At some point, all novice traders will need to answer questions from veterans about their trading strategy. How it works, how they developed it, and whether it performs well in terms of profitability.
If you confess that you have no strategy, it is possible that they will look at you in disbelief.
This may be strange at first glance. After all, diets and other nutritional regimens work well for some, but others can eat what they want without problems. So why is it not advisable to trade the market at any time simply based on instinct?
There are two answers to this. One of them is that this behavior in itself is a trading strategy known as opportunistic trading. The other is that having a well-planned strategy is a trader’s way of protecting himself against financial chaos and loss.
Steps to create Trading Plan
Choose your markets
Less-experienced traders need to limit the number of markets in which they wish to trade. No market is the same, and restrict the scope of these can help traders understand the essential details of specific markets. The operators can even focus only on certain currencies to become familiar with their features and movements.
Think about the duration of your operations
The duration of open positions will depend on the type of trader. The operators to focus on short-term operations (open and closed typically on the same day) would traders day (day traders). Alternatively, l so traders in the medium term usually keep operations open for a few hours to a few days. They are known as “swing traders.” Finally, long-term operations involve terms ranging from a few days, weeks, months, and in some cases, years.
Accurate and fast reactions
Could it be otherwise? They argue. If all it takes to be successful as a trader is to do the same as everyone else, why don’t we all do it and get rich? In reality, they add, it takes many “losers” to keep markets moving, and the biggest losers will be those who follow “the word of the herd.”
The time to bet against the market, according to the contrarians, is when almost all traders, including small-time ones, have accepted the current trend because there is no one left to sell the securities in question to, and a bubble is about to burst.
On the other hand, “reversal” traders have a similar strategy to contrarians, but at the same time different. Like the contrarians, they believe that markets can go in the opposite direction, opening up opportunities to trade against the trend. Unlike the contrarians, they do not think that markets are always wrong.
Know your tolerance for risk
Every step in a trading plan is essential. However, risk management is crucial. In this step, traders will have to discover their personal risk tolerance, which in this case refers to the location of the stop-loss. At this point, trade is closed in the event of an adverse movement in the market.
Establish a routine
Traders should set aside time to reflect on the events of the week and analyze individual trades. It is a good idea to regularly review your trading plan and make adjustments if necessary. Regularly reviewing trades and writing them in a journal are great ways to ensure that you are following the process of your trading system.
Plans of operations should be rigid but can become a little more flexible as the trader becomes familiar with the market in question. The purpose of a trading plan is to give you a strong foundation as well as certain limitations to be adhered to.
Plan how you will handle adversity
All traders will eventually experience some losing trade, so it is essential to establish some rules to follow once this occurs to manage emotions. An effective way to do this is by calculating a percentage of loss, which would force the trader to step back and assess what went / is going wrong. Do not fall into the trap of setting this figure on the road. It is best to determine it in advance.
On the other hand, l to trust is suitable, but too much can quickly turn winning trades into losers. If the market is moving favorably, it is not unusual for a trader to increase risk/exposure; however, this should be done in line with prudent risk management.
Things to keep in mind
Your first trading strategy should be simple. Many novice traders believe that the more indicators and triggers they use, the more profound – and therefore better – their trading strategy will be. Nothing is further from reality. An overly complicated strategy rarely works and will undoubtedly result in losses. Do not complicate yourself!
No trading strategy is good until it offers stable results. When an approach stops working, find another that works.
On that subject, trading is a lot like art. Start by copying others who are more experienced and successful, and then move on to developing your personal style.