“How can I develop a trading strategy? This is a question I get asked a lot of the time. That’s why I decided to make this article. In this article you are going to learn how you can develop your own strategy, step by step. Of course, there is way more to it, but this information is only available for my coaching clients. If you are interested in that, click here, or contact me.
When you are finished with this article, you know exactly which steps you should take to develop your own trading strategy. You can develop your own clear edge and know the answer to the question “how to develop a trading strategy”. Ready? Let’s dive into it!
What is a trading strategy?
A trading strategy is a strategy that allows you to attack the markets and that allows you to make profits in a structured way. In trading, you can open a trade at every single moment in time. As long as the markets are open, you can click sell or buy. There are so many opportunities out there. However, we as traders have to focus on only seizing opportunities that have a proven edge and that we can execute on, without making mistakes. This sounds easy, but it’s very hard.
Most people think they trade with a strategy, but they are really trading without strategy. A trading strategy tells you when you should enter, when the odds are in your favor, where your stop and target go and how much you risk on a trade. It also tells you how you are going to manage your trade. Do you have these things clear? If not, then you don’t have a great strategy and it’s time to take action to fix that.
Why do you need a strategy?
So, why do you actually need a strategy in trading? Why can’t you trade without a strategy? You have to understand that trading in and of itself is very hard. The odds of making money in the long run are very slim. This means you have to put all the odds in your favor if you want to succeed. You only have to be in the markets when there is an edge. If there is no edge, you should be sitting on your hands trying to improve your trading and patiently wait for the next setup with edge. This is where most people lose their money.
You need a strategy to guide you into the markets. Think of it as a map that tells you exactly what to do. If you follow the map, you make money in the long run (if your strategy has edge). If you don’t follow the map, you will lose money like more than 90 percent of the retail traders.
How can you develop your own trading strategy?
Now you know what a trading strategy is and why it’s unwise to begin trading without strategy, it’s time to look at how you can develop a trading strategy. There are different ways to do this. What’s important is that you pick a way that you like. Why? Because it takes time to develop a trading strategy and you have to really stick to the process. You can only do this if you like the process.
The way you can start to develop your trading edge is by taking the following points into account:
· Learning different concepts
· Establishing rules
· Trading & journaling
· Testing new ideas
This is how you can develop your own trading strategy. This is how you get an edge. It all starts with learning different concepts. I have said it before and I will say it again: there are 1000’s of ways to make money trading. The goal is to find a way that you like, that gives you and edge and that fits with your personality and lifestyle. That’s how you make money in the long run.
Start by learning different concepts. Maybe you like indicators? Then start there. Maybe you like price action? Then start there. Test out different concepts and see if you like them and if you fully understand them. Note down which concepts really stand out, these will be the concepts you are going to use to build the foundation of your strategy. You can find these concepts by reading trading strategy books. You can find concepts by watching YouTube videos, or learning from others. The point is, test many concepts and see what you like. Stick with those.
Once you have found concepts you like it’s time for rules. Rules make sure you can use those concepts and follow them when trading live. This makes sure you can test your trading strategy. Establishing rules is an important part of trading strategy development and has to be taken seriously. Most people think they have clear rules that they can test, when in reality they don’t. So, step two is to look at your concepts and build rules around those concepts. Rules also make it possible to test your concepts in an objective way, which is really important.
Let’s say you like to trade breakouts. Well, how do you define a breakout? Make rules so that it’s 100% clear what a breakout is. This way you can test and you make less mistakes, which means you can make more money. This is the reason why we at CDFX Trading have a mechanical trading strategy. It consists of different concepts that we have broken down in clear and testable rules. This way it’s easy to see if the trading strategy had an edge in the past and we can build from there. This way you have a clear foundation with an edge, which most people don’t have.
Do you have clear rules? Then it’s time to start with trading strategy backtesting. Backtesting is an essential part of trading strategy development. You need to test your rules and concepts, to see if there is any edge there. If the strategy wasn’t profitable the past few years, it’s highly unlikely that it will be profitable in the coming years. See how your strategy and rules have performed in the past. Find out how you can improve your strategy and build from there. Testing is essential, but take the results with a grain of salt as backtested results are only guidelines, not hard facts.
Does your backtest give you good results? Then it’s time to start trading your strategy on demo. You will quickly notice that it’s harder to execute the edge in real time, compared to backtesting. That’s why a demo account is crucial. No need to waste real money on those scenarios. Start trading demo for a few months, see if it’s profitable and journal every trade. Review your trades and see if there are any mistakes you make when trading it real time. Try to fix those issues as quickly as possible. This is how you develop your trading strategy. Journaling is essential and should be done. Without journaling it’s very hard to increase your trading performance and to become profitable.
During your period of strategy development and gaining an edge, you have to come up with new ideas to test. Markets change and if you are not working on your edge, your edge might go away. I know this sounds scary, but this is the reality of this career. There are different ways you can find ways to improve your trading strategy. I personally like to listen to podcasts and read books. I highlight the ideas I find and establish rules to test those. For example, let’s say I read about someone using a certain approach to risk management. I write that down and I will test that approach for my own edge. If it’s better, great, I will implement it. If not, then I take a note of that and move on to the next idea. Reading books, listening to podcasts and watching videos can be an effective way to come up with new ideas to improve your trading strategy.
The best trading strategy with an edge
If you have been paying attention, you now know what steps you need to take to develop your edge. You know how to develop your trading strategy. You know what the best trading strategy with an edge for you is. Take action now, because without taking action, reading this article was useless. Start with the steps that are written down above and build from there. What concepts you use is up to you, but you now have the right framework. Please follow it, otherwise it will be very hard to begin with strategy development and to gain a profitable trading edge that generates profits in the long run.
If you have any questions about this topic, please leave a comment down below or contact us. We love to help out. If you are interested in getting mentored, 1-on-1, plan your FREE intake right now. See you there.