What is a habit for you? Some of you might say that habits are what makes your lives easier. People have many habits in their lives like waking up early, eating a slice of bread without its crusts or even making bullet points in your diary. Our habits are always personalized and play an important role in our lives.
A trading strategy works in the same way. Some of you may wonder why. It is because a trading strategy is often personalized and varies from one trader to another. A trading plan makes a trader work with ease while a trading strategy is what a trader adopts to make any changes to his trading. We can also say that a trading strategy is part of a trading plan.
A trading plan is usually adopted for long-term trading. For example, trader X has a trading plan of buying things at the support and selling things at the resistance. He has been successfully executing this plan and marking good amounts of profits from that. However, even though he is following his plans, there may be times when he needs to adopt some different strategies. Let’s say, the price of a commodity has hit the resistance already. But after market analysis, the trader learns that there are possibilities of the price to go higher. So, he adopts the strategy of selling half of his currency now and keeping the rest for the future. In that way, he can gain profit on the other half if the price rises. Even if the price falls, he would still have some profit in hand.
A trading strategy is always incredibly detailed and all the actions required to take in a situation is distinguished in it. That’s why a strategy should be well made before starting any trading action. To develop your strategy, you can also get a demo account. Try it now and see how easily you can improve your edge in a risk-free environment.
Outline a strategy
Before finalizing a strategy, make a rough sketch of it and see whether it works or not. Don’t adopt any strategy on a whim. Know where you need to put more effort in and set your strategy that way. Keep a close eye on the strategy and make sure you don’t make any mistakes while using it.
Signs of a good strategy
Adding risk limits
Always make sure to set the risk limit in your strategy. Calculate it to find out your maximum risk exposure. Traders in Hong Kong typically set a risk limit of up to 2% loss on their trades and try not to exceed it.
Select a particular time to trade
As price fluctuation is very common and can often fluctuate many times a day, it is wise to fix a particular time to start and end your trading. If you try to trade many times a day, you might become confused about whether to trade or not. If you wait for the next fluctuation for a higher profit but if, unfortunately, that doesn’t occur, you may lose a good chance to win some money. So, sticking to a particular time period is a nice thing to add into your strategy.
Keep an eye on the economic indicators
Economic indicators are one of the reasons behind market fluctuations. Economic indicators represent the overall economic performance of a country. If the economic indicators go upwards, it means, the demand for that country’s goods is higher than for other countries. As a result, the demand for that currency increases, causing a higher exchange value as well.
Economic indicators are generally disclosed through news portals or telecasting and as this information is open for all, it plays a vital role in price fluctuation.
Some examples of economic indicators are- the budget, employment rate, GDP etc.
Developing a structure for your strategy is very important in trading. So, while making a strategy, be sure to keep things simple and be prepared to adopt changes in this ever-changing market. In this way, you can be sure to come up with outstanding strategies.