Article Overview
In this article I describe my thoughts about trade plans and trade strategies, and define the key aspects of a trade strategy. In further articles I will actually go through the process of defining the trade strategy, step by step, for each element.
Trading Plans vs. Trading Strategies.
Trading, like any other business requires a plan. If you were to start your own company, you’d need to create a business plan in order to provide focus for your business, secure funding from banks, as well as serving a host of other functions.
Trading is no different; the key element to successful trading is having a game plan, sometimes called a trading plan. A quaity trading plan includes many sections, including definitions of your risk tolerance, prerequisites for opening and closing trades, outlines for setting stops, and, an ever evolving list of trade strategies that define your daily process for choosing and managing trades.
For me, a trading strategy is different than a trading plan. Elements such as why you want to trade, whether or not you wish to trade full time, analyzing and defining your risk tolerance, defining your money management plan, and understanding your trading emotion are all aspects that are part of a trading plan, but not a trading strategy. A trading plan can contain several trading strategies.
Key Elements Of Successful Trading Strategies
- A weekly / daily routine for analyzing the overall market trend
- Details for creating, testing, implementing, and refining screens / other methods of identifying possible trades
- Guidelines for opening new trades
- Guidelines for monitoring your trades
- Open, hold, and closing guidelines
- Rules for updating / refining the overall strategy
These 6 keys apply to any trading strategy, although some of them may have to be modified based on whether you plan on day trading, swing trading, buy & hold, or any other overall style of trading. However, understanding how each of these elements effects the quality and profitability of your trading will absolutely increase your odds of success.
Over the next few days, I will be covering each element of of a successful trade strategy, along with the usual market updates.
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