Most people who want to learn about how to become successful and profitable trader only spend just couple of minutes online before reading phrases as “keep your losses to a minimum” and “plan your trade; trade your plan”. These phrases can seem more of a distraction than a piece of advice especially to new traders. The problem with the new traders is that they just want the confined knowledge or just the key trading strategies so that they can speed up and make a quick profit in the market. There’s a saying-
“Don’t look for shortcuts to success. Work harder than anyone else and never give up”
One needs to understand the significance and adhere to a set of rules that which has guided most traders in order to become successful in trading. Every individual rule is important but their effect as a whole becomes more significant. When you trade based on these rules, the chances of succeeding in the market greatly increases.
Some of the measures or tricks to solve the problem with trading strategies are as follows-
1. Formulate strategy in mind based on indicators and price patterns
Suppose you came across a price pattern like flag pattern, triangle pattern, head and shoulder, cup and handle etc, you should confirm your trade based on indicators and oscillators whether this is a right time to enter the trade or you should wait for the pullback.
Moreover, a volume is another parameter which you should track to get an understanding whether is there any big money getting into the stock or not. You may go through technical analysis course to know various aspect Technical analysis and improve your trading.
2. Optimise them by experimenting with various parameters and indicators
You should keep doing experiments with various indicators and also do some trial and error by changing the parameters. It is possible that the default setting of the indicators might not work for you. Actually, movement of every stock is unique; hence it’s very important to do some optimisation depending upon the specific need.
3. Knowing the stop loss and target are equally important
Just getting into the stock does not solve the purpose. It is very important to identify a stop loss below which you cannot risk in a single bet. Discipline plays a very important role in the life of a trader and you should respect that.
4. Should specify the market condition in which the strategy is applicable
By market condition, it means that whether the strategy works best in trending market or in range bound market. There are various strategies which work in trending market while some works wonderfully in the range bound market. Thus specifying the market condition is of utmost importance.
5. Know the money risk per trade and stick to it
Many traders make the mistake of increasing risk per trade after winning trades. This is a very dangerous thing to be applied in the real life. One or two good or bad trades hardly matter and doesn’t really reflect your ability or inability to trade in the market,
It’s actually not logical to think you’re going to exponentially increase your risk per trade forever and for no reason other than you “won the last trade”. If you maintain your risk per trade at a constant dollar amount until you’ve doubled your account or more, it will instil discipline and patience in you and you’ll avoid becoming emotional about trades because you won’t have over-leveraged. This is really one of the easiest things you can do to improve your trading.
6. Back test over substantial longer period and check the IRR and Sharpe ratio
The problem with most traders is that whenever they come across any good strategy, they try to jump in just by analysing the data of just a couple of months. Back testing the strategy over a substantially longer period tells us about the validation and authenticity of the strategy. Moreover, you should also look into the IRR and its Sharpe ratio to track its performance in the desired time period.
7. Revisit on a regular basis about its validation
No strategy guarantees return forever, hence it is very important to keep analysing and revisiting your strategies to judge whether it is still valid in the current market or there is scope for some improvement.
An experienced trader doesn’t over-trade since they have mastered their trading strategy to such extent where they no longer have any doubt. Also, if there are no proper trade setups that qualify according to their trading strategy, then they are fine even if they are not trading; they have the discipline to not trade.
Having the discipline to simply do nothing in the market is perhaps one of the toughest things that you will face. You have to remind yourself that not trading also means you will not lose any money, and you should never lose money due to trading just because you “felt like it”. You should make a deal with yourself that you will only put your hard-earned money at risk when your trading strategy is telling you to.
- How to solve the biggest problems with trading strategies? - August 28, 2017