WHAT IS A TRADING STRATEGY. HOW TO CREATE YOUR OWN STRATEGY. EXAMPLES
A trading strategy is something without which work on the exchange is impossible. Without a trading strategy, trading turns into a game of chance for adrenaline, not profit. Therefore, the importance of a trading strategy cannot be overstated.
In this article, we have prepared reviews of some trading strategies, disassembled them into their components, and also considered one of the strategies proposed by the user of our platform.
WHAT IS A TRADING STRATEGY
Trading Strategy is a complete trader's guide. The goal of the strategy is to provide profit on the exchange.
A trading strategy is usually based on:
- market analysis rules (fundamental and/or technical analysis) and search for opportunities;
- rules for entering a position with a favorable forecast;
- position retention rules;
- rules for exiting a position;
- risk management;
- rules for correcting errors
Any trading strategy must be consistent with the trader's personality and discipline. How he analyzes the information coming from the market and assesses its nature, how he creates a forecast based on actual data. Are you inclined to hold profits and cut losses? A ready-made trading strategy is like a clear action plan that applies to both manual and automated trading.
WHAT ARE THE TRADING STRATEGIES
Google finds 27 million strategies in the Russian-speaking segment of the Internet.
There are universal strategies. There are specialized – separate strategies for the bond market, stocks, currency pairs, futures, indices, etc.
By the time of holding a position, trading strategies are divided into:
- Short term
- mid-term
- long-term.
In general, strategies can be divided into:
- trendy;
- counter-trend
- flat (flat – flat, flat)
Any trending strategy is based on the assumption that the price has more chances to continue a directional movement – up or down – than to reverse it. A trend is the direction of price movement, taking into account which the trade is conducted. In an uptrend, deals are opened mainly in longs, in a downtrend – in shorts.
An uptrend is considered to continue as long as each new low and high of the price is higher than the previous values.
TRADING STRATEGY BASED ON MARKET MARGINALITY
There is an opinion among traders that if a stock has risen or lost 25-30% in price, then a correction phase begins. The values of 25-35% are not taken from the ceiling but are set values that form the boundaries of the risk parameters for margin positions. For each stock, the risk parameters may be different, but they usually lie within the specified numbers. The price going beyond the risk parameters is accompanied by forced closing of margin positions by brokers.
What is meant? Margin trading in shares implies the existence of a counterparty who lends his shares to the client in short or long. As a rule, such a party is a broker who has the right to forcefully close a client's margin position if the price moves in the opposite direction.
In real trading, a large mass of small clients acts in sync. Let's say they buy a stock when good news comes out. In doing so, they use leveraged trading. This creates zones where brokers will close the positions of such traders by margin call in the region of 25-35% lower from the point of release of good news.
It is unrealistic to obtain accurate information about where the so-called margin volume is formed, but we can analyze the actions of the stock market and the levels with the maximum volume in order to understand how justified the strategy is.
SUMMARY
Before you start using a trading strategy, you must have facts confirming its profitability. If there are 27 million strategies in the public domain, this does not mean that they will all make money. Most likely the opposite is true. Because who wants to share their personal “Grail”? Therefore, finding your own strategy is a personal task for every trader.
A trading strategy or tactic (financial markets usually do not adhere to a strict philosophical distinction between these two concepts) is the compass that determines the direction of your movement in the market. The presence of a strategy in many cases should save you from making extremely risky, emotional, rash decisions and ensure you, in the end, a stable increase in profits. However, this requires at least two conditions to be met:
1) You must be able not to succumb to the harmful effects of emotions that will push you to “recoup” when you receive a loss, make a riskier deal than the market situation requires, increase trading risks in the hope of faster profit, prove to your friend Vasya (Petya, Kolya, Styopa, etc.) that you are “a tough trader by nature”, etc. But this already refers, rather, to the psychology of trading, rather than directly to the work of a Forex trading strategy.
2) Your Forex trading strategy must be workable. If you rely on technical analysis of the financial market, you must be sure that your trading strategy will have a statistical advantage over a more or less long period of time. In other words, you should see that during, say, the last six months, if you were trading with this strategy, your loss would be, for example, 500 points, and your profit – 800 points. In this case, the strategy has a right to exist. If you see that a strategy can bring you good profit at times, but inevitably turns you into a “negative” for a long period of time, you should not use such a strategy. The same goes for “fundamentalist” traders. If you see that your forecasts for a long period of time give you the opportunity to make more profits than to get a loss, then your strategy is good; if on the contrary, then you should refuse to use it.
Moreover, financial markets are designed in such a way that algorithms that were followed to provide traders with profits a year or two ago may not work so well now, or even lead traders to receive losses. Accordingly, trading strategies need to be reviewed and adjusted from time to time. In a number of cases, it is necessary to completely abandon the use of certain Forex strategies that have ceased to work effectively and replace them with others. This, perhaps, is the main job of a trader in the currency, stock, or options market. After all, it is not difficult to find a couple of trading strategies on the Internet and create (or buy) based on their program (“trading advisor”), which will open and close positions on the market even in your absence in front of the monitor.
