How to Build a Successful Trading Strategy

Trading Strategy

Stepping into trade business can be a risky decision, but only until you truly learn how it works. You will need a good trading strategy to be able to survive for the long term among the professional traders. Many components help to make a good strategy, but all trading strategies follow two key steps. It is essential always to keep your winners larger than your losers while maintaining risk management strategies to control any significant losses. This guide, you will learn how to make a good trading strategy and how flexible it should be to deal with the changes in the forex and stock market.

Who is a trader?

A trader is someone who observes the market and places orders in it independently or on behalf of institutions such as banks, investment funds, and hedge funds. A trader also exchange orders which include buying and selling of stocks either with their name or a client’s name from an institution. A forex trader manages the currencies for own trades and for clients as well. The main goal of the traders is to buy in before the share price increases and sell before it falls. This process happens in short and long terms.

Why is a trading strategy important?

A trading strategy will plan out the things you need to do in order to experience successful profits. It will set a goal that is possibly achievable so that you can work until the goal is accomplished. It helps in monitoring your trades and let you keep track of everyday trading with ease. A good trading strategy also helps in finding new opportunities and makes you response to the market according to the new conditions. Developing a strategy also makes your trades consistent as you learn more about the trades. It will improve your overall trading capabilities and provide you with the right opportunities.

What does a trading strategy need?

A good trading strategy has four key components which are essential for the strategy to be effective.

A strategy needs directional biasing and qualification for the entry to identify the stocks that are going up and the stocks that are going down. You need to determine stop-loss and take-profit targets to make better choices. In the meanwhile, you should also define your preferred time to hold a trade. At last, you need to develop a risk management system to have consistency in growth.

The process of establishing a directional bias is a two-part process. First, you need to predict where the stock price will potentially go up or down. Once you know the prices that will go up or down, you can use the trading rules that can validate your directional bias.

There are two ways you can qualify your entry.

  1. Fundamental analysis
  2. Technical analysis

You first need to learn the fundamentals of trading in order to understand the trades that you will do. Even when you use your technical analysis, your fundamentals will hold the basic information for you about the factors that affect your stock. For example, knowing the dividend dates can help in taking advantage in a stick while using your technical analysis.

Technical analysis

For technical analysis, you need to establish key technical levels for yourself and then look for the prices to either break or bounce. There are many technical patters such as MACD, RSI, Fibonacci, Bollinger bands, and moving averages that can help you in figuring out whether you want to go long or short with a trade. These tactics will help you trading in stocks as well as in forex.

With the strategies mentioned below, you will be able to make successful trades in forex.

Forex trading is an easy trading option which is easy to learn and offers exciting opportunities to the traders. But without proper strategy and understanding of the market, traders cannot hope for successful results.

Keep rational expectations

It is good to have expectations, but if you are too emotional about getting results, you will face a hard time coping up with your losses mentally. The anxiety that develops due to chasing profits can lead one to make poor decisions. The first rule of traders is to stop dream for unrealistic goals and objective. Getting a huge profit in the first trade is not common enough to be taken as a motivation. It can be risky to have overconfidence over a trade which can become your initial losses in trading. Setting high goals can lead people to make mistakes of falling into excessive actions and overtrading. Instead, you should be focusing on learning a trading strategy and trading tools to establish a lasting approach ane become successful.

Define your risk profile

Get a good grip on the fundamental aspects of the market before making any commitments to trading. Calculate your capital at hand, go through trader testimonials, and keep realistic expectations for returns. Take time to research the market and currency pairs that you find interesting. Do not invest in forex or stock unless you get comfortable with the dynamics of trading. While making decisions, make sure to keep trading money separately and invest only with what you can afford to lose. Figure out whether you will be using a moderate approach, a conservative one, or an aggressive one. Be prepared to lose and keep trying is the only way to start making consistent profits as a trader.

Set stop loss and take profit

Always set a stop loss and take profit for your investment in the market. It will help you determine the closing price for your trade. Never get too greedy or too hopeful in the trades. If you reach your take profit point, you should withdraw your earnings. The same goes for when you reach a minimum accepted loss at stop loss. It will keep you calm for the long term if you keep up with the strategy.

Avoid overtrading

Overtrading is caused due to emotional expectancy for profits and loss of patience. It is the result of decisions that seem like opportunities but are nothing but bad decisions. In a hurry to reach the goals, some traders buy on too many opportunities. While they feel they are doing right, they are simply deceiving themselves. There are two types of trading: Trading too frequently and trading with too much volume are the bad habits that impatient trader develop after a time in trading.

Learn to accept losses

Stock and forex exchange is a constantly changing market which cannot promise anything even for the next couple of minutes. Every trader wants to benefit from the success of their trades, but in trading, the meaning is a success is not winning in each trade. Trading is a wide playfield where traders invest in multiple trades. The actual success if the average profit across all your trades is on the positive side. It is impossible to look in future and close every trade with a profit. You can get a consistent profit streak, but even that won’t last forever. Do not lose motivation on facing losses in trades as the traders confessed that less than 40% of all their trades become successful. Keep multiple trades to keep a balance between your profits and losses and try to keep your profits on the heavier side.

Leave a Reply

Your email address will not be published. Required fields are marked *