Definition of a trading strategy
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To win on the financial markets, in addition to managing your emotions, it is important to have a trading strategy. That is the basic element. But what is a good trading strategy?
A trading strategy is an action plan that it is important to follow to the letter to win at trading. It is important to apply this action plan to all your trades. From the moment you deviate from your strategy you give way to improvisation which always leads to the total loss of your capital.
In trading, a strategy must have a long-term perspective. A strategy cannot be judged on a few trades, or even over a week, but over several months. The objective is to maximize your performance based on a given risk.
- Rules for opening a position: These are the technical elements which give you your bullish/bearish signals
- Position Exit Rules: These are the elements that let you set your objectives or cut your trade in the event of a market reversal
- Money management rules: These are the elements related to risk management (placing your stop lossposition size, etc.)
- Products traded: This is the choice of markets and assets you want to trade
- Objectives: It is better to set realistic profit targets (which leads to the choice of the size of the trading account: see How much capital it takes to trade?) but also defines a maximum level of loss of savings.
Novice traders often mistakenly believe that there are miracle trading strategies, which make traders win almost every time. This is why they often seek to copy the strategies of the best traders. At first sight, this seems like a good idea, why can't a strategy that works with one trader be successfully applied by others? Yet in reality, if you give another trader a winning trading strategy, he will lose.
There are many reasons why it is impossible to copy a trading strategy:
- Time unit used: A strategy that works for day trading does not necessarily work for shorter term investments and vice versa (see Trading: Which time unit to choose)
- Trader Psychology: Each trader has his own preferences and profile. For example, some are more comfortable with scalping and others with swing trading. Implementing a strategy that is not in line with one’s investor profile is impossible in the long term. You will always be tempted, at some point, to deviate from the initial trading strategy.
- Money management: Risk management is very personal, it depends on psychological factors (risk aversion, stress resistance, emotions) and especially on the experience acquired in trading (placing stops, moving stops, taking anticipated profits, etc.). All this cannot be learned, it is only acquired over time through training.
- Confidence: This is another element that cannot be acquired. I'm not talking about self-confidence but confidence in your trading strategy. If you have created it and it gives good results over the long term, the loss phases (which are part of trading) will not scare you. On the other hand, a trader who applies another's strategy will become suspicious at each loss phase. He will end up doubting the signals that are given to him.
- Product traded: A strategy that works on one asset does not necessarily work on all other assets.
All these elements mean that you cannot win by applying another trader's strategy. It is important to create your own strategy. This does not mean that you cannot draw inspiration from the trading strategy of other traders, but it is important to add elements of your own. A good trading strategy is personal.
A trading strategy has no limits and is unique to everyone. That's why they say there are as many strategies as there are traders. It is up to you to choose the elements that will compose it. You've probably noticed trading tools on the internet, there are a lot of them. Faced with this mass of information, novice traders end up getting lost, not knowing what to start with. You end up with traders testing thousands of indicators, without knowing how they work, and in the end, this does not lead to the development of a trading strategy.
To build a good trading strategy, you first need to learn the basics of technical analysis, namely resistances and supports and chart patterns. Once you master these elements, you can begin to take an interest in technical indicators but do not lose focus, concentrate on the basics (moving averages, RSI, Ichimoku, Bollinger Bands, etc.). It is better to keep your trading simple!
Looking at conversations on various forums, you will discover that most traders use more or less the same trading tools. What varies is the way these tools are used, the products traded and the trader’s risk management. In many cases, it is risk management that makes a strategy successful or not. Risk management is acquired with experience. That is why there are thousands of winning strategies. The hardest thing is not finding one, but applying it rigorously over the long term.
I will not lie to you, finding a trading strategy requires work and, more particularly, a lot of time. If you hope to win quickly on the financial markets, then you would be better to move on (it will prevent you from losing your savings).
To learn how to trade, it is important to open a demo account. That's where it all happens. It is only once you have a well-defined trading strategy that you should move to a real account.
A good trading strategy is your own strategy.
Definition of trading strategy
A trading strategy is an action plan that it is important to follow to the letter to win at trading. It is important to apply this action plan to all your trades. From the moment you deviate from your strategy you give way to improvisation which always leads to the total loss of your capital.
In trading, a strategy must have a long-term perspective. A strategy cannot be judged on a few trades, or even over a week, but over several months. The objective is to maximize your performance based on a given risk.
A trading strategy defines several elements
- Rules for opening a position: These are the technical elements which give you your bullish/bearish signals
- Position Exit Rules: These are the elements that let you set your objectives or cut your trade in the event of a market reversal
- Money management rules: These are the elements related to risk management (placing your stop lossposition size, etc.)
- Products traded: This is the choice of markets and assets you want to trade
- Objectives: It is better to set realistic profit targets (which leads to the choice of the size of the trading account: see How much capital it takes to trade?) but also defines a maximum level of loss of savings.
A Winning Trading Strategy Is Not for Everyone
Novice traders often mistakenly believe that there are miracle trading strategies, which make traders win almost every time. This is why they often seek to copy the strategies of the best traders. At first sight, this seems like a good idea, why can't a strategy that works with one trader be successfully applied by others? Yet in reality, if you give another trader a winning trading strategy, he will lose.
There are many reasons why it is impossible to copy a trading strategy:
- Time unit used: A strategy that works for day trading does not necessarily work for shorter term investments and vice versa (see Trading: Which time unit to choose)
- Trader Psychology: Each trader has his own preferences and profile. For example, some are more comfortable with scalping and others with swing trading. Implementing a strategy that is not in line with one’s investor profile is impossible in the long term. You will always be tempted, at some point, to deviate from the initial trading strategy.
- Money management: Risk management is very personal, it depends on psychological factors (risk aversion, stress resistance, emotions) and especially on the experience acquired in trading (placing stops, moving stops, taking anticipated profits, etc.). All this cannot be learned, it is only acquired over time through training.
- Confidence: This is another element that cannot be acquired. I'm not talking about self-confidence but confidence in your trading strategy. If you have created it and it gives good results over the long term, the loss phases (which are part of trading) will not scare you. On the other hand, a trader who applies another's strategy will become suspicious at each loss phase. He will end up doubting the signals that are given to him.
- Product traded: A strategy that works on one asset does not necessarily work on all other assets.
All these elements mean that you cannot win by applying another trader's strategy. It is important to create your own strategy. This does not mean that you cannot draw inspiration from the trading strategy of other traders, but it is important to add elements of your own. A good trading strategy is personal.
How to establish your own trading strategy?
A trading strategy has no limits and is unique to everyone. That's why they say there are as many strategies as there are traders. It is up to you to choose the elements that will compose it. You've probably noticed trading tools on the internet, there are a lot of them. Faced with this mass of information, novice traders end up getting lost, not knowing what to start with. You end up with traders testing thousands of indicators, without knowing how they work, and in the end, this does not lead to the development of a trading strategy.
To build a good trading strategy, you first need to learn the basics of technical analysis, namely resistances and supports and chart patterns. Once you master these elements, you can begin to take an interest in technical indicators but do not lose focus, concentrate on the basics (moving averages, RSI, Ichimoku, Bollinger Bands, etc.). It is better to keep your trading simple!
Looking at conversations on various forums, you will discover that most traders use more or less the same trading tools. What varies is the way these tools are used, the products traded and the trader’s risk management. In many cases, it is risk management that makes a strategy successful or not. Risk management is acquired with experience. That is why there are thousands of winning strategies. The hardest thing is not finding one, but applying it rigorously over the long term.
I will not lie to you, finding a trading strategy requires work and, more particularly, a lot of time. If you hope to win quickly on the financial markets, then you would be better to move on (it will prevent you from losing your savings).
To learn how to trade, it is important to open a demo account. That's where it all happens. It is only once you have a well-defined trading strategy that you should move to a real account.
Conclusion
A good trading strategy is your own strategy.
