Creating a Trading Strategy That Works For You

Creating a Trading Strategy That Works For You

Before you begin trading in markets it is essential and beneficial to create a strategic approach; one that works for you and suits your needs. It is very unlikely that you will be profitable if you trade on hunches or impulses. Rather, put in the work before you start and develop a specific trading strategy to ensure you don't lose capital and have a risk management strategy.Our trading platforms

What kind of trader do you want to be?

First, you need to ask yourself what kind of trading is going to work best for you. Are you a day trader, swing trader or investor? Do you want to trade on a one-minute timeframe or a monthly time frame? If it's all sounding like Greek to you, a day trader engages in long and short trades. Their aim is to profit by capitalizing on the intraday movements of a market's price action resulting from temporary inefficiencies in the supply and demand of the moment. A swing trader's aim is to capture gains in a stock (or financial instrument) within an overnight hold to several weeks. They use technical analysis to look for currencies, stocks, commodities or indices with short-term price momentum, and may utilize the fundamental or intrinsic value of stocks in addition to analyzing the price trends and patterns. Contrastingly, investors use fundamental data to analyze the long-term growth potential of a corporation in order to make a decision to take a long position in its security. You need to decide what kind of trader you want to be. This is a very personal choice, and will depend on other work or family commitments you may have, or simply what interests you more.

What do you want to trade?

Next, you'll want to decide what market you will trade: stocks, futures, commodities or forex. In other words, what markets are you looking to take advantage of? More markets are available for trading today than ever before, there is no one market to which your financial future is bound. You have access to all types of markets: international markets, emerging markets, frontier funds, gold, oil, real estate, bonds, and currencies. ICM Capital gives you the opportunity to trade fast and tight prices on forex, CFD Contracts on oil, indices, silver and gold using our renowned retail trading platform, MetaTrader 4. So really, the choice is yours. If you would like to trade currencies, for example, then a good forex trading strategy is what you need, and this will differ from a long-term investment strategy, so it is imperative that you make that decision moving forward.

Create and test strategies

Once you've determined how you want to trade and what you want to trade, it is time to create and test the trading strategy. Creating a strategy that works makes it easier to stick to your trading plan because the strategy was your own work and not someone else's. You will need to assess charts which reflect your chosen time frame. You need to look at the rises and falls in the price of different currencies or stocks and try to examine what may have precipitated those movements. See if the same thing occurred for other movements on the chart. Next, ask yourself if a profit could have been made over the last day, week or month using this method. If the answer is yes, you've got yourself a potential trading strategy. At ICM Capital we give you the opportunity to open a demo account absolutely free so you can test your strategy to see if it's a good one without the pressure of losing real capital. You can test as many strategies, as you like, and only when you are very comfortable and ready you can begin to implement your strategy for real.

Protect yourself

No strategy is ever air-tight or guaranteed to work. It might work for a while and then suddenly you may find it is flawed and you need to go back to the drawing table. This is perfectly normal and common. To ensure, however, that you don't lose too much money when this happens, you need to determine your stops. This means that after you determine a set of rules that would have allowed you to enter the market to make a profit, see what your risk would have been too. When trading currencies, for example, a good forex strategy is the limit order and the stop loss order. A limit order places restrictions on the maximum price to be paid or the minimum price to be received. A stop loss order sets a particular position to be automatically closed at a predetermined price in order to limit the loss of capital should the market move against your position. This is the most common risk management tool in forex trading and essential to any trader's strategy.

Additional things to consider

Just remember that using charts, trend lines, support from ICM Capital, and other technical analysis is never completely fool proof. The most dramatic price movements occur when unexpected events happen, whether it be political, social or economical, or even if it's an event merely expected to happen. In fact, it is more often that the mere expectation of an event influences the market, rather than the event itself. Trading strategies don't last forever, they fall in and out of profitability over different time frames and you will occasionally need to adjust your strategy to accommodate the current market. When starting out, it is useful to use what the past has shown to be successful, while being mindful of what could happen and how this may shift the markets. 

CFDs and Spot FX are complex instruments and come with a high risk of losing money rapidly due to leverage. Your profit and loss will vary according to the extent of the fluctuations in the price of the underlying markets on which the trade is based. Read More
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