It is easy to come up with a trading strategy. It is, however, hard to come up with a strategy that provides steady payouts. How should a novice trader approach his trading strategies and what mistakes to avoid in the process? Read today’s article to learn!
First, and probably the most important, don’t set your expectations too high. Your first trading strategy will not make you rich. Rather, treat it as a starting point. Here is what you can begin with.
Five C’s
Choose the market you want to trade. Forex trading is fundamentally different from stocks and cryptocurrencies. Factors that move the exchange rate of the USD are not the same as, say, Facebook shares. Your trading strategy has to be fine-tuned to a particular market.
Choose the time frame. Every time frame can be traded successfully. Both long- and short-term deals can have positive upside. No matter what time frame you choose, you should keep it in mind when developing a trading strategy, as long- and short-term trading strategies are not the same.
Choose your tools. A lot of traders believe that there are good and bad indicators and that by finding a particular combination of them they will no longer need to make trading decisions themselves. This is simply not true. There is a time and place for every indicator. It is also possible to trade with no indicators at all. However, most novice traders will find it helpful to use an indicator or two in order to better understand prevalent market conditions. Find the analysis tool that suits your trading style.
Choose your entry signals. As a trader, you should not be guided by the so-called gut feeling. Without proper trading experience it is extremely difficult to predict the behavior of the market by your instincts alone. In order to increase their chances of success, most traders come up with a list of entry triggers (market conditions after which the deal should be opened). What can become a trigger? A particular signal sent by an indicator, a sudden trend reversal, a news release etc.
Choose exit conditions. Exit is as important as entry (arguably even more so). Exit is the time when you lock payouts and move on to the next deal, evaluate past performance and adjust your strategy. Exit strategy is the last of the 5 C’s, yet it is no less important than the previous four. More often than not the outcome of the entire deal will depend heavily on your exit strategy.
Things to consider
Keep your first trading strategy simple. A lot of novice traders believe that the more indicators and triggers they use, the more profound — and, therefore, better — their trading strategy will look like. Nothing could be further from the truth. An overly complicated strategy rarely works and will most certainly result in a loss. Don’t overcomplicate!
Don’t be afraid to change. Remember the old saying by Bruce Lee “Don’t get set into one form, adapt it and build your own, and let it grow, be like water.” This applies to trading, as well. No trading strategy is good until it can offer steady returns. When one strategy stops working, find another one that works. Be adaptive and willing to change.
Note that there is nothing wrong with emulating trading strategies of other traders, especially in the very beginning. In that respect trading is very similar to arts. First, you emulate more your elder, more experienced and more successful counterparts and then proceed to develop your personal style. Emulate!
