What Is a Trading Strategy and Why Traders Must Use It
I think I won't be far from the truth if I say that novice traders think about trading signals and trading strategies as the main components of their profitable trading in the financial markets. They are wrong, but they will need time and enough knowledge to understand their mistakes.
It is obvious that novice traders think that if they know when to buy and when to sell in the market, they will make money. But the reality gives us about 90% failed traders who succeed only in destroying their capital. Trading signals won't make your rich if you know nothing about trading. If we talk about trading signals, we can say that they are useless for the majority of traders. But trading strategies, which produce trading signals, it is another tool which definitely worths your attention.
In this post, let's talk about trading strategies. What is a trading strategy? What type of trading strategies can you use? Why do you need to use trading strategies? How to pick the right trading strategies?
In simple words, a trading strategy is a list of rules which describe when to open a trade and when to close it. A trading strategy gives you a signal for buying or for selling. It tells you where to place stop and where to place profit targets.
Some trading strategies can include information about the risk level and how you can manage open positions. But I would like to talk about it in the context of money management strategies.
We can divide trading strategies into different groups using different criteria.
Trading strategies can be based on Fundamental analysis, Technical analysis, or they can combine both types.
We can divide trading strategies based on the duration of holding open positions, and we will get the following types:
- scalping strategies (very fast trades with very close profit targets)
- day trading strategies (trades which are opened and closed in the borders of a trading day)
- swing trading strategies (when we stay with open positions for more than one day)
- long term trading strategies (when we hold positions for weeks and months)
- investing strategies ( when we buy a financial asset and hold it for years)
We can trade in different market conditions, and for them, we need to use a different approach:
- trend-following strategies (when we trade in the direction of the main trend)
- countertrend strategies (when we trade against the main trend trying to catch pullbacks)
- trend reversal strategies (when we try to catch a trend reversal and join in a new trend in the best point)
- strategies for range markets (when a market moves sideways, and we buy from the support and sell from the resistance)
- volatility breakout strategies (when we try to catch a strong movement and a beginning of a new trend after a consolidation period).
All these strategies are based on different principles and must be used properly in order to avoid false signals. For example, if we use trend-following trading strategies in a range market, we will get tons of false signals. The same goes for using range strategies in markets with solid trends.
Trading strategies can be based on simple Technical tools like trend lines, levels, zones, chart patterns, and a wide range of different indicators and their combinations.
What is very important to note?
There are thousands of different trading strategies, which allow you to trade in any market, timeframe, and in any market conditions.
There are a lot of good trading strategies which can be profitable in the long run. But there are no trading strategies which will give you 100% profitable trades. You must understand that any profitable trading includes trades closed by stop orders. Drawdowns are a part of any profitable trading as well. When someone tells you that this trading strategy has 100% win rate, you are talking with a clown but not with a trader, and you shouldn't use such a trading strategy.
You should note that in order to succeed in trading, you must have at least one trading strategy. When you jump from one market into another market and you trade without the exact rules, you have very good chances to fail. You aren't consistent in your trading decisions and it leads to unpredictable trading results. Of course, you can expect that you will be so lucky and take part in only profitable trades. But the reality can be far from your expectations. Trading strategies allow a trader to be consistent. You have the trading strategy. You trade again and again, following the same rules. You pass through drawdowns. You pass through profitable periods. You are profitable in the long run because you use the proven trading strategy and realize its potential.
What else you should note?
A trading strategy must suit you like shoes. You don't wear shoes which don't match your size, right? The same goes for trading strategies! They must match traders' nature, lifestyle, goals. When you use the right trading strategies, you feel comfortable. It is a good way to avoid mistakes in trading. There are no perfect trading strategies if we talk about trading results. But there are trading strategies which perfectly suit you! You have to use such trading strategies!
Before using any trading strategy, even if you are sure of its profitability, you should backtest it. You will see all ups and downs of your equity curve. You will see the periods of drawdowns and how the strategy can manage it. You will see the weaknesses and strengths of the trading strategy. Based on the information from backtests, you will be much more confident in this strategy when you start real trading. It will also be good to start using a trading strategy in a demo account first.
And I guess you have a question, where you can get a trading strategy?
There are two ways. Of course, the simplest way, you can use trading strategies developed by other traders. Google search will help you with this task. Also, ask your favorite traders to share their trading strategies. Pick the most suitable variant for you among thousands of different strategies. Don't forget that you must feel comfortable using the trading strategy. The 2nd way is the best for any trader. It needs more knowledge, experience, and time, but it allows you to get the strategy which 100% suitable for you as a trader and it is oriented on reaching your goals. I'm talking about the way when you create a trading strategy for yourself.
Concluding, I want to say that there are a lot of variants of how to make money in the financial markets. There are a lot of trading strategies that work and they are profitable. You just need to pick the most suitable trading strategy for you and use it properly. Don't spend your time trying to find a strategy that will give you only profitable trades. There are no such trading strategies!
Also, please note that it is impossible to succeed in trading if you don't use a trading strategy or portfolio of trading strategies. I really advise you to stop searching for useless trading signals and focus on the tool which really can be helpful for you. Trading strategies give you what you need, and they make from you an independent trader. You trade in the markets you want and how you want. You follow your own trading plan, which helps you to reach your own goals in the financial world!
I wish you good luck!
It is obvious that novice traders think that if they know when to buy and when to sell in the market, they will make money. But the reality gives us about 90% failed traders who succeed only in destroying their capital. Trading signals won't make your rich if you know nothing about trading. If we talk about trading signals, we can say that they are useless for the majority of traders. But trading strategies, which produce trading signals, it is another tool which definitely worths your attention.
In this post, let's talk about trading strategies. What is a trading strategy? What type of trading strategies can you use? Why do you need to use trading strategies? How to pick the right trading strategies?
In simple words, a trading strategy is a list of rules which describe when to open a trade and when to close it. A trading strategy gives you a signal for buying or for selling. It tells you where to place stop and where to place profit targets.
Some trading strategies can include information about the risk level and how you can manage open positions. But I would like to talk about it in the context of money management strategies.
We can divide trading strategies into different groups using different criteria.
Trading strategies can be based on Fundamental analysis, Technical analysis, or they can combine both types.
We can divide trading strategies based on the duration of holding open positions, and we will get the following types:
- scalping strategies (very fast trades with very close profit targets)
- day trading strategies (trades which are opened and closed in the borders of a trading day)
- swing trading strategies (when we stay with open positions for more than one day)
- long term trading strategies (when we hold positions for weeks and months)
- investing strategies ( when we buy a financial asset and hold it for years)
We can trade in different market conditions, and for them, we need to use a different approach:
- trend-following strategies (when we trade in the direction of the main trend)
- countertrend strategies (when we trade against the main trend trying to catch pullbacks)
- trend reversal strategies (when we try to catch a trend reversal and join in a new trend in the best point)
- strategies for range markets (when a market moves sideways, and we buy from the support and sell from the resistance)
- volatility breakout strategies (when we try to catch a strong movement and a beginning of a new trend after a consolidation period).
All these strategies are based on different principles and must be used properly in order to avoid false signals. For example, if we use trend-following trading strategies in a range market, we will get tons of false signals. The same goes for using range strategies in markets with solid trends.
Trading strategies can be based on simple Technical tools like trend lines, levels, zones, chart patterns, and a wide range of different indicators and their combinations.
What is very important to note?
There are thousands of different trading strategies, which allow you to trade in any market, timeframe, and in any market conditions.
There are a lot of good trading strategies which can be profitable in the long run. But there are no trading strategies which will give you 100% profitable trades. You must understand that any profitable trading includes trades closed by stop orders. Drawdowns are a part of any profitable trading as well. When someone tells you that this trading strategy has 100% win rate, you are talking with a clown but not with a trader, and you shouldn't use such a trading strategy.
You should note that in order to succeed in trading, you must have at least one trading strategy. When you jump from one market into another market and you trade without the exact rules, you have very good chances to fail. You aren't consistent in your trading decisions and it leads to unpredictable trading results. Of course, you can expect that you will be so lucky and take part in only profitable trades. But the reality can be far from your expectations. Trading strategies allow a trader to be consistent. You have the trading strategy. You trade again and again, following the same rules. You pass through drawdowns. You pass through profitable periods. You are profitable in the long run because you use the proven trading strategy and realize its potential.
What else you should note?
A trading strategy must suit you like shoes. You don't wear shoes which don't match your size, right? The same goes for trading strategies! They must match traders' nature, lifestyle, goals. When you use the right trading strategies, you feel comfortable. It is a good way to avoid mistakes in trading. There are no perfect trading strategies if we talk about trading results. But there are trading strategies which perfectly suit you! You have to use such trading strategies!
Before using any trading strategy, even if you are sure of its profitability, you should backtest it. You will see all ups and downs of your equity curve. You will see the periods of drawdowns and how the strategy can manage it. You will see the weaknesses and strengths of the trading strategy. Based on the information from backtests, you will be much more confident in this strategy when you start real trading. It will also be good to start using a trading strategy in a demo account first.
And I guess you have a question, where you can get a trading strategy?
There are two ways. Of course, the simplest way, you can use trading strategies developed by other traders. Google search will help you with this task. Also, ask your favorite traders to share their trading strategies. Pick the most suitable variant for you among thousands of different strategies. Don't forget that you must feel comfortable using the trading strategy. The 2nd way is the best for any trader. It needs more knowledge, experience, and time, but it allows you to get the strategy which 100% suitable for you as a trader and it is oriented on reaching your goals. I'm talking about the way when you create a trading strategy for yourself.
Concluding, I want to say that there are a lot of variants of how to make money in the financial markets. There are a lot of trading strategies that work and they are profitable. You just need to pick the most suitable trading strategy for you and use it properly. Don't spend your time trying to find a strategy that will give you only profitable trades. There are no such trading strategies!
Also, please note that it is impossible to succeed in trading if you don't use a trading strategy or portfolio of trading strategies. I really advise you to stop searching for useless trading signals and focus on the tool which really can be helpful for you. Trading strategies give you what you need, and they make from you an independent trader. You trade in the markets you want and how you want. You follow your own trading plan, which helps you to reach your own goals in the financial world!
I wish you good luck!
Haftungsausschluss
Die Informationen und Veröffentlichungen sind nicht als Finanz-, Anlage-, Handels- oder andere Arten von Ratschlägen oder Empfehlungen gedacht, die von TradingView bereitgestellt oder gebilligt werden, und stellen diese nicht dar. Lesen Sie mehr in den Nutzungsbedingungen.