When it comes to an industry as diverse and changeable as trading, the best thing you can do is to have a plan that helps you to conduct trades that are verified, quantifiable, consistent and objective. We call this plan a trading strategy.
A trading strategy is the method of buying and selling in the markets you operate in based on predefined rules that are used to make trading decisions. These decisions should move you closer to meeting your financial goals and there is no better way to learn how to build a trading strategy than from educators who have been there, done that and can prove they know what they’re doing.
When building your trading strategy, you should:
- Be realistic and learn how to handle loss
- Learn trades that work for you based on your appetite for risk, how much time you have and money available to invest.
- Know the markets you operate in
- Know what you can and can’t control in trading
- Learn your trading psychology
Find a good teacher to show you the ropes
How to build a trading strategy
Trade Room Plus is a professional live trade room and trading educator that can show you how to build a trading strategy in order to trade Forex & Index markets on spread bet and CFD broker platforms. We conduct live trades in front of our members and thousands of aspiring traders every single day and it’s a brilliant way to learn how to build a trading strategy that works for you.
Keep reading to find out the 10 steps you need to take to build your trading strategy, the best strategies for the market you operate in and the best ways to learn how to trade successfully.
What Is A Trading Strategy?
A trading strategy is a tool used by traders to aid them in the process of making a profit by trading over a period of time. Trading isn’t easy and it relies on your ability to learn a set of rules to play by and the parameters in which to play them which takes time, education and dedication.
Even with the best plan in the world, the only things you can actually control in trading is when you get in and out of the market. If you work on perfecting these maneuvers with a clear head and levels of discipline that help you to work towards your overall trading goals, you will be on your way to becoming a successful trader.
10 Steps To Building your Trading Strategy
When learning a trading strategy, it pays to take a systematic approach. The 9 simple steps outlined below will take you through the rules, objectives, risk tolerance and timeframe of trades that will form the basis of your trading strategy. The end goal of your trading strategy is to give you the tools you need to know when and how to make a final trading action of buying or selling a tradable asset.
1. Understand your reason for trading. Do you want to make a million? Do you enjoy taking risks? Are you looking for a hobby to fill your evenings or need to get out of debt? Once you know your reasons for trading, then establish why you think you can achieve this with trading. Learning as much as you can about technical and fundamental analysis of trading markets can help you to answer this question.
2. Know your numbers and set your targets. Set realistic profit targets and risk/reward ratios. What is the minimum risk/reward you will accept?
3. Choose a market to trade in. This could be Forex, Index, Equity, Options or Futures. Each is different so you should choose one to start with and learn as much as you can about it to stand a chance of being successful.
4. Be honest about how much time you can devote to trading as this will lead you towards different types of trading time frames such as Scalping, Day Trading, Swing Trading and Position Trading. Will you be monitoring the markets daily in the hope of trading to be your main source of income or are you trading as a hobby in the evening? Learning trades that work for you is important to long term success.
5. Find a tool to help you judge if the market you operate in is trending up or down. Price action tools like swing pivots and trend lines, or technical indicators like moving averages and MACD, are a good place to start.
6. Define your objective entry and exit triggers so you will know when to enter the market and trade and when to exit if things go wrong. Always pay attention to the world around you as fundamental analysis of global events and technical analysis on price and volumes will determine the best entry and exit to trades.
7. Know how to limit your risk. Your attitude to risk will shape your risk strategy but you should never risk more than 1-5% of your total portfolio in any given trading period. Find out more about the risks of trading and how to manage them here.
8. Back-test your strategy. By using historical data and simulators to conduct trades in the manner you have set out in your strategy you can see if you have the edge without the risk of losing any money before putting your strategy to work in the real world.
9. Review and adjust your strategy based on your testing. It’s unlikely your first strategy will be a roaring success but you can continue to tweak and refine until you have found what works for you to use as a reference when deciding how to move when you’re trading.
What Trading Strategy Should I Use?
The best trading strategy will always be the one that aligns with your trading personality, works to meet your trading goals, works for the markets you operate in, and fits around your life.
A successful and profitable strategy for one trader can be a poor and heavy loss strategy for another trader even if they are trading it on the same market at the same time as there is no one size fits all. You should have trading strategies for different markets that you operate in and never try to shoehorn your trades into strategies where the market conditions don’t support them.
At Trade Room Plus we focus on teaching the Support and Resistance trading strategy to our members because this is the best trading strategy for nearly all Spread Bet and CFD broker platforms. If however you work full time and just want to trade in the evening without holding trades overnight then consider learning the The Algo Yank Strategy that has been designed specifically for evening trading the Wall Street Index – the DOW. Click here for details.
What Happens If My Trading Strategy Doesn’t Work?
The main reason for trading strategy failure is nearly always psychological – fear of loss, fear of missing out, greed or anticipation which is why you should always ensure your trades are verified, quantifiable, consistent and objective by focusing on simple strategies and trading discipline in line with your plan rather than an emotional reaction to what’s going on around you.
You should never write off a trading strategy due to one loss. Instead, assess any strategy over the course of at least 20 trades to judge a win-loss ratio before adjusting your strategy.
What Is The Support And Resistance Trading Strategy?
Support and Resistance is one of the most widely followed technical analysis approaches in the financial markets used to these three key points of interest on a trading chart:
- The direction of the market
- Timing an entry in the market
- Establishing points to exit the market at either a profit of loss
Identifying levels of support and resistance on a chart can provide a trader with the tools to decide what action to take. Understanding support and resistance levels and incorporating these levels into your trading is the basis of nearly all successful traders. Find out more about support and resistance here and also consider watching our Master Trader Series for greater detail on Support and Resistance.
Where can I find help in building a Trading Strategy?
Finding a good teacher is a great way to learn how to build and execute a trading strategy that works for you. At Trade Room Plus we don’t just tell you what to do, we put our money where our mouth is by showing you how to make trading work in real time with our LIVE trading room, using the very same strategies we share with you.
You can join us for a FREE 14 day trial where you will see live trading in action and have access to our highly profitable trading strategies for forex, indices, commodities, stocks and crypto that are broken down into detail and are suitable for both short and long term traders. We also offer a complimentary 15 minute, professional trader call to discuss your trading goals and help implement a bespoke strategy that suits you and if you think we’re a good match, we offer up to 6 months FREE access to all of our products!
Even with the best trading strategy in the world, there are no ‘get-rich-quick’ options. You must focus on learning how to trade, the rules to play by and learn how to execute pivotal decisions to the best of your ability and we hope this article has given an indication of just how you can do that in order to have the confidence to enter the exciting world of trading.