Important Information

You are visiting the international Vantage Markets website, distinct from the website operated by Vantage Global Prime LLP
( www.vantagemarkets.co.uk ) which is regulated by the Financial Conduct Authority ("FCA").

This website is managed by Vantage Markets' international entities, and it's important to emphasise that they are not subject to regulation by the FCA in the UK. Therefore, you must understand that you will not have the FCA’s protection when investing through this website – for example:

  • You will not be guaranteed Negative Balance Protection
  • You will not be protected by FCA’s leverage restrictions
  • You will not have the right to settle disputes via the Financial Ombudsman Service (FOS)
  • You will not be protected by Financial Services Compensation Scheme (FSCS)
  • Any monies deposited will not be afforded the protection required under the FCA Client Assets Sourcebook. The level of protection for your funds will be determined by the regulations of the relevant local regulator.

If you would like to proceed and visit this website, you acknowledge and confirm the following:

  • 1.The website is owned by Vantage Markets' international entities and not by Vantage Global Prime LLP, which is regulated by the FCA.
  • 2.Vantage Global Limited, or any of the Vantage Markets international entities, are neither based in the UK nor licensed by the FCA.
  • 3.You are accessing the website at your own initiative and have not been solicited by Vantage Global Limited in any way.
  • 4.Investing through this website does not grant you the protections provided by the FCA.
  • 5.Should you choose to invest through this website or with any of the international Vantage Markets entities, you will be subject to the rules and regulations of the relevant international regulatory authorities, not the FCA.

Vantage wants to make it clear that we are duly licensed and authorised to offer the services and financial derivative products listed on our website. Individuals accessing this website and registering a trading account do so entirely of their own volition and without prior solicitation.

By confirming your decision to proceed with entering the website, you hereby affirm that this decision was solely initiated by you, and no solicitation has been made by any Vantage entity.

I confirm my intention to proceed and enter this website Please direct me to the website operated by Vantage Global Prime LLP, regulated by the FCA in the United Kingdom

By providing your email and proceeding to create an account on this website, you acknowledge that you will be opening an account with Vantage Global Limited, regulated by the Vanuatu Financial Services Commission (VFSC), and not the UK Financial Conduct Authority (FCA).

    Please tick all to proceed

  • Please tick the checkbox to proceed
  • Please tick the checkbox to proceed
Proceed Please direct me to website operated by Vantage Global Prime LLP, regulated by the FCA in the United Kingdom.

×

Watch Reborn a Trader

row

View More
SEARCH
  • All
    Trading
    Platforms
    Academy
    Analysis
    Promotions
    About
  • Search
Keywords
  • Forex Trading
  • Vantage Rewards
  • Spreads
  • facebook
  • instagram
  • twitter
  • linkedin
  • youtube
  • telegram
4 Popular Indices Trading Strategies   

TABLE OF CONTENTS

4 Popular Indices Trading Strategies   

4 Popular Indices Trading Strategies   

Vantage Updated Updated Mon, 2022 August 15 07:19

You’ve probably come across the term “stock index” when reading about economics or trading. But what is a stock index exactly? Are there any techniques to trading indices, and what can we learn about it?

Let’s look at the questions below and gain an insight of popular indices trading strategies in this article.

Key Points

  • Stock indices track the performance of a group of financial assets and are used by economists and traders to gauge market or sector health.
  • Trading indices offers diversification and can be less volatile than individual stocks, providing a broad market exposure with a single trade.
  • Popular indices trading strategies include the Bollinger Entry Strategy, Position Trading, Breakout Trading, and End-of-Day Trading, each with distinct entry and exit approaches.

What are Indices?

An index is an instrument that tracks the performance of a group of financial assets. Indices use mathematical formulas to track a specific sector or market[1].

Some broad-based indices seek to imitate a market, while other more specialised indices attempt to capture a particular market niche. Economists, investors, and analysts use them to determine how a specific sector or country’s economy functions.

Popular indices include:

  • UK100 (Financial Times Stock Exchange 100)
  • DAX30
  • S&P500 (Standard & Poor’s 500)
  • NASDAQ100

Why Trade Indices?

There are several reasons to consider for trading indices:

First, stock indices give you immediate diversification as the index comprises a basket of securities. Whenever you purchase a stock index, the movement of that index determines the value of the money put in[2].

When trading stock indices, you don’t just rely on a single company’s success, but on the success of all constituent companies. Unless a firm has a huge weightage on the index, poor performance by a single company has a relatively low impact on the price of the overall index.

For this same reason, stock indices tend to be much less volatile than the price movement of individual company stocks. While some traders perceive volatility as a way to create trading opportunities, others avoid it because of the heightened risks, making indices an option to consider.

4 Popular Indices CFD Trading Strategies

Here are four trading strategies you may consider using to trade indices:

Bollinger Entry Strategy

The Bollinger entry approach helps you to identify oversold target markets and can provide you with optimal market entry levels.

This entry method consists of three bands[3]:

  • The middle band represents the index’s simple moving average.
  • The upper band represents high market pricing.
  • The lower band represents low market pricing.

As a trader, you may use the Bollinger entry method to look for price breakouts above the upper band, which also signals the uptrend’s continuation. This approach helps you enter long trades as soon as the index prices break through the upper band on the price chart.

You would need to learn the formulas and calculations involved when planning to adopt the Bollinger entry method, because the type of Bollinger band calculation you employ will influence the trading time frame.

Position Trading Strategy

Position trading strategy involves holding an index position for a long time – from several weeks and months, to years. It ignores short-term price volatility and gives you a more accurate picture of the index’s future trajectory.

You can consider opting for this strategy if you want to create trading opportunities from long-term price movements analysing monthly price charts and placing entry and exit orders accordingly.

To Trade a Long Position:

  • When the index prices continue to rise for months, it could indicate an entry signal to traders because of the uptrend.
  • When index prices begin to decline and continue dropping over a few months or years, it can be perceived as an exit order signal because of the projected ongoing downtrend.

Breakout Trading Strategy

The term “breakout trading technique” means recognizing a trading range in which the index price has fluctuated over time. A breakout happens when the index price swings outside this range, signalling traders to enter or quit the market[4].

Trading Strategy for the Day’s End

This type of strategy involves trading indices at the market close. End-of-day traders are interested in entering or exiting a market during the last two hours of trading because it gives them a better idea of where the index values are forecast in the future[5].

This method requires you to track price action from the previous day’s price fluctuations. As an end-of-day trader, you can then speculate on how the price might go based on the price movement and choose which indicators to use in their system.

To reduce potential overnight risk, you may consider employing a risk management strategy that includes putting a limit, stop-loss and take-profit order.

Indices trading strategy

Start Trading with Vantage

Access markets including forex, commodities, indices, shares/stocks and more, at low cost.

Start trading CFD stocks by opening a live account here, or practice trading with virtual currency with a demo account.

You can also sign up for our free, weekly webinars that will break down the current markets as well as discuss potential trade set ups for the week.

References

  1. “Index”. Investopedia, 2022, https://www.investopedia.com/terms/i/index.asp/. Accessed 21 Apr 2022.
  2. “Stock Market Index”. Corporate Finance Institute, 2022, https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/stock-market-index/. Accessed 21 Apr 2022.
  3. “How To Use Bollinger Bands”. Babypips, 2022, https://www.babypips.com/learn/forex/bollinger-bands. Accessed 21 Apr 2022.
  4. “The Anatomy Of Trading Breakouts”. Investopedia, 2022, https://www.investopedia.com/articles/trading/08/trading-breakouts.asp. Accessed 21 Apr 2022.
  5. “End Of Day Trading Strategy | Top Signals & Systems”. Daytrading.Com, 2022, https://www.daytrading.com/end-of-day-trading. Accessed 21 Apr 2022.
  • vantage academy open account

    Open Trading Account

    Discover the endless trading possibilities with our cutting-edge platform, designed to empower both beginners and seasoned traders alike.

  • vantage academy app

    Download Vantage App

    Trade on the go with the Vantage All-In-One Trading App, where smooth execution and market access come together in the palm of your hand.

  • vantage academy start trading

    Start Trading

    Are you an existing user? Login to your account to start trading 1,000+ products including forex, indices, gold, shares and more.