Hey, fam, welcome on another educational post! The topic is the following: step-by-step guide to building a working trading strategy
The process of building a trading strategy that will lead one to the doors of consistent and profitable trading is a pretty difficult one and it takes quite some time and effort.
1) Firstly, it is crucial to identify what kind of trader you are. If you have plenty of time in your hands to to sit in front of the monitor and go through the charts 24/7, then scalping or intraday trading would be suitable for you. If you enjoy clicking “Buy” and “Sell” buttons and opening 10-15 or even more transactions per day, then two of the above listed styles would be suitable for you. On the other hand, if your timetable is packed with different activities all the time and you do not have enough time to sit in front of the charts, swing or position trading would work the best for you. If you are aiming for making big gains instead of small “quick profits”, then both swing trading and position trading can fill your needs.
2) Moving on to the next step, it is crucial to have a watchlist, or in other word, a "favourites" list. It is better to have a batch of 5-10 favourite tradeable securities, than trading random things all the time. Let’s bring a real-life example: Would you prefer having 5 pets and take care of them individually, or 40 pets? What we are trying to emphasise, it is better to make yourself familiar with a pair and be able to read it like a book. Moreover, it is much easier to monitor 10 familiar setups rather than 50 random pairs. Thus, take some time skimming through various setups, and add them into your watchlist upon “falling in love with them”.
3) Always have a clear entry and exit strategy, and always ask yourself the following questions before entering a trade: “Why am I buying/selling this security?”, “Where are my Target Profit and Stop Loss set?”, “What portion of my trading capital am I risking on this trade?”. Every trader has his or her own entry and exit plan. Try to thoroughly examine all possibilities and see what works best for you. For example: enter when a nice wick candle has been formed around the area of demand/supply that aligns with 61.8% Fibonacci retracement level, set a fixed Target Profit of 1:3 Risk-to-reward, set the Stop Loss below the formed Double Bottom .
4) Execute, journal, optimize! If a trade goes wrong, ask yourself a question: “What went wrong and could I have prevented it?”. Make some modifications in your plan if necessary.
5) Never underestimate fundamentals and heavy economic or real-life news. Some examples are NFP, Markit Manifacturing PMI, quarter/annual GDP growth news. Moreover, wars/conflicts between two countries are crucial to be aware of as well. These heavy news have it all to mess the market around. Therefore, always consider these events, make your fundamental analysis and trade accordingly. Move your Stop Loss to the Breakeven point, or even exit a trade earlier in loss if needed, in order to stay safe before the news hit.
6) Last but not least, and most importantly, always stay patient, disciplined, free of emotions, cold-blooded, and remain loyal to your trading plan! “But my plan is not working. I endured 3 losses in a row. Should I immediately change my plan?”. The answer is a big fat “NO”. Instead of changing your strategy that took you so long to put together, think of identifying the week points and optimizing the plan.
The process of building a trading strategy that will lead one to the doors of consistent and profitable trading is a pretty difficult one and it takes quite some time and effort.
1) Firstly, it is crucial to identify what kind of trader you are. If you have plenty of time in your hands to to sit in front of the monitor and go through the charts 24/7, then scalping or intraday trading would be suitable for you. If you enjoy clicking “Buy” and “Sell” buttons and opening 10-15 or even more transactions per day, then two of the above listed styles would be suitable for you. On the other hand, if your timetable is packed with different activities all the time and you do not have enough time to sit in front of the charts, swing or position trading would work the best for you. If you are aiming for making big gains instead of small “quick profits”, then both swing trading and position trading can fill your needs.
2) Moving on to the next step, it is crucial to have a watchlist, or in other word, a "favourites" list. It is better to have a batch of 5-10 favourite tradeable securities, than trading random things all the time. Let’s bring a real-life example: Would you prefer having 5 pets and take care of them individually, or 40 pets? What we are trying to emphasise, it is better to make yourself familiar with a pair and be able to read it like a book. Moreover, it is much easier to monitor 10 familiar setups rather than 50 random pairs. Thus, take some time skimming through various setups, and add them into your watchlist upon “falling in love with them”.
3) Always have a clear entry and exit strategy, and always ask yourself the following questions before entering a trade: “Why am I buying/selling this security?”, “Where are my Target Profit and Stop Loss set?”, “What portion of my trading capital am I risking on this trade?”. Every trader has his or her own entry and exit plan. Try to thoroughly examine all possibilities and see what works best for you. For example: enter when a nice wick candle has been formed around the area of demand/supply that aligns with 61.8% Fibonacci retracement level, set a fixed Target Profit of 1:3 Risk-to-reward, set the Stop Loss below the formed Double Bottom .
4) Execute, journal, optimize! If a trade goes wrong, ask yourself a question: “What went wrong and could I have prevented it?”. Make some modifications in your plan if necessary.
5) Never underestimate fundamentals and heavy economic or real-life news. Some examples are NFP, Markit Manifacturing PMI, quarter/annual GDP growth news. Moreover, wars/conflicts between two countries are crucial to be aware of as well. These heavy news have it all to mess the market around. Therefore, always consider these events, make your fundamental analysis and trade accordingly. Move your Stop Loss to the Breakeven point, or even exit a trade earlier in loss if needed, in order to stay safe before the news hit.
6) Last but not least, and most importantly, always stay patient, disciplined, free of emotions, cold-blooded, and remain loyal to your trading plan! “But my plan is not working. I endured 3 losses in a row. Should I immediately change my plan?”. The answer is a big fat “NO”. Instead of changing your strategy that took you so long to put together, think of identifying the week points and optimizing the plan.