Dow Theory is an old but effective method for analyzing stock market trends through observation and confirmation. Using Dow Theory, investors can identify primary trends and the six phases of a full market cycle.
Dow Theory was developed by Charles H. Dow (1851–1902), an American journalist and co-founder of Dow Jones & Company. After Dow’s death, William Peter Hamilton, Robert Rhea, and E. George Schaefer expanded his editorials into a complete theory, which became known as Dow Theory.
♕ TradingCenter -Trading Strategy Guide
A trade strategy is a method for opening and closing trading positions based on a fixed plan consisting of predefined rules and entry setups. Its goal is to achieve high long-term returns by managing risk through money management (MM) and by reducing the effects of market uncertainty and human emotions.
Introduction to Trade Strategy
Trade strategies are tailored methods for trading specific financial assets. These methods usually combine fundamental and technical analysis while using trading-specific setups to enter and exit the market, along with strict rules and techniques to reduce portfolio risk.
Combining fundamental and technical analysis
Balancing potential reward with risk (R/R)
Using detailed setups to enter and exit the market
Managing position sizes, stop-loss, and take-profit orders
Navigating market volatility and uncertainty using a probabilistic framework
TradingCenter's strategy guide begins with Forex, equity, and commodity trading strategies and then moves on to arbitrage and automated trading strategies.
Currency (Forex) Trade Strategies
To trade the Forex market, currency traders primarily employ fundamental analysis, technical analysis, and seasonal statistics. Here is a table featuring leading Forex trading strategies with concepts, timeframes, and tools.
♔ Introduction to Automated Forex Trading Strategy
Automated trading is a type of systematic trading that uses computer software and hardware to run trading continuously without human involvement. All automated trading systems are systematic, but not every systematic system is automated.
Algorithmic trading is estimated to make up 75–90% of all trading activity in the Forex market
All automated trading-strategies are systematic, but not all systematic trading strategies are automated
🌐 The Global Arena
Forex trading is a global market where different types of traders compete. Intraday traders, day traders, swing traders, and carry traders all open positions with the same goal: to sell at a higher price. However, whether they sell at a higher or lower price, their expectations create demand, which in turn generates liquidity and trading volume in the foreign exchange market. This retail activity is only a small part of the overall foreign exchange market, which also includes transactions by central and commercial banks, hedge funds, large corporations, and others.
👉 Altogether, daily trading volume in the foreign exchange market is estimated to exceed US$7 trillion.
👉 It is estimated that retail traders make up only 1% of the aggregate Forex market volume.
➡️ Basic Assumptions of Automated Trading
Liquidity and tight trade spreads make it possible to use automated trading systems in the Foreign Exchange market. An automated Forex trading system analyzes key market data, such as price and volume, to identify and trade short-term trends. By applying technical analysis, the system compares current demand and supply with historical price behavior to decide what and when to trade—without human intervention.
Arbitrage trading is an automated strategy that seeks to exploit pricing inefficiencies in a financial asset. This guide covers arbitrage strategies for Forex pairs, stocks, commodities, and cryptocurrencies.
ℹ️ Understanding Arbitrageurs: Who They Are and What They Do
Arbitrageurs trade the same asset on two different markets by opening opposite positions—one short and one long. A good arbitrage strategy involves no market risk and provides small, risk-free returns. Arbitrageurs help the market and retail traders by making prices more efficient and adding significant liquidity to the system.
Imagine a company called BlueLines whose shares trade simultaneously in London and New York. The spread between bid and ask in both markets is 20 points. If the price difference between the two markets exceeds these 20 points, an arbitrage opportunity arises.
By buying and selling the same amount of BlueLines in both markets, the trade becomes risk-free. Once both positions are open, you wait for the prices to return in sync. When they do, both positions close, locking in a risk-free profit.
🧮 Statistical Arbitrage
Statistical arbitrage is a quantitative strategy used in any financial market. It uses statistical models to spot pricing differences between related securities. This strategy relies on complex math and historical data to detect temporary price deviations. Unlike pure arbitrage, it does not guarantee risk-free profits. Instead, traders accept some probabilistic risk, expecting prices to return to their historical norms.
♞ COMMON STOCK DAY-TRADE STRATEGIES
Day trading is a very challenging and time-consuming practice that suits only a specific type of trader with the necessary skills and discipline. Day traders should focus on strategies that match their risk profile and always use specific setups.
These are some important things to remember:
☑️ Test your skills and setups extensively on a demo account, as 90% of beginners lose their capital within the first 90 days without practice.
☑️ Identify and follow strong intraday trends at their early stages.
☑️ Let your profits run and use trailing stops to lock them in.
☑️ Smart traders always use stop-loss orders and place them carefully below key support levels.
☑️ Avoid overtrading and never risk more than 2% of your trading capital on a single trade (for example, $100 potential loss on a $5,000 account).
Here are some common day-trade strategies for trading stocks and indices.
1️⃣ Momentum Day-Trade Strategy
Goal: Profit from strong trending markets.
Objective: Buy after favorable news, sell when the trend shows signs of reversal.
Setup/Tools: Enter when RSI > 50, stochastic rises, and 5-period SMA crosses above 10-period SMA. Exit using a trailing stop-loss to lock gains
TradingCenter offers key information and tools for learning and trading in global financial markets. It helps investors enhance their skills and gain a deeper understanding of the core mechanics of trading.
☑ Our philosophy: "Think like a long-term investor and execute like a short-term trader"