How To Develop A Profitable Trading Strategy

How To Develop A Profitable Trading Strategy


Please find out how to make a good trading Strategy plan and how to put it into action. With a good plan, you’ll know which market to trade in, when to take profits, stop losing, and where else you might find opportunities.





What is a trading strategy plan?

A trading plan is a complete tool for making decisions about your trading strategy. It tells you what to trade, when, and how much to trade. A trading plan should be your own. You could use someone else’s plan as a guide, but remember that their view of risk and available capital could be very different from yours.

Your trading plan can include anything you think will help you, but it should always include the following:

  • What makes you want to trade?
  • How much time do you require to spend
  • Your business plans
  • How you feel about risk
  • How much money do you have to trade
  • Personal risk management rules
  • The markets you want to trade-in
  • The plans you have
  • How to keep track of things

A trading plan is not the same as a trading strategy, which tells you exactly how to get into and out of trades. A simple way to trade would be to buy bitcoin when it goes up to $5,000 and sells it when it goes up to $6,000.


Why do you need a trading strategy plan?

It would help if you had a trading plan because it will help you make smart trading decisions and figure out what your ideal trade looks like. A good trading plan will keep you from making impulsive decisions based on your feelings. Some of the benefits of having a trading plan are:


  • Trading is easier because all the planning has already been done, so you can trade based on the parameters you set up front.
  • You already know when to take a profit and when to cut your losses, so you can make decisions without letting your emotions get in the way.


If you stick to your plan, you could find out why some trades work and others don’t. Setting up a system for keeping records lets you learn from past trading errors and get better at making decisions.


How To Make a Trading Strategy


Outline your motivation

An essential part of your trading plan is figuring out why you want to trade and how much time you are willing to spend on it. Ask yourself why you want to become a trader, and then write down what you want to get out of it.


Think about the amount of time you can invest in trading

Figure out how much period you can spend on your trading. Can you trade when you’re at jobs, or do you want to do it first thing in the morning or late at night? If you want to make many trades daily, you’ll need some more time.

If you are long on assets that will mature over a long period and plan to use stops, limits, and alerts to manage your risk, you may not need numerous hours a day. Investing enough time learning, practicing your strategies, and analyzing the markets to prepare for trading is worthwhile.


Set your goals

Any trading goal shouldn’t just be a vague statement; it should be specific, measurable, attainable, relevant, and have a deadline (SMART). For example, I want the total value of my portfolio to go up by 15% in the next 12 months.

This goal is SMART because it has specific numbers, you can measure your achievement, it’s attainable, involves trading, and has a deadline. You also need to figure out what kind of trader you are. Your barter-style should depend on who you are, how you feel about risk, and how much time you are willing to spend trading. There are four great methods to trade:

  • Position trading is when you keep a trade open for weeks, months, or even years in the hope that it will make you money in the long run.
  • Swing trading holds positions for several days or weeks to take advantage of moderate market moves.
  • Day trading is when a small number of trades are opened and closed on the same day. No positions are held overnight, so some costs and risks are eliminated.
  • Scalping is making a lot of short-term trades every day to make small profits that add up to a large amount.

Read : How To Set Investment Priorities And Save For Multiple Goals

Choose a risk-to-reward ratio

Before you begin trading, choose the risk you will take for each trade and your trading strategy. It’s important to choose how much you’re willing to risk. Prices on the market change all the time, and even the safest financial instruments have some risk.

Some new traders like to take less risk to test the waters, while others take more risk to make bigger profits. It’s up to you how many hazards you require to take on. You can lose more often than you win and still make money in the long run. All of it comes down to risk vs. reward.

Traders sometimes use an overall risk of 1:3 or higher, meaning that the possible profit on a trade is at least double the loss. To figure out the risk-reward ratio, you need to compare how much you’re risking to how much you could gain. For instance, if you put up $100 on a trade and could make $400, the risk-reward ratio is 1:4. Stops can help you control your risk.


Decide how much money you have for trading

Consider how much money you can spend on trading. You’d be better off if you never put more on the line than you can afford to lose. There are many risks in trading, and you could lose all your trading capital. Before you start, do the math and ensure you can afford to lose the most you can on each trade.


Market expertise evaluation

The market you want to trade-in will change how you set up your trading strategy plan. This is because a plan to trade forex will differ from a plan to trade stocks. First, figure out how much you know about different assets and markets, and learn as much as possible about the one you want to trade.

Read : How To Learn Share Market

Then, consider when the market is clear and closes, how volatile it is, and how much you could lose or gain for every point the price moves. If you don’t like any of these things, you might want to pick a different market. You can learn more about different types of assets and markets through IG Academy.


Start a Trading Record

A trading plan won’t work without a trading diary to back it up. It would assist if you wrote down your trades in your trading diary. This will help you figure out what’s working and what’s not.

You don’t just have to write down the technical details, like when you entered and left the trade, but also why you made the decisions you did and how you felt about them. If you change your plan, note down why and what happened. The better your diary is, the more details it has.

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