What is strategy?

If we think of the trading market as a war, only those who are ready to face any possibilities will survive this war. You have probably heard many times among investors or trading market participants that someone has lost a significant part of their capital in the trading market. Annually, many people enter the trading market, and according to statistics, about 90% of them leave the market by losing a significant part of their capital. But what is the key to market success? The answer to the above question can be summed up in one word, and that is “strategy.” We are here to explain in detail that “What is strategy?

What is strategy?

Strategy is one of the most important tools for trading and investing success. Strategy offers traders and investors the right goals, resources and the right path to success. The definition of strategy in trading refers to a method based on predefined rules that are designed to help traders make accurate decisions of buying and selling in different trading markets. A professional investor always considers the market as an enemy and has a clear and predetermined plan for each of the market behaviors. The key to trading profitably is to be ready for the market to show any unpredictable behavior.

Avoid trading without a strategy

You need more than luck to succeed in trading. You can’t succeed in the trading market without having a trading strategy. Why and when to take buy positions in the stock trading market? Do you choose the stocks fundamentally or technically? Long-term or short-term trading? Do you care about news and rumors about the trading assets? Do you use a daily or weekly time frame? How to start trading stocks in the first place?

The answer to all these questions lies in your trading strategy. It is your trading strategy that determines why you buy a stock and how long you hold it.

A trading strategy is a fingerprint for each trader and investor in the market. A strategy that works for you may not be proper for another trader. So if you go through studying the trading strategies of the world’s big capital traders and investors, you should follow that pattern rather than copy it.

In developing a trading strategy, it is notable that a trader who has a more complex trading system will not succeed, but someone who is more committed to his trading strategy will be successful.

develop trading strategy

Start developing your strategy today, it will get better over time

Start with one point in developing your trading strategy and improve it by testing over and over in the real trading market. For example, if you are a technical trader, use a return pattern, and an indicator then tests it several times in your trading to remove the tool that is redundant and replace it with another to finally get a good trading strategy. Many successful and professional traders use a combination of different indicators and strategies. Don’t get tired of formulating your strategy. Do this until you end up with an optimal trading result that fits your trading style best.

Having a wrong strategy is better than not having it at all. A trader who has a strategy for himself has a specific plan facing each situation in the market. Strategy can help a trader decide about entry point to the market, exit point from the market, stop-loss levels, and many other fundamentals. In each case occurring in the trading market despite obstacles a trader having strategy is ready to take action for each market movement and behavior, and therefore avoids emotional decisions. The trader who has a strategy before entering the trades, design different scenarios for himself, and if the market direction goes against his analysis, he already has a specific scenario to deal with the case.

Important tips for a trading strategy

Commitment to strategy

Once a trader or investor designs or chooses a strategy, he should stick to it and never get his mind involved in the news and rumors. It is important to remember the trading strategy has a specific framework, rules, and logic, while emotions have no place in it, so be completely obedient to your strategy in any trading market.

  Simplicity of strategy

You have to work hard to make your strategy clear and written on a checklist. The trading strategy’s explanation should be so clear that it does not put you at a crossroads in making decisions. You do not need to use complicated combinations of different strategies and indicators but you need to have a simple, efficient and clear strategy that you understand all aspects of it. Your trading strategy should provide you the chance of dealing with any kind of market movement and help you make decisions fast and simple.

principals of trading strategy

Basic principles of designing a trading strategy

Any trading strategy is divided into three main sections that are listed and explained below.

collect information about chosen trading asset

 In order to invest in different trading markets, whether commodities or stocks, you must first understand the behavior and the market economy. The best way to understand the market is to gather information through news and financial statements and compare them to the macroeconomic situation. In the end, you should be able to answer the question: What group or industry has the potential to invest?

Data analysis and processing

Of course, each trader has unique ways to check the quality of the investment option. Analyze your trading method according to your investment principles and answer the following questions:

– What kind of analysis is suitable for this asset in the trading market? (Technical analysis or fundamental analysis?)

– what indicators can lead to more accurate analysis in this market?

Information output and decision making

    In the last step, you must come to a conclusion and make your own decisions:

    – how much of my total capital should be used in each trade?

    – How and where should I set the stop-loss limit?

    – How and where should I set the profit limit?

Conclusion

The strategy is the trader’s roadmap. A trader who has a strategy for himself enjoys his trades. A trader with a strategy can manage his trades while not being emotionally critical. Emotions are one of the negative factors affecting any trade, which, if not controlled, becomes a destructive tool in the market. The strategy is crucial for the survival of traders in the capital market. A trader without a strategy is like a brake-free car that moves non-stop and ultimately inflicts serious damage. With the help of strategy, you determine your goals in each trade and understand when to enter the trade and at what market price you need to exit.

Leave a Comment