Ways to make a good Trading Strategy?

Ways to make a good Trading Strategy?

Consult most new traders, and they will let you know about some moving averages or grouping of indicators or a chart outline that they use. This is, what most of the experienced trader know, an entry point and not a strategy. Any trader who is additional experienced would say that a strategy must comprise money management, risk management, perhaps stop losses and an exit point too. Those new traders might also speak out that you ought to let your profits carry on and cut your losses short. A well-experienced trader would also explain you that your strategy must fit with your trading individuality.

One vital component that traders forget which is important to understand the "behavior" of what you trade. Some traders specialize in say, gold or Brent crude or currencies or they might specialize in an exacting index such as the FTSE 100 or the Dow but most of the traders prefer to trade shares. Indeed few traders dip into in a bit of everything. I believe these are areas were most of the traders fail or some times not reach their full potential.

In my view: You extremely MUST specialize.

I am convinced that on the surface, most traders would say that sounds levelheaded but here is why it is necessary!

Apparently, most of the charts look alike. I gamble if you have not seen the charts for some time and if someone shows you a chart of Brent Crude more than 6 months and subsequently a chart of Barclays PLC over the similar 6 months you would be hard pushed to say which was purely on the look of the chart.

However, I gamble that if you find a trader who only trades Barclay’s day in and day out and found someone who only trades Brent Crude day in and day out, both the trades would do it with no trouble identify which was which.

Every share, index or commodity has its own "Character".

Some would be volatile intra-day, some would follow their area or the main index (market supporters), some would follow their own trading strategy, some will spike up and down frequently, some would stop at key moving averages and some would just plough from side to side. Some would move by 5% on average earlier than they go back over and some by 2%. Some would gap up or down frequently, some will not. You get the idea!

Therefore, does not matter how superior you are at analyzing indicators, moving averages, trends and pattern, the same policy would not work for everything. I would go so far as to say that a strategy that works well for Bovis Homes, for example, is likely NOT to work for BT Group - they have very different "personalities".

Let me discuss with a chain of ten questions that you require to find answers to, in order to put up a REALLY GOOD strategy.

What do you desire to trade (index, share, currency, commodity, etc)? If your answer were shares (plural), I would advise you to pick one distinctive share at this stage to specialize. You can add more to your account later.

What "qualities" does that index, share etc have?

What entry structure is the most dependable for that share?

What system of stop loss is most effective for that share?

What standard risk will a characteristic trade carry?

What exit system works well for that share?

What is the personality of your trading (outlook to risk, losses, regulation, how much do you fret etc) and can you trade that strategy without superseding it?

What timescale do you want to trade? (Using intra-day or end of day data)

How much data do you keep on past trades to help identify strategy weaknesses?

How does all this fit with your trading objectives?

However, if they were easy everyone would be doing it right

Good luck and enjoy your trading.