The start of a new year is the time of high ambitions and setting new goals. Writing down your resolutions for the upcoming year is a great way to set a plan of action for the next 12 months. It works just as well with trading — having a strategy allows planning your actions when it comes to the market.
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 had with trading so far. It may be useful to take a notepad and actually write down your conclusions, even if it means that minutes later you will come to a new realization and cross off the previous thoughts.
Making a plan
What are the things that you need to think about when planning a strategy? Let’s go over them together. You may come up with multiple different strategies, so writing these points down may help you be more consistent and save time in the future, as you will have a checklist to follow.
First of all, 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 is the key to a good strategy. You may learn about it step by step, there is no need to try and cover everything in one day. Let yourself rest and process the new information before you move forward. Do not stress over the big volume of things to learn — little by little, you will progress.
Secondly, you need 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 like to hold on to your position? 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 planning a strategy. This way you will be able to make time for trading and make it a part of your routine.
Then, choose the tools you will be using. You may use indicators like Moving Average and MACD, as well as support and resistance lines to define the trend. Combine them with oscillators like RSI or Stochastic to find the entry points to the market. You may also learn about candlestick patterns – they work well when you want to determine the direction of the price and the possible trading opportunity.
Do not forget to use the features of the platform — Take Profit and Stop Loss level will help you control the desired profit and acceptable loss amount. Combining different tools may help you analyse the charts better and discover repeating cycles.
Lastly, learn about risk management and steps you may take in order to limit the potential loss. Watch your position size carefully and try not to get carried away.
Practice makes perfect
A trading strategy is not something fixed and one strategy cannot be universally applied at any time to any market. It is important to constantly improve it and learn from your own mistakes. Evaluate your previous deals in order to make adjustments in your approach. Try to understand why this or that deal closed in or out of money and use that knowledge in the future.
There are several important things you should take into consideration when planning your strategy, so do not hesitate to spend a bit more time planning it and make it fit your trading style. Consistently follow your plan and practice the strategy in order to achieve the desired outcome.
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
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