1. Trend trading

This is one of the simplest strategies to understand, in theory – predict correctly which way the market is going and capitalize on an index’s upward or downward spike or a change of direction.

With trend trading, it’s important to establish the direction of a trend before taking a position, as these movements can happen both suddenly (as in the case of a temporary spike) or incrementally.

The most successful trades are ones that get in on a trend while it’s still building and then closing their position as near as possible to the highest amount of take-profit.

To do this, you’d use a number of technical indicators to guard against the potential of making a loss as much as possible. These, for example, might include temporary moves against the prevailing index price trend, which we’ll cover below.

2. Trading retracements

Markets, including indices, never move in a straight line. When a trend in an index price emerges, what will very often happen is something called a ‘pullback’ or a retracement, which is when the index’s pricing temporarily experiences a reversal of direction.

This can either be a temporary uptick in the price of an otherwise downward trending index, or a dip in the price of an upward trending one. The latter is often especially important to watch out for, because trading retracements as a strategy is often used in bullish environments.

Stock markets tend to trend upwards over time, but nonetheless experience volatility. The rule of thumb here is to wait for a momentary drop or rise in the index price. Then, go long (if the index price dropped) or short (if it rose) once the temporary retracement is over. This’ll enable you to buy the momentary price move. For this reason, it’s most often used by scalpers and other shorter-term styles of trading.

It should be noted, though, that indices can also experience a reversal, which is the underlying index’s market price turning from changing its overall direction (from bullish to bearish or vice versa). Therefore, it’s important for you to confirm it’s a temporary move if trading a retracement.

3. Trading reversals

What might at first look like a retracement could actually be a 'reversal', in which case you’d likely prefer to sell the index. This is a fundamental change in the overall direction of an index’s price for a time.

In an uptrend, an index’s price would go through a series of higher highs and higher lows. A reversal of this would be a prevailing downtrend, characterized by the index’s price changing to a series of lower highs and lower lows.

The opposite is also true in the case of a downtrend, where the index trading price would shift to spike into higher and higher peaks, representing an overall shift in the index’s pricing from downward to upward.

Certain indicators, such a moving average, oscillator or channel, may help in isolating trends as well as spotting reversals.

4. Trading with momentum

The motto of someone with a momentum trading strategy can be summarized as: ‘buy high, sell higher’. A momentum index trading strategy is one in which investors, quite literally going with the flow and buying securities that are rising, then selling them when they look to have peaked.

The aim here is to work with volatility by finding buying opportunities in short-term uptrends and then sell when the securities start to lose momentum. As such, it’s often most suitable if you’re a scalper, day trader or use other shorter-term trading styles.

5. Trading breakouts

Similar to trend trading, a breakout trading strategy involves watching indices closely to determine their patterns and rhythms in terms of volumes, volatility and direction. With this knowledge, you’d aim to enter a trend as early as possible when an index’s price breaks through its usual levels of support and resistance, then trade that trend.

If you use this strategy, you’ll look for price points that indicate the start of a period of volatility or a change in market sentiment on an index. You may also place a limit-entry order around the levels of support or resistance you’ve identified, so that any breakout executes a trade automatically.