How to Create a Trading Strategy? The trading strategy in the financial markets does not know the professional or novice investor and it does not matter what you know about the types of analysis. In fact, if you do not have a proper trading strategy, sooner or later the market conditions will be difficult for you. The word strategy is one of the terms of war and it means the ways of managing commanders in war. The reason for using the term strategy is that we can assume that the financial markets are like a war and if you don't know this war, you will definitely get hurt. Stay with us to learn how to formulate a successful trading strategy.
What is a trading strategy and how to create a successful trading strategy?
The strategies developed in the financial markets are a series of rules and measures that determine what decision the investor should make in any given situation. The trading strategy in the financial markets means when the trader should enter the market and when to exit the market in order to get the best profit from the market.
In fact, the strategy for trading is a framework of rules that the trader determines and sets his/her own pattern and starts trading. The only way to preserve capital for a trader is to have a trading strategy. If you don't have a trading strategy, you may lose your entire capital due to the emotional nature of the market. There are infinite trading strategies. Every person who enters the financial markets can develop a strategy for himself. Writing and having a strategy for investing is necessary, but not sufficient. Adhering to the framework of any strategy for trading is its most important principle. Millions of people are active in the financial markets. A group of them will benefit and another group will suffer. A group continues to trade and a group leaves the market with disappointment and sadness.
Maybe you are thinking that the first group is lucky and the second group is unlucky, but we do not associate this process with luck, rather, the secret to the success of people who are always making a profit is analyzing the market and having a trading strategy.
The importance of writing and formulating a create trading strategy
One of the most important principles and statements we have heard about financial markets is capital preservation. The most important goal of activists in different financial markets is the same issue. By having a successful and appropriate trading strategy, you will not lose your capital in the market and you will keep it. Various experiences in recent years have shown us that this market also has emotional days, and if you have a successful trading strategy, you make decisions in the best way even on emotional days.
In fact, by referring to their strategy in emotional situations, traders will keep their spirits up and not make emotional decisions. Always make decisions based on anger, fear or greed; They have a high probability of failure and the trading strategy is also designed for these conditions.
Do not forget two important points in writing a trading strategy
If you want to have a successful strategy for trading , you should pay attention to these points:
1. Commitment to strategy
At the beginning of the implementation of the strategy, you may lose temporarily, but over time you will achieve continuous profit. If you understand the market and are familiar with the psychology of the market, you will see that by adhering and committing to the strategy and controlling your emotions, you will easily achieve continuous profit. Try to stay away from rumors and don't involve your emotions in your strategy and just go according to your strategy.
2. Simplicity of strategy
You need a simple and understandable strategy. If you design a complex strategy full of hard and unworkable parameters, you will definitely run into problems. You must use correct information and correct analysis and applicable and convenient parameters. At the beginning, start with a simple strategy and step by step upgrade it and advance it professionally.
Step by step to create a trading strategy
A successful trading strategy has certain characteristics and investors must follow a series of principles, some of which we will introduce below.
Step 2: Identify market trends
If you are well trained in technical analysis, you can determine the stock trend in a few minutes. Keep in mind that if you are a beginner, it is difficult to identify a process and you cannot make a decision with high certainty. At this time, fundamental analysis helps, and by using the information of fundamental analysis, the market trend can be recognized.
To learn more about technical analysis and fundamental analysis, you can refer to the articles related to each.
Step 3: Choose a time frame
According to their trading strategy and point of view, investors determine in what time frame they want to invest and trade. Different time frames are usually placed in the following categories.
- Oscillation: Oscillators of the market trade within a period of one day to one month or even momentarily. They intend to make small profits from the ups and downs of the market.
- Short term investment: If the investor's vision is between 1 and 3 months, it is placed in the short-term category.
- Midterm/Medium term investment: Usually, medium-term investors wait between 3 months and 6 months for the yield of shares.
- Long term Investment: Long-term investors with high fundamental analysis power are willing to wait between 6 months to a year or even longer to earn profits if they are confident about the growth of the share trend.
To formulate a successful trading strategy for trading, you must first choose a suitable time frame. In technical analysis, different time frames such as one minute, one hour, one day, etc. are displayed. Each investor determines the duration of his activity according to his knowledge, capital, experience, etc. Keep in mind that a trader who operates in the long term does not need to check the news and analysis sites or the stock trading board of companies every day, like short-term or volatile traders.
Step 4: Determine the amount of capital to enter
The amount of capital to enter each market is different according to the conditions of each investor. This amount of capital is related to the investor's personality, risk, market conditions and various other factors. For example, if you have an emotional and risk-taking personality, it is better to invest less capital in the market and pay attention to capital management. Or, for example, according to your defined strategy, determine whether you want to buy and sell in steps or enter all your capital at once.
Step 5: Determine entry and exit points
Imagine that, according to fundamental analysis , you have realized that a company's stock will give a good profit in the next year. By using technical analysis , you will find out at what prices entry and exit are most profitable. If the entry and exit points are not chosen correctly and a part of the trading profit is reduced, their attractiveness will also decrease.
Step 6: Determine take profit and stop loss
A transaction that does not have take profit and stop loss limits is like a house without pillars. The importance of this issue is so high that many books and teachings have been taught and written about it, so never forget this important principle.
Step 7: Record all the above steps in your notebook
You need a personal notebook, designed and written by yourself. This notebook will be the best training book for you. You should note down all the tips and behaviors you had while trading. By doing this, you will find all your strengths and weaknesses in trading and you can eliminate or strengthen them.
How to Create a Trading Strategy?
Operating in the financial markets is not an easy task and success in these markets requires a lot of analytical knowledge and a successful trading strategy. It should be noted that just having a trading strategy cannot definitely make your investment successful, but having a strategy is a hundred times better than not having it. In the capital market, you are like a soldier who has gone to war, and the trading strategy will be your armor and equipment, preparing you to face various war conditions.
Writing Strategy
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