Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

5 Tips For Building A Winning Trading Strategy

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

By: Andrew_Cioffi

InvestorEducation

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 http://www.MarketOracle.co.uk - 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