This is part 2 of our most extensive guide for choosing your own trading strategy/method. The goal is to provide every trader with the opportunity to decide what’s best for them depending on their trading preferences.
In part 1 we spoke about the timeframe and the asset. These two things are, essentially, the main factors, which a trading strategy/method is based on. However, there are other things to consider when creating a trading plan – internal factors such as trader’s experience, approach and goals. These personal traits largely influence the way you trade, so it is just as important to pay attention to them in order to be able to make more informed decisions.
Novice traders who are just starting to explore the peculiarities of trading may not be ready to use the same tools and techniques as their more experienced counterparts. How much do you know about trading?
If your answer indicates that you are still not sure about the basic concepts, this could be a good opportunity to brush up on them. Before trading with real funds, it is crucial to learn the essential terms that you may encounter in the process. Checking, for example, the common candlestick patterns as well as understanding the purpose of graphical tools and indicators may help with developing a working trading approach, too.
Should you be well-informed about the basic trading tools, you may dive deeper into more advanced trading strategies, like, for instance, the Elliott Wave theory. It does not mean that the methods used by novice traders are irrelevant, it just might be a great way to broaden your horizons and explore the financial market a bit deeper.
Setting your priorities in trading is quite similar to setting your goals in life. While some just want to have fun, others are focused on achieving results. What outcome do you expect from your trading?
Though it is not possible to predict if your outcome will be positive or negative, since trading is quite risky, it is still important to visualize your desired result. It will help you understand if you are more of a long-term investor or a short-term trader.
Realizing your goals is also a good starting point for planning a risk management approach. Calculating your capital and the amount of funds you are ready to invest and, potentially, even loose, will help you to decide what methods you prefer to use and help establish the trading routine. For instance, based on the trading capital, a trader will be able to plan the amount of deals they wish to execute.
Realizing the goals in trading is the first step that every trader has to take in order to plan their further activity accordingly. It may help to improve a lot of common mistakes that novice traders make.
Planning a personal trading strategy may seem complicated, however, once you break it into components, it is much easier to manage. In order to make up your own trading strategy, check parts 1 and 2 of this guide and answer the questions in each paragraph. Read the linked materials and use them to your advance. Good luck!