While there are hundreds of different trading strategies and methods out there, finding those that work is still challenging. Some strategies seem too hard to follow, some look too good to be true. The real secret lies in a simple line – the best strategy does not exist. There is no one strategy that fits everybody, but everyone can make up their personalized strategy and find the method that works best for them. This is part 1 of our most extensive guide to choosing a trading strategy/method. No matter what your approach is, this guide will help you discover new tools for trading.
To navigate through this guide, read the question in each paragraph and then the section that corresponds to your answer. Don’t forget to add this article to your bookmarks so that you may return to this information at any moment and refresh your memory. Let’s go!
The main feature that influences a trading strategy is the trading timeframe. The timeframe is the period in which you wish to keep your deal running. There are longer timeframes of trading, for example, several days, weeks, or months. There is also short-term trading, for instance, FX Options trading, where a deal is held for an hour or less. Of course, each timeframe requires a slightly different approach.
So, the question is how long do you like to keep your trades open? Depending on the timeframe you prefer to trade, you may choose the suitable trading strategy as well as analysis tools you think would enhance your trading methods.
If your answer is short timeframes, you may focus on technical analysis. Though there is no analysis tool or method that could guarantee absolute success, using indicators may help to evaluate the asset performance on a shorter timeframe and make quicker and more informed decisions. There are indicators that can be specifically tailored for short-term trading as for example The Alligator, The Mass Index indicator, or Moving Average. Several indicators can be used together in a combination in order to receive a possibly more accurate signal.
Short-term traders may use intraday trading strategies like, for example, Scalping and Breakout in order to possibly take advantage of small changes in the asset price. Traders that prefer short timeframes often prefer trading sequences, however it is important to consider the risks involved with this approach.
If you prefer long term trading, you may pay attention to fundamental analysis, which implies monitoring the news regarding the traded asset. Financial and economic events can have massive impact on associated assets and oftentimes the impact can be quite drastic and durable. Longer time frames are associated mainly with the “bullish” direction, however, you may consider “bearish” positions as well, depending on the asset you are trading.
Mix and match
With that said, it is important to note that these two approaches can be well combined for both long-term and short-term trading. For instance, certain financial news can have a temporary boosting effect on the asset, which short-term traders could take advantage of.
At the same time, technical indicators could be a useful supporting tool for long-term traders. Finding certain features and incorporating them in your trading routine may be a good way of building a personal, custom-made trading approach.
A preference regarding the trading instrument is another factor that needs to be taken into account when planning your trading approach. Though some traders like to mix it up and trade different assets at different times, most traders focus on one or two instruments and work on improving their skills within a limited amount of assets. Which assets do you mostly focus on when trading?
There is no wrong or right answer, but understanding your target will suggest what aspects you need to consider. For example, Forex lovers need to learn the basic concepts: base and quote currencies, major and exotic pairs, the multiplier, etc. For stock market traders, it is necessary to learn for instance about the company they are investing in, as well as main notions like earnings, dividends and other factors that influence share prices. Fundamental factors are just as important in crypto trading, too. Reading more about the type of assets you are targeting may allow you to understand them better, and, thus, improving your approach.
There are more things to consider when building a trading strategy. Stay tuned for part 2 of our guide to learn more about factors that influence your trading approach.