Advanced Trading Concepts (For South African Traders)

Trading should never be done without any plan or predefined strategy. Some important factors should be considered while executing every trading strategy. Here are some: 

Money management or Risk Management 

This is about how much risk you are willing to take. The usual percentage is 1-3% but some traders may choose to risk more hoping they would make higher returns. Ultimately, it depends on your risk appetite and your trading style. Technically, you should not risk too much on each trade if you want to play safe and avoid losses.  

Timeframe and time management 

There are two parts to this. The first one is deciding on a timeframe that suits your trading personality and strategy. The other part is deciding how much time you can dedicate to this.  

Regardless of how little time you may need to trade your strategy, you still need to make sure you dedicate enough time to plan, execute and study the outcome of your trades as well as accommodate for future adjustments that could improve your profitability. 

Start with a small investment 

Always start small and with money you can afford to lose. If you are a beginner, opening a demo account before a real account is better as you get to experience real market conditions without risking any real money. Once you feel comfortable enough to start trading with real money then you can transition from demo to real account. The financial markets are dynamic and can be unpredictable at times in such situations losing money should not affect your financial and mental wellbeing. 

Information 

It’s important to stay updated with the latest economic situations and market news as this could influence your trading strategy. There’s are numerous resources online and on CFI website where you get access to daily market analysis, webinars and third-party advanced analysis. 

Trade mindfully 

Traders can get easily caught away by their emotions. Fear of losing money, greed of earning more and other negative emotions could affect even the seasoned traders. Drive your trading plan with analytical thinking and reasonable logic instead of emotions. This will help you evolve from a struggling trader to a successful one in no time. 

Advanced strategy components  

Liquidity 

Traders prefer liquid assets but for some, it may be an essential part of their strategy. Those traders are usually scalpers or day trader holding positions for short-term and looking to enter and exit without the risk of potential slippage or a change of pricing. 

Volatility 

Volatility helps determine the market situation. The more volatile an asset is; the more potential gains or losses it carries. Volatility can be useful for those who trade an instrument based on its rapid movements regardless of which direction it moves.  

Cryptocurrency market is a classic example of volatile market, blockchain technology and digital currencies have taken the world by storm creating ample short- and long-term trading opportunities for all sort of traders. 

Volume 

It is vital to look out for a total volume (Figure 1) as well as individual volume over a period to completely understand the level of participation. An asset might have high liquidity showing strong participation, but volume may be low while a higher volume does not necessarily mean participation as it could be sporadic, as seen in Figure 1.  

Figure 1

Day trading strategies 

Breakout 

A breakout strategy is very simple and straightforward. Breakout trading involves:   

• Entering a Long Position: When the price breaks above a key resistance level.   
• Entering a Short Position: When the price breaks below a key support level. 

After a breakout, volatility usually increases in the direction of the breakout, as shown in Figure 2.  

One thing to keep in mind, the more a support or resistance level holds before the breakout, the stronger the breakout is likely to be. 

Figure 2

Some traders may choose to enter as soon as an instrument breaks a previous important level while other may seek to get better prices. It is all about trading style and risk tolerance. 

Targets will usually focus on previous resistance or support areas or when traders believe that volatility is dying down and the move lost its steam. 

Scalping 

Scalping is a form of trading that enables traders capitalize on fast and minor price movements using big positions. As soon as a trade reaches a profit, it’s closed. A high probability system is needed to even out the not so attractive risk to reward ratio. 

If you’re into day trading.  you need a highly liquid trading instrument hat’s also volatile and rapidly moving. 

Momentum 

Another straightforward strategy, momentum trading involves joining a strong trending instrument in the direction of the momentum and exiting as soon as price action begins to slow down. This is relatively present daily as there is always a currency pair, stock, commodity, bond and other asset classes with specific instruments that are trending with strong momentum. 

Reversal 

Reversal is a high-risk/high-reward strategy, it involves identifying a potential turning point in a trend and entering a position when a new trend is likely to begin.  

Spotting reversals requires a mix of technical analysis by monitoring patters and trends and fundamental analysis by staying ahead of the economic trends. Whoever acquires this strategy can potentially enjoy substantial gains.  

Risk management terms 

Stop loss 

When trading with leverage, profits and losses both are amplified. A stop loss order is a crucial tool to hedge against losses by automatically exiting a trade at a predefined position. It is also used to protect your position from uncertain and rapid market movements due to geopolitical events. 

Remember, following your strategy and sticking to your stop loss prevents emotional decisions and protects your capital.   

Position size 

As we have previously explored the criteria needed to create your own trading system, position sizing aligns with your total capital, how much risk you are willing to take and your stop loss and profit targets per trade.  

A key rule is to never risk more than 1-3% of your account per trade ensuring that even after a streak of losses, your capital remains largely intact to give you a chance of recovery. A well-planned risk-to-reward ratio increase chances of long-term success. 

Key Concepts Used by Advanced Traders in South Africa 

Price action trading 

Traders in South Africa use AI-driven tools and market price trends to analyse the markets and predict future movements based on the data to make effective trades. 

Algorithmic and automated trading 

Traders now leverage smart algorithms to execute trades using data-driven approach. The ever-evolving technological advancements have made it convenient for traders to predict prices and take positions using algorithms mitigating the chances of human error. CFI offers advanced charting tools to enable seamless trading in lightning speed – all through one platform.  

Hedging strategies 

Traders in South Africa should implement risk management plans and hedging techniques to reduce the probability of risk especially when trading volatile instruments. Assess how much risk you are willing to take per trade and then effectively use stop loss, or other hedging strategies to minimize the potential losses