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Module 8: Lesson 2

How to Make a Trading Strategy

When creating a successful trading plan, there are seven simple steps to follow:

  1. Make a plan for your motivation.

Identifying your trading motivation and the amount of time you’re willing to devote to it is a crucial step in developing your trading strategy. You should ask yourself the reason why you want to be a trader, and then write down what you hope to accomplish through trading.

  1. Make a decision about how much time you can devote to trading.

Determine how much time you can devote to your trading endeavors. Do you have to manage your trades early in the mornings or late at night, or can you trade while you’re at work?

You’ll need more time if you want to make a lot of trades in a day. You may not need many hours a day if you’re going long on assets that will mature over a long period of time and plan to manage your risk with stops, limits, and alerts.

It’s also critical to devote enough time to trading preparation, which includes education, strategy practice, and making lots of market analyses.

  1. Establish your objectives.

Any trading goal should be specific, measurable, attainable, relevant, and time-bound, not just a general statement (SMART). For example, ‘In the next 12 months, I want to increase the value of my entire portfolio by 15%.’

This set objective is SMART because the numbers are specific, you can track your progress, it’s attainable, it involves trading, and it has a deadline. You should also decide on your trading style. Your trading style should be determined by your personality, risk tolerance, and the amount of time you are willing to invest in trading.

There are four main types of trading:

  • Position trading entails holding positions for weeks, months, or even years in the hopes of profiting in the long run.
  • Swing trading is the practice of holding positions for several days or weeks in order to profit from medium-term market movements.
  • Day trading: a small number of trades are opened and closed on the same day, with no positions held overnight, reducing costs and risks.
  • Scalping: making multiple trades per day for a few seconds or minutes in the hopes of making small profits that add up to a large profit.