By Yael Warman
Whether it’s a friend who drags you over to show you his trading moves or a video you clicked on whilst procrastinating at work, traders often first get into trading after seeing a strategy in action.
But to trade, you often need to take this strategy and make it your own.
Why change what works?
In truth, there is no real need to reinvent the wheel. However, a full trading plan generally involves a few moving variables which will usually force you to adapt the original strategy, so some change is inevitable. Many trainers believe that you will never master a strategy like the person who made it, that your entry will be slower, and your exit not as quick, so this is a factor you must consider.
Know Thyself
Free Reports:
Sounds a bit Shakespearean, but this really is the first step. It’s all well and good to learn a neat little swing trading or noise strategy, but if you are a cautious buy and hold type of trader, it won’t end well. You need to find a strategy that aligns with your beliefs and temperament. To do this you need to educate yourself as much as possible. You can do a course, but it is best to start online with a general education site like BabyPips, Daily Forex or Investing.com. Also keep a list of your beliefs starting out and ideas on trading. This will allow you to find things that fit in with your trading mentality.
Turning education into action
Whilst reading and watching videos you will come across a bunch of strategies and ideas that you like. Save them and review them when making your plan.
Write your plan
There are so many things you need in your full plan, but for the strategy section just stick to the technical aspects.
This should include your
· General entry and exit strategy
· Indicators
· Chart setup
· Instruments
· Number of trades
· Trade timeframe
· Position sizing
· Capital risk
· Risk management
Testing, Front and Back
You have the strategy and now you want to test it. You have two options
1. Begin using it on a demo account
2. Backtest it
If possible, start with a backtest. It will allow you to prove your strategy based on historical data, so that you know you are on strong ground. Or, if the results are not as good as expected, it will allow you to tweak the conditions until you find results you like. Most of the most common software (ie Metatrader, etc) will have the capacity to do backtesting, so you won’t have to go outside your brokerage account to do this. If you aren’t that good with computers, find someone to help.
The demo should be the next step. It will give you real time experience and proof of concept. Review the results and tweak as needed. Ignore the pressure from your broker to begin trading on a real account and use the demo until you feel ready.
Talk to your account analyst
Your broker wants you to trade profitably, because their profit generally comes from trading volume and the most profitable you are, the more likely you are to make larger deposits, trade more and for longer. This means that they are in this with you and want you to succeed. Your account analyst can give you access to advanced trading statistics containing information such as average position size, average profit or loss per trade, percentage of profitable trades, etc. Use this data to become informed of your strengths and tweak your position sizes / stop loss points to maximize profits.
Also, the broker will analyze your trading unemotionally and within the broader context of other traders. Their exposure to a myriad of trading techniques will give you further insights and helpful feedback.
About the Author:
Yael Warman is a creative writer with a strong background in marketing and advertising. Yael has been a writer for over 10 years and has worked for clients in various industries as well as her own companies and is currently the Content Manager at Leverate.