TRADING STRATEGY EXPLAINED
We can describe a trading strategy as an extensive plan for all your trading activities. It’s a framework you create to guide you in all your trading endeavors.
A trading plan can also help mitigate financial risk, as it eliminates a lot of unnecessary decisions.
While having a trading strategy is not mandatory for trading, it can be life-saving at times. If something unexpected happens in the market (and it will), your trading plan should define how you react – and not your emotions. In other words, having a trading plan in place makes you prepared for the possible outcomes. It prevents you from making hasty, impulsive decisions that often lead to big financial losses.
EX, a comprehensive trading strategy may include the following:
*what asset classes you trade
*what setups you take
*what tools and indicators you use
*what triggers your entries and exits (your stop loss placement)
*what dictates your position sizing
*how you document and measure your portfolio performance
In addition, your trading plan may also contain other general guidelines, even down to some minor details. For example, you can define that you will never trade on Fridays or that you will never trade if you are feeling tired or sleepy. Or you can establish a trading schedule, so you only trade on specific days of the week.
Do you keep checking the Bitcoin price during the weekend? Always close your positions before the weekend. Personalized guidance like this can also be included in your trading strategy.
Devising a trading strategy may also include verification by backtesting and forward testing. For instance, you could do paper trading on the Binance Futures testnet.
Two major Kinds Of Trading Strategies to be discussed in next post:(Active and Passive Trading Strategies )
Lets keep learning together .