In stock markets, navigating the buying and selling landscape can be challenging for investors. Here are eight practical tips to help you make informed decisions.
Price is Above the 20 SMA (Simple Moving Average)
The saying goes, “The trend is your friend.” When the price remains above the 20 SMA, it signals bullish momentum. Think of the 20 SMA as a dynamic support line—buying near it during pullbacks allows you to enter at a strategic point in the trend, like catching a train before it takes off.
Bullish Engulfing Pattern
Imagine a large green candle overtaking the previous red one. This bullish engulfing pattern is a powerful reversal signal, indicating that buyers are stepping in decisively, particularly at key support levels. Spotting this pattern presents a solid buying opportunity.
Higher Highs
Higher highs indicate a steadily climbing market—a positive sign for traders. If the price breaks above a previous high or pulls back to a support level, it’s an ideal time to buy. Riding the trend is one of the simplest ways to stay aligned with market momentum.
Exhaustion Gaps
An exhaustion gap appears as a significant downward gap at the end of a downtrend, followed by strong buying. This signals that the market is ready to reverse. High volume and price recovery following the gap confirm the reversal, making it a prime moment to jump in and benefit from the rebound.
Price is Below the 20 SMA
A key rule: If the price is below the 20 SMA, bears are in control. Selling during rallies to the 20 SMA allows you to profit from the downtrend. It’s akin to shorting into a ceiling—resistance is strong, and you’re aligning with market forces.
Bearish Engulfing Pattern
This is the bearish counterpart to the bullish engulfing pattern. A large red candle engulfing a green one shouts “SELL!” This is particularly effective near resistance levels or after a prolonged rally. Recognizing this pattern can help you exit before the market turns against you.
Lower Lows
Lower lows are indicative of a downtrend. When the market establishes a new low, it signals a good time to sell during rallies to resistance zones. This strategy helps you avoid getting trapped in a declining market.
Failed Move Above the 20 SMA
If the price briefly rises above the 20 SMA but then drops back below, that’s a failed move. It’s a sign of weakening bullish momentum and often leads to a sharper pullback or reversal—your cue to sell.
New High on Low Volume
A new high accompanied by weak volume raises a red flag. It suggests that the market is climbing on unstable footing. Selling into this trend allows you to secure profits before a potential correction.
Successful trading is about being proactive, not reactive. These eight tips, though simple, are powerful tools to help you make smarter buy and sell decisions. Remember, it’s not about being perfect; it’s about being prepared. Keep an eye out for these signals, adhere to your strategy, and let the market unfold.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
