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How To Choose A Trading Strategy

The process of choosing a trading strategy, will determine your success or failure in trading.

Choosing a trading strategy can be much like a mathematical formula, and I'm calling it: The Three WWW:

  • Who Am I - refer to your personality traits. By that, it means: are you an emotional person? or emotionless person? Are you anxious as usual, or a calm person? Are you a friendly person who needs to be around people during the day and to make him moving forward, or have a ability to spend, day in and day out, solo?
  • What Am I - refer to you life condition. Are you holding a full-time job? Or have enough money that you would like to spend? A husband? a father? Or a teenager with lots of free time?
  • What I'm Looking for - refer to: what is your goal in trading. Replace you current daily income? Add a side income? Conversion of professional of a complementary education?

Let's talk about these for a sec:

  • Personality traits has very much a lot to do with us being successful in: life, profession, or whatever. Given that, our personality is one of the crucial parameters in determine which trading strategy we need to use in order to success in trading. Or I'd say, if trading is for us at all. The trading strategy needs to make you feel rather comfortable during your trading "era". It needs to strengthen you in times of losses, and calm you down in times of winnings. It needs to keep you alert in times of needs, and shut it down, when it isn't needed. A trading business, unless you're working on the floor, is a lonely business. Being all day in-front of the screens, alone, is not always the best, and it is not suitable for all people.
  • Another condition is your life's state. What is your personal life situation? Do you have a family that you need to feed, or you are looking for your purpose in life? Are you a traveler that has only few spare moments each evening, very much like being a student? Do you have spare money that you can lose, or are you scratching the dimes from your pocket? The answers to these questions and more, will help to decide which strategy is suitable to which life condition.
  • And last but not least, is to understand what are you actually looking for. A full day job as a trader? Or a side income? Looking for a complementary education as a trader to your profession, or just for fun? This will help in deciding, which learning method and trading strategy you should take, in order to achieve the goals from the previous conditions.

Now, how can answering these questions can help in determine which strategy to choose?

OK, as we know, there are 4 main trading strategies that you can choose from: Trend following, swing trade, intraday day trading and sculpting. Let's elaborate:

  • Trend following strategies- are usually used in a very, very long time intervals, such as: weeks, months, and even years, and based on big time frames. These strategies requires a bit less discipline (in our perspective at least), than all the others. In this strategy, you will care less about the draw-downs (until a certain point of-course). You will not achieve instant gratification, and it is built for the long run. People who are using this strategy, will not look into their accounts every day, and sometime not for weeks. Trend following strategy is for a long-term investments, for people who doesn't "care" about the money for a living, and feel pretty comfortable with their trading strategy\ system. Trend following trading strategies usually requires a very deep understanding of the market (from the fundamental side of it of-course).
  • Swing trading - is for a long intervals as well but, for shorter times than the trend following strategy. This usually lasts between days to weeks, and in some special cases, crosses to 1-2 months. This strategy requires to be checked nearly everyday, in order to be alert before a reversal.
  • Intraday strategies - are for day traders, which opens and closes positions within the same day, and rarely leaves open positions over night. Intraday trading is sometimes very intense, and day traders are "glued" to the screens, and needs to be highly focused. The technicians among us, are working as computers, as machines. Working on signals of in and out from the market. Intraday traders, needs discipline of steal and counting on the screens, and themselves, that will bring the bread and butter at the end of the day\ month.
  • Scalping trading - basically are for very short terms, from second to a few minutes. Usually based on news and economic events, and don't need to stare at the screens all the time. A scalper needs to be highly experienced in these methods, since this kind of trading has much more risk in relative for the time it is executed.

What you read till now, is just the tip of the iceberg in choosing a trading strategy and becoming a professional trader. Usually, this kind of work, is done by coacher, a trading coacher, and which is the very first part in starting to learn to be a trader. In the upcoming FXTP Forex School, we will dig a bit deeper into this issue. Ask the questions, calculate the answers, and present a possible strategy. Till then:

Good luck and take care!

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