Winning Trading Strategy in 10 Easy Steps If you don’t plan, you’re planning to fail, as the old business adage goes. It’s a cliche, but individuals who take their achievement seriously, particularly traders, should treat those words as if they were carved in stone. If you ask any successful trader, they will most likely tell you that you have two options:
1) Strictly adhere to the guidelines of a stated strategy
2) fall short.
You are in the minority if you do not have a documented trading or investing strategy. Creating an effective technique or strategy in the financial markets needs time, energy, and investigation. While there are no certainties in trading, you have removed a substantial potential obstacle by outlining your strategy in advance.
MAIN POINTS
- If you want to be successful in trading, you need a strategy.
- While it’s essential to have a trading strategy mapped out in stone, keep in mind that it’s always open to examination and modification to account for shifting market circumstances.
- A successful trading strategy takes into account the trader’s preferences and objectives.
- Timely exiting a transaction is as crucial as entering it.
- It is essential to include stop-loss and take-profit prices in the trading strategy so that you know when to pull out of a transaction.
Success will only come immediately if your strategy employs efficient methods or lacks preparation, but you’ll still be able to plot and adjust your route. In addition, keeping detailed records may help novice traders learn from their successes and avoid common pitfalls. Whether or not you have already begun the planning process, the following suggestions may be helpful.
Disaster Avoidance 101
If you want to be successful in trading, you need to approach it like a business. Trading with real money after reading a few books, then purchasing charting software and creating a brokerage account is not a business strategy; it is a formula for catastrophe.
While trading, you should draught a strategy with unchanging signals that can be reviewed after the markets have closed. The strategy may be modified in response to shifting market circumstances and the trader’s evolving expertise. A trader’s strategy should be written from scratch, considering the trader’s unique trading style and long-term objectives. Using someone else’s strategy conceals your true trading personality.
Creating an Optimal Master Strategy
Since no two traders are the same, no two trading strategies can be the same. Trader personality and comfort level with risk will be considered as you consider the various strategies. How about the rest of the ingredients that make up a successful trading strategy? The following 10 components should be part of any strategy:
1. Skill Assessment
Are you prepared to trade? Do you feel confident that your trading system will perform well in real-world trading once you’ve tried it out with paper trades? Do you have complete faith in your signals, and can you always rely on them? Battles of give and take characterize market trading. The experts know what they’re doing and benefit from others who, without preparation, end up giving money away after making expensive blunders.
2. Mental Preparation
What are you thinking and feeling right now? Did you obtain a good night’s rest? Next, consider the task at hand: can you handle it? Only lose your shirt on the market if you are feeling mentally and emotionally prepared to wage a fight. This is virtually certain to occur if you are upset, distracted, or otherwise not paying attention.
As the trading day starts, many investors and traders recite a market mantra. Make one that gets you in the swing of things financially. You should also avoid having any distractions in your trade area. Finally, remember that you’re running a company, and your time is money.
3. Set Risk Level
How much money can you afford to lose in a single trade? How you trade and how much risk you’re willing to take into consideration will determine the answer. Variable, but often between one and five percent of your portfolio value every day of trading. This implies that if you have a loss of that amount throughout the trading day, you will immediately and permanently withdraw from the market. If things aren’t going your way, it’s best to take a break and try again tomorrow.
4. Set Goals
Ensure your profit goals and risk/reward ratios are reasonable before initiating a transaction. In terms of potential rewards, what is the lowest acceptable risk? Some investors will only enter a deal once they can make three times as much as they’re willing to lose. Those are the numbers to go for if you’re risking $1 per share and want to make $3 per share in profit. Establish and routinely evaluate weekly, monthly, and yearly profit targets in dollars or as a percentage of your portfolio.
5. Do Your Homework
Do you read up on global events before the market opens? Which direction do you see foreign markets going? Futures on the S&P 500: up or down before the market opens? Since futures contracts trade around the clock, index futures may be used to get a sense of market sentiment even before the market opens.
When will we get the following economic or profit figures, and what exactly are they? Put a checklist on the wall in front of you and use it to help determine whether you want to trade before a critical report comes out. Most traders should wait until the report is out before making any trades, given the potential for extreme market movements in response to the news. Professional traders use probability to make decisions. There is no gambling among them. However, because of the uncertainty of market reaction, trading just before important news is typically risky.
6. Trade Preparation
Labeling major and minor support and resistance levels on the charts, setting alerts for entry and exit signals, and making sure all signals are readily seen or recognized with a clear visual or audible signal are all essential parts of any trading system or software.
7. Set Exit Rules
Most traders need to focus more on entry signals (buy signals) and ignore exit signals (exit locations). For many investors, taking a loss while selling is not an option. Stop being so hard on yourself and start accepting failure as part of the trading process. You should have corrected it if your stop was struck. Just ignore it and go on. While professional traders consistently lose more money than they earn, they can profit by carefully monitoring their accounts and cutting their losses when necessary.
It would help if you always planned your exit strategy before entering a transaction. Every transaction has at least two potential take-profit points. First, what is your stop loss if the deal goes against you? All of this has to be documented. Refraining from doing anything mentally is not a halt. Second, you should set a specific profit goal for each transaction. When you reach your breakeven point, you may either sell some of your holdings or adjust your stop loss to the point where you break even.
8. Set Entry Rules
As a follow-up to the advice for exit rules, this is covered here since exits are more crucial than enters. For example, an entry rule may read, “Buy X contracts or shares here if signal A fires and the minimum goal is at least three times as large as my stop loss and we are at support.”
Your system should be sophisticated enough to be helpful yet simple enough to permit quick judgments. For example, you may find it very difficult to complete if you have 20 different requirements for a deal to go through, many of which are arbitrary. As a matter of fact, computers typically make better traders than individuals, which may account for the fact that computer programs now generate most deals on major stock exchanges.
Trading software on a computer doesn’t need positive emotions or rational thought. Once specific criteria are satisfied, they are admitted. They pull out of the deal when the price moves against them or they reach their profit goal. They don’t develop a hatred for the market or a false sense of superiority following a run of successful transactions. There is no room for emotion in any of the choices we make.
9. Keep Excellent Records
Many seasoned, successful people in business are also meticulous record-keepers. They are curious as to the specifics behind any trade wins. They want to know the same thing when they lose to avoid making the same errors again. Record information about your trades, including your goals, when you entered and exited, the support and resistance levels you used, the daily starting range, the opening and closing prices of the market, and any notes you made about your trading strategy and what you learned from it.
Keep track of your trades so you can go back and evaluate things like your average time spent on a transaction, the effectiveness of your trading method, and the amount of money you made or lost on individual trades. Take a look at the differences between a buy-and-hold strategy and the other variables as well. Keep in mind that you are the accountant for this company. You want your company to achieve the highest levels of success and financial gain imaginable.
10. Analyze Performance
Knowing the why and the how of the day’s trading is more important than the actual profit or loss at the end of the day. Record your findings in your trading diary for future reference. Always remember that there will be deals that don’t turn out in your favor. You need a trading strategy that performs well in the long run.
Briefly Summing Up
Even if you have a lot of success trading virtual currency, you may need to do better with real money. Feelings become important at that point. However, if the trading method produces good outcomes in a practice setting, the trader will have more faith in it. Choosing a trading method is secondary to developing the expertise to execute transactions with confidence and certainty. Self-assurance is essential.
Trading success cannot be guaranteed under any circumstances. Their knowledge and strategy determine a trader’s odds. The absence of defeat makes victory meaningless. In order to initiate a deal, a professional trader must be confident that the chances are favorable. A trader may win the fight by letting their gains ride and limiting their losses short. Unfortunately, most traders and investors lose money because they do the exact opposite.
Successful traders approach the market with the same business mentality they would make any other venture. Of course, there is no specific way to earn money in trading, but a well-thought-out strategy is essential to long-term success and survival.
Comments (No)