Everybody talks about developing a trading strategy. This is difficult when one has not traded before. All is a bit overwhelming at the moment, with little success in the trades already performed. What strategy do you follow that you are successful?

Albert from Strategy town


Albert, this is about you, not me. What are you willing to do to learn how to trade? Are you willing to stop being overwhelmed and get to work devising your own strategy? If so, consider working with the following strategic outline. Understand, though, in any competitive framework, a strategy is the overall plan and tactics are the “plays” one makes to achieve the strategic goals.

1. Monitor, analyze, and evaluate the overall markets on a daily basis. Learn the ebb and flow. Learn the intermarket relationships that affect the ebb and flow.

2. When the overall market conditions are favorable, search for potential trades in specific markets (ex: forex, commodities, futures, equities), or specific market sectors (ex: technology, retail, biotech, aerospace).

3. When potential trades are found, confirm them with reliable fundamental and/or technical tools, such as financial/economic data or common technical indicators. Select those with the highest probability of success.

4. Evaluate your potential “position” in the trade. Define quantity, cost, profit target, and potential loss. Define entry and exit positions that meet the defined goals.

5.Execute the trade with the defined entry point. Set it and forget it. If you get in, so be it. If not, another trade waits. Immediately set the predefined stop as the downside exit point. Set it and forget it. If you get stopped out, so be it. Another trade waits.

6. Monitor the trade. If it heads toward the stop, let it go. If it heads toward profit, consider adjusting the stop to minimize losses. If it hits or surpasses the profit target, consider tightening the stop to protect profit, otherwise take the profit, and call it a day. If you tighten the stop, and the trade continues moving favorably, consider resetting to a trailing market stop to let the profits run.

7. When the trade is over, evaluate it. What went right and what went wrong? Did you get lucky, or did you execute according to trading plan you devised?

8. Enter the results of the trade in an accounting program.

9. Track your trades, meaning know the win/loss ratios, know the average gain/loss per trade, and know total dollar gain or loss.

10.  Start preparing for the next trade.

Keep in mind, the above is a general strategy. The tactics one uses will vary according to personality, knowledge, experience, and intuition, but one element common to all strategies and tactics is discipline. If you set up a plan, and you meddle with it because you lack faith in it, you will lose. If you meddle because intuition whispers in your ear, that is acceptable, if that intuition derives from years of achieving the goals of a strategy by executing tried and true tactics.

Trade in the day; invest in your life …

Trader Ed