The 5/20 trading strategy is one that international investors have used for years, but it's recently started to gain more popularity among locals. It's because of how well suited the rules are for forex trading Romania, especially given today's market conditions.
The 5/20 Trading Strategy works on a simple premise - any stock under $5 with an average volume of at least 500,000 shares per day should be bought if the MACD line crosses above the signal line. Then once you're holding them, all you need to do is wait until there's sufficient volume before selling them off. The general idea behind this strategy is that small caps tend to see wild volatility throughout their lifetime, so they may rise or fall in price even without any significant news.
But by using the 5/20 trading strategy, you can limit your downside risk and still capture any upside potential that these stocks may offer. And since Romania is home to so many small-cap companies, this strategy can be exceptionally profitable here.
There are a few things to keep in mind when using the 5/20 Trading Strategy in Romania.
The 5/20 Trading Strategy can be used in Romania with great success. The strategy is simple to understand and easy to execute.
1. Look for stocks that are trading near their 52-week lows.
These stocks will likely be undervalued and provide a good opportunity for investors to make a profit.
2. Identify the five strongest stocks in the market.
These stocks will have the best chance of increasing in value over time.
3. Invest 20% of your capital in the five strongest stocks in the market.
These stocks will provide stability and growth potential for your portfolio.
4. Invest 80%of your capital in the 20 best stocks in the market.
These stocks will provide a large amount of growth for your portfolio and should help bring substantial returns on investment.
5. Rebalance portfolios every 3 to 6 months.
This step ensures that the 5/20 Trading Strategy is working at peak efficiency and not allowing any of your investments to become too dominant over one another.
Trading on Romanian exchanges can be pretty tricky if you live outside of Romania or do not have a Romanian bank account because the country has stringent money laundering laws to keep financial crime at bay. It's particularly true if you wish to open a new account with a bank which may take several weeks to process.
The 5/20 trading strategy can be used to significant effect in Romania. It's a hedging strategy that uses two futures contracts with different expiration dates, usually five and twenty days away from the current date. The goal of the strategy is to lock in a guaranteed profit by buying the nearer-dated contract and selling the further-dated contract simultaneously.
If prices move in your favour, you make money on both contracts; if prices move against you, you lose money on the nearer-dated contract but make it back on the more distant one.
The 5/20 trading strategy is often used when there is market uncertainty, as it gives traders a way to fix their losses and guarantee a profit on a trade.
This strategy is excellent for making money and a perfect way to lower your risk of opening new positions in the Romanian markets. However, you should only use this strategy if you have an existing account that can be used without too much difficulty. In addition, you will need to get permission from the Foreign Exchange Committee before opening any new position using this technique.