Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Adaptive Fibonacci Price Modeling System Suggests Stock Market Peak May Be Near - 15th Aug 20
With Gold Above $2,000, Bulls Triumph! What’s Next? - 15th Aug 20
Stock Market, Asset Price Crash Dead Ahead - 15th Aug 20
NASDAQ vs. DJIA: Does the Recent Divergence Matter? - 15th Aug 20
AMD Ryzen 4900x / 5900x and 4950x / 5950x Zen3 4th Gen IPC and Clock Speed and Core Specs - 14th Aug 20
Stock Market Gap Fills Suggests Market Momentum May Stall - 14th Aug 20
Silver May Be Overextended – But It’s STILL Cheap - 14th Aug 20
A Short Guide To Making Your First Stock Market Investment - 14th Aug 20
Is Tech Reality Affects our Dating Possibilities? - 14th Aug 20
Will You Make Money in the New Silver Bull Market ? - 13th Aug 20
Hyper-Deflation Capital Destruction And Gold & Silver - 13th Aug 20
Stock Market Correction Approaching - 13th Aug 20
Silver Took the Stairs to $21 in 2008, Took Escalator to $29 2010. Is Silver on Elevator to 120th floor today? - 13th Aug 20
President Trump Signs Additional COVID Relief – What To Expect from the Markets - 13th Aug 20
Has Gold's Upward Drive Come to an End? - 13th Aug 20
YouTuber Ads Revenue & How to Start a Career on YouTube - 13th Aug 20
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

5 Tips For Building A Winning Trading Strategy

InvestorEducation / Learn to Trade Sep 26, 2019 - 08:02 AM GMT

By: Andrew_Cioffi


An organized approach to stock trading is fundamental to the success of your trading endeavors. While a flawless plan doesn’t exist, the idea of a strategic approach is to minimize risks. It will help you avoid making irrational decisions in the heat of the moment. As such, your trading will be rule-based, increasing your chances of taking profits. 

Essentially, building a trading strategy involves lots of technicalities. From fundamental analysis and choosing markets, to trade management; and everything in between. The following tips lay the basis of building a trading strategy, giving you a head-start on what to focus on.

Define Your Time Frame 

Even the most avid traders have a time frame within which they analyze the financial markets. The time frame can either be daily or even monthly depending on your personality and preference.  For short term traders, intraday charts are the ideal option. This way you will leverage the numerous trading opportunities and avoid overnight risks. 

However, given the volatility of the market, your system should be intricate enough to facilitate change of biases frequently. 

The long term traders will find it easy to use the weekly or monthly charts. This translates to fewer transactions, thereby increasing the overall returns. On the other hand, hourly charts offer more flexibility to swing traders who execute trades that lasts for hours or days. 

Set Your Risk Level 

When building a trading system, it’s imperative to consider how much you are willing to risk. A useful rule of thumb is to risk 1% to 2% of your portfolio in any trading day. This means that if you lose or make a profit within the risk percentage, you should stay out of the market until the next trading day. 

But, your overall risk level depends on your risk tolerance and trading style. For traders with a good financial cushion, you may consider increasing your risk levels above the 2% mark. Investors with fewer assets and/or limited earning time horizon, you should avoid risking much. Ideally, you can focus on long-term trading that is often characterized by lower risks. 

Identify Your Entry and Exit Triggers 

Hesitating to enter a trade can limit your potential profits while a timely exit may spare you devastating losses. Unfortunately, there is no straightforward answer as to when to enter or exit a trade. Identifying entry and exit triggers involves looking at the trendlines. They are a clear indicator of uptrends and downtrends, where each determines the entry and exit point respectively. 

A more trusted and less risky method of entering and exiting the market is using limit and stop-loss orders. The limit order allows you to set the value at which you will enter the market. For instance, say, the stock is trading at $125, and you believe the price will dip slightly to $120 before trending back up again. Your order will be executed once the stocks drop to the set value, giving you entry to the anticipated upward trend. A stop-loss order allows you to set the lowest limit at which you will sell your stocks. This gives you an exit, saving you further losses in case the stocks prices continue dropping. 

Keep Records 

Records serve as reference points for profits and losses incurred. They give answers as to why a certain strategy worked while the other one failed. A good record should include targets, support and resistance levels as well as entry and exit points. To make it even more comprehensive, consider adding explanations about why you made a certain trade. Should the system fail, you will identify the pitfalls and fix any loopholes to increase your success. 

Follow Your Rules 

Writing trading rules is one thing; following them is a whole different entity. But, the effectiveness of your system largely depends on your discipline in executing the set out principles. Trading using a simulator is a great way to cultivate discipline, especially for a novice trader. It puts you in a real trading setting, allowing you to test whether your system works while instilling trading discipline. 

Although creating a defined standard of rules isn’t the answer to successful stock trading. It serves to provide a more effective trading framework rather than depending on assumptions. It is also important to note that the system should be dynamic to match your growing experience. 

By Andrew Cioffi

© 2019 Copyright Andrew Cioffi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules