must keep in mind that the retracements require a slightly different skill set and it revolves around the trader identifying a clear direction for the price to move in so that he can become confident that the price will continue moving in. Retracement strategy is based on the fact that after each move in the expected direction, the price will temporarily reverse as traders take their profits and novice participants attempt to trade in the opposite direction. Such retracements offer a much better price to traders at which they may enter in the original direction just before the continuation of the move.
While trading retracements traders also make use of support and resistance with breakouts. Fundamental analysis is also crucial to this type of trading. After the initial move happens, traders will be aware of the various price levels that have already been breached in the original move. Traders need to pay special attention to key levels of Support and Resistance and areas on the price chart such as ‘00’ levels. These are the levels that they will look to buy or sell from later on.
When short-term sentiment is altered by economic events and news, then retracements are only used by traders during times. Some happenings that may cause temporary shocks to the market and thus retracement may take place. First and foremost reasons for the move may still be in place but the short term event may cause investors to become nervous and take their profits, which in turn causes the retracement. Investors get the opportunity to go back into the move at a better price.
This trading is generally ineffective when there are no clear fundamental reasons for the move in the first place. As a result, if you see a large move but cannot identify a clear fundamental reason for this move the direction can change quickly and what seems to be a retracement can actually turn out to be a new move in the opposite direction. Further, it is noted that this will result in losses for anyone trying to trade in line with the original move.