6 Simple Steps for Making Your First Trading Strategy
Most people who come to the trading world often try to follow other people’s trading strategies, most of the time they follow the strategy of a trader who influenced him to join this market. I am also a trader and I have also done the same thing when I was a beginner. But it is now quite helpful in a way as you are new in this market but in the long run, you may suffer. So I suggest if you want to stay alive in this market then you may think about making a strategy that goes with your trading style before starting to trade. Creating your first trading strategy is not that much complicated but getting good results from it may not be so easy. In this article, I am going to talk about a few steps that might help you to build your very first trading strategy.
Step 1: Have a clear idea about the market
Before you think about starting to create your very own trading strategy you just need to have a clear knowledge about how the market works. You have to study hard about the market and how you can analyze it both fundamentally and technically rather than find some short cut to make money. The market is all about supply and demand and it acts upon these things, so the more clear knowledge you have about the market then it will be easier for you to make a good strategy for your trading career.
Step 2: Choose a market where you want to trade
There are lots of markets where you can trade e.g. Forex, Equities, Options, and Futures.
If you choose the Forex market then you must understand what you are buying and selling in this market, what a currency quote represents, and should able to calculate certain things like margin, leverage, etc. For trading in equities, you need to know what a share is, what a blue-chip and penny stock is and the differences between them.
Here what we won’t say is every market is different than one another. No matter which market you choose you should have a clear knowledge about it. And you should also find a stable broker. Remember, the elite UK traders prefer CFD trading with Saxo as they offer a professional environment. Use this link to learn more about them.
Step 3: Choose your preferred time frame
Before you start your trading career you must think about how much time you want to give time for trading. If you want a quick result then you may try scalping and watch through a shorter time frame will help you to find some profitable options, on the contrary, if you want to spend a longer period in the market then you may need to watch higher time frame for potential positions. So fix which time frame you like to trade during making a strategy.
Step 4: Define your entries
Always keep in mind when you are going to enter the market and fix your preferable tools and indicator. Once all your combination of tools and indicators indicating an entry then never hesitate to enter. So when you are going to open and entry that must need to be defined in your strategy.
Step 5: Plan when to exit
Just like when you are going to open a position, you also need to define a plan when you are going to exit an entry that should be defined in your strategy. If you are unable to stay in front of your trading desk to close an entry then you may use stop-loss or take a profit option to exit.
Step 6: Risk Management
Trading is a risky profession if you are not aware of risk management. You should fix a risk-reward ratio and maintain it like a law. Before opening a position a trader must calculate the risk-reward ration and if it does not fill then he should avoid making those entries.
If you follow these steps you may able to make a nice trading strategy according to your personality and we suggest you back-test your strategy in your demo trading period so that you can get a follow up of your strategy. However, if you think about modifying or changing it then do in and test it in demo trading.