A lot of people agree that the stock market is probably best left to the traders at the moment rather than the longer term investors. This is because of the wild volatility which creates excellent trading opportunities for those looking to take positions over just a few days or weeks, for example. So here’s a simple strategy you can use to trade these short-term moves.

It basically incorporates just a few simple technical indicators, namely exponential moving averages and the parabolic SAR indicator. So to start off with you should plot a simple price chart and add the 5 and 20 period EMAs. Then you should add the parabolic SAR indicator which simply uses the default settings. You can adjust these settings if you want, but these tend to work well for me.

Now you’re basically ready to trade. I tend to use the daily chart to look for trading opportunities and the signal to enter a position comes when the shorter term EMA crosses the longer term one, ie when the EMA (5) crosses the EMA (20), and when the parabolic SAR changes it’s signal at the same time. In other words you enter a long position when the EMA (5) crosses upwards through the EMA (20) and the parabolic SAR changes to a buy signal, and vice versa for a short position.

To get a good entry point it’s generally best to wait for a slight pull-back because whenever you get a good crossover, you will often see the price retrace slightly before continuing it’s move. So look to get in close to the EMA (5) if you can soon after the crossover occurs.

As regards exiting your position, you have various options. You can wait for the parabolic SAR to reverse it’s current signal or you can wait for the EMAs to cross in the opposite direction to the initial signal. Alternatively you could of course just set a price target you hope to achieve when you open the trade and close out when this price is triggered.

There are various different ways you can use this method, but overall it does tend to work very well. One final point I want to make is that if you want to really nail this system, then a good idea is to look at the charts of the longer time frames, such as the weekly and monthly charts, and only trade those trade signals that correspond with the longer term trend. This will cut out a lot of those false crossovers and will potentially reward you with some substantial price moves.

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