Reading books, articles, taking advice from other traders — it all works to a certain extent. However, building a plan that is based on your own unique approach may be the way to go.
This involves asking yourself a lot of questions and reflecting on the experience you have received so far. It may be useful to take a notepad and actually write down your conclusions, even if it means that a minute or two later you will come up with a new insight.
Making a plan
What should you consider when you develop a trading strategy of your own? Let’s go over possible ideas. While doing so, you may come up with different points — write them down. They will help you achieve consistency and save time later, as you will have a checklist to follow.
First, it is important to learn how the market works. What does it mean to buy low and sell high? What do the charts actually represent? What influences the price movement and forms the cycles?
Understanding core principles is the key to a good strategy. Markets are complex, you may want to learn about them step by step. There is no need to rush and try to cover all topics in one sitting. Let yourself rest and process the newly acquired information before moving forward. Do not worry about the abundance of information — progress itself is what really matters.
Secondly, you have to decide on the instrument and timeframe that you will be trading. Which instrument do you prefer to trade? Are you a scalper, a day trader, a swing trader or a position trader? How long do you usually hold on to your positions? Most importantly, how much time are you ready to dedicate to trading each day? Deciding on the conditions that you are comfortable with is an important step in the process of strategy planning. This way you will be able to make time for trading and make it a part of your routine.
Thirdly, choose the tools you want to use. You may use indicators like Moving Averages and MACD, as well as support and resistance levels to define the trend. Combine them with oscillators like RSI or Stochastic to identify entry points. You may also want to learn about candlestick patterns — they may help you determine the future direction of the trend and find a trading opportunity.
Do not forget to use quality-of-life platform features: take-profit and stop-loss levels will help you deal with risk management. Combining different tools may help you analyse the chart better and discover repeating cycles.
Finally, learn about risk management and steps you may take in order to limit potential loss. Watch your position size carefully and try not to get carried away.
Practice makes perfect
A trading strategy is not something that should be permanently fixed. More than that, one strategy cannot be universally applied to all time frames and all markets. It is important to constantly improve the strategy you use and learn from your own mistakes. Evaluate your deals in order to adjust your approach. Try to understand why some of your deals close out of money and use that knowledge in the future.
Conclusion
There are several important things you should take into consideration when working on your trading strategy, so don’t be afraid to spend a little bit more time on it and make it fit your trading style. Consistently follow your plan and trade in accordance with the strategy in order to achieve the desired outcome.
