How to Create a Basic Trading Strategy in 10 Easy Steps – Part 1

INTRODUCTION

You want to be a trader. You have your entire investment station set up, and you are ready to go. You are just begging someone to hold you back from joining the wild world of trading. However, before you get too far down the road, understand that there are many factors that make trading much harder than you may realize.

Developing a strategy for how to tackle the markets is always a good idea but developing a strategy that works consistently is a whole different animal. There are people who spend their entire careers attempting to track down the best ways to trade, and they still end up coming up short at times.

We will take you through some of the ways that you can start to craft your own strategies that will hopefully leave you on the winning side of trades more often than not.

1. Develop Your Market Mindset

What makes you believe that you can trade profitably in the market?

What edge do you bring to the table that others do not have?

These are serious questions that you should ask yourself before placing your first trade.

Think about what market factors you have examined carefully and which ones you may have more information than the average individual on. Have you developed the basic framework of what kind of strategy you would like to bring to the table?

You should ask yourself a few questions before beginning such as:

• Why do I want to be involved with trading?
• Will trading work into the rest of my routine and schedule?
• Do I have the funds to try trading in the market?
• What is my risk tolerance?
• Am I relying on being profitable to get by in life?

It should be obvious, but you don’t ever want to put yourself in a spot where you are relying on being profitable in the market in order to get by financially. You might think that you have stumbled on a great way to make some extra money for yourself, but there is just as much of a risk that you might end up losing money because the markets are so challenging. Always keep that in mind.

2. Which Market Is Right for You?

No two markets are exactly alike, and you should try to figure out which markets make the most sense for the strategies that you intend to use in them.

Each market brings its own unique factors into play. Most people start out trading something more well-known such as stocks and bonds, but some strategies are best used in markets for commodities, options, or even Forex (foreign exchange).

Whatever the case may be, you need to figure out quickly which markets make the most sense for the strategies that you have created.

3. What Is Your Trading Time Frame?

Warren Buffet is famous for many reasons, and one of those reasons is that he has always been a long-term investor who made a lot of money by investing wisely and at an early age. He likes to tell people that they should invest in companies that they intend to own for a lifetime. He personally does not set short time frames for himself and his investing. Rather, he would like to put his money to work in companies that he sees growing forever.

All of that said, most of us cannot be like Warren Buffet. We develop strategies that respond to market conditions much more rapidly.

After all, Buffet made his money in the decades when market volatility was much more predictable. These days, that no longer holds true. Instead, we must respond to the movements of the market more nimbly.

Thus, you need to figure out what type of time frame you intend to hold your investments for. Will you be an investor who holds positions for one month, one day, even one hour?

Some of the most profitable traders are those who can figure out how to profit from even very short-term trades, and perhaps that could be you as well.

4. Learning Your Indicators

Determining the trend of various trades is a major part of becoming a successful trader. Following trends and trying to trade alongside them is an important way to capture as much of the momentum of a given trade as possible.

Thus, you should try to use indicators, when possible, to figure out if there is a trend in an asset that you are reviewing. Perhaps there is a great trend that you can ride to profitability right now, and maybe there isn’t, and you just need to wait until things change in the market.

Either way, the only way that you will be able to tell is if you have a firm grasp of your indicators and what they mean.

5. What Triggers an Entry?

When do you finally pull the trigger and enter a trade?

Every trader must answer this question for him or herself. There comes a moment when you simply have to act and decide to get involved in the market. Naturally, you do not want to get into a trade right as it is about to move against you, but you need to choose a moment when it makes sense to snap into action and make your trade. It is only when you do this that you are finally in the game and have real skin in the trade.

The setup for your trade is to be determined by you and you alone. You need to know what factors in the market make for a great time to get involved. This process requires a fair amount of trial and error. You need to get your parameters set up just right for your trades to work consistently, and that means looking at how market conditions work and figuring out when they are advantageous for you and your trading strategy. Give yourself some extra time to figure out this step in particular.