Tips to develop a winning trading strategy

“Every trader can develop a trading strategy but not every trader can develop a profitable trading strategy,” says Mark Fisher, a senior trading analyst at Olsson Capital.

It is easy to create a trading strategy and there are a wide variety of tools available to help you with it. The proof, however, is in the pudding. There is no guarantee that your first trading strategy will be a profitable one. You would need to fail a few times in order to find out what strategy works best for you as each trader is different and has different ways of executing a trade. Here are some top tips to help you create the perfect trading strategy:

What do you think of the trading market?

Before you dive into the deep end of trading strategies, you need to determine what you, as an individual think of the trading market and how you think you would be able to make money from it. If you think it is a get-rich-quick option, you don’t even have to develop a trading strategy as it will be a failure form the start.

Choose the trading option that fits you best

There are many different trading options out there which include Forex, equities and futures. Whichever trading option you choose, make sure you understand how it works and what is expected of you. When wanting to determine which trading option suits you best, make use of books, videos, the internet and expert trading advice.

What is the best trading timeframe?

Depending on whether you are a full-time trader of trade part-time, you need to make sure your trading timeframe stays consistent. When learning how the market works, you will start to see what times trading would make you more money. This can be for a few hours a day or at a certain point in time during the week.

The tools of the trade

When wanting to know if the market is going up or down, you can make use of different tools to help you read the market. With the help of charts and graphs, it is easy to see what the market is doing but to make a decision on whether to make a trade or not depends on the tools you use. These tools include swing pivots, pin bars and trend lines.

What is your risk limit?

When preparing to make a trade, you need to take into consideration the amount of risk you are taking with regards to the capital you are investing in that specific trade. You should always only invest the amount of money you are able to lose should the trade be unprofitable. Yes, no one likes to lose when trading but that is what trading is all about – taking risks. Therefore, you need to determine what your risk limit is and never stray from it.


Make notes of your trading rules

By making notes of your trading rules, you can easily refer back to it. It also serves as a type of disciplinary document and will help you stay on target. This also allows you to go back and change a certain aspect of your trading strategy if you see that is it not working.


Improving your strategy

You need to know that the first time you try out your newly developed trading strategy; you will not make a profitable trade. Should this happen, you shouldn’t give up hope. That is what a strategy is all about – trial and error. You need to refine your strategy, grow with it and gain more experience from it. Only then will you be able to change and improve as with each failure, you will learn another trading lesson. You need to remember though, that you should not make drastic changes after your first unsuccessful trade. Make small changes and try again until you have the perfect trading strategy tailored to suit your individual needs.

Many traders do not even make use of a trading strategy and still make profit from their trades. That significantly raises the risk of failure and should you want to develop a strong and long-standing profit margin, a solid trading strategy is the way to go.