How To Plan Your Trading Strategy From Scratch
Designing Your Investing And Trading Strategy is the first and most important thing that you must do. This is your guide which you will use for all your trading activities.
You will not initiate a position unless the conditions spelled out in your plan are met. Also, once you initiate a position, your exit plan must also be put in place. Your Goal Is To Find Long Term And Short Term Trading Strategies That Work
In designing your trading strategy, certain mental analyses of oneself must be considered. For instance, whether you are an aggressive or a conservative investor.
Choose Your Goals Carefully. Are your seeking Wealth Preservation or Wealth Accumulation?
If you are a conservative person with a great aversion to risk, you may want to set your goal as Wealth Preservation. In this case it is more important to you to have your principal preserved than to have great upward movement.
You can set your goal, for instance, to make 6% per year while protecting you capital and that’s a low bar to hurdle but most importantly, you will be achieving your objective of preserving your principal.
If your goal is Wealth Accumulation, you will want to be more aggressive. Depending on your level of aggression, you will determine how much money you want to make.
Bear in mind, that the higher you set your goals, the greater risk of loss you entertain, although whatever plan you design will be designed with the aim of maximizing profits while minimizing loss.
With that in mind, you decide, for instance, whether you want to make 12%, 20% , 24% or even higher per year. You must be realistic though. Some pros have their goal as beating the S&P500.
The problem with that goal is that the S&P can decline, as it did over the last 10 years. You can beat it yet still lose money. You do not want to lose money.
Your Trading Strategy is a guide line to which strict adherence should be made. Diligent time and effort should be made in preparing it. If there are compelling reasons, however, where some deviations are required, carefully consider making those changes.
Only prune your Trading Strategy if there are imperative and compulsory reasons to do so. The great constitution of the United States was only pruned 27 times in its more than 200 years of existence - Only 27 Amendments indicate that it was solid to start with.
If it’s good, it’s good. It doesn’t need many changes. Similarly, you want to build a trading strategy that is that good, so not many changes will be needed. It must be able to weather and withstand any storm that is raging in the markets.
In fact, you learn to welcome the storms and use the volatility they create to your own advantage and to speed you towards your goals that much faster.
However, you must have a plan and a strategy. If you don’t have a plan you will not succeed. Period! You want to know what to buy, when to buy and when to sell.
Enough Said. Now Lets Devise Your Trading Strategy.
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