How to Make a Winning Trading Strategy {10 Steps Guide}

When it comes to trading, there are a number of different things you need to take into account in order to develop a winning strategy.

In this blog post, we will discuss some of the most important factors you need to consider. These include your risk tolerance, time horizon, and investment goals. We will also look at market conditions and how they can impact your strategy.

By understanding all of these factors, you can create a trading plan that gives you the best chance of achieving success!

Without wasting too much time, let’s get started.

What is a trading strategy?

A trading strategy is a set of rules that you use to make decisions about when and how to buy or sell securities.

It can be as simple as following a few basic guidelines, or it can be a complex system with dozens of different indicators.

No matter how simple or complicated your strategy is, there are a few key factors you need to take into account in order to make it successful.

1). The first and most important factor is your risk tolerance.

What is risk tolerance?

This refers to how much risk you are willing to take on when trading.

Some people are comfortable with a higher level of risk, while others prefer to play it safe.

You need to find a balance that works for you. If you are too risk-averse, you may miss out on potential profits.

On the other hand, if you take on too much risk, you could end up losing everything.

It is important to find a strategy that fits your risk tolerance.

For example, if you are comfortable with a higher level of risk, you may want to consider a strategy that has the potential for higher returns.

Conversely, if you are more risk-averse, you may want to focus on strategies that have a lower risk of loss.

The key is to go ahead and strike a balance between your fears and confidence in your trading strategy depending on how you feel about losing more or winning more.

2). Another important factor to consider is your time horizon.

What is the time horizon in trading?

This refers to the length of time you are willing to hold onto a security.

Some people are comfortable holding securities for long periods of time, while others prefer to trade more frequently.

Your time horizon will impact the type of strategy you use.

For example, if you are willing to hold a security for a long period of time, you may be more interested in a buy-and-hold strategy.

On the other hand, if you prefer to trade more frequently, you may want to focus on day trading or swing trading.

On the other hand, time horizon may also refer to the time frame you are using to make your analysis.

For instance, if you are looking at a longer time frame, you may focus on technical analysis, while if you are looking at a shorter time frame, you may focus on fundamental analysis.

Don’t get it twisted. Define your time horizon and decide how much data you want to analyze in your strategy.

3). Trading Instruments (Assets).

The next factor to consider is the type of security you want to trade.

There are a number of different options available, including stocks, bonds, commodities, and forex.

Each one has its own unique characteristics and risks.

You need to make sure you choose an instrument that you understand and that fits your investment goals.

For example, if you are interested in long-term investment, you may want to focus on stocks.

If you are more interested in short-term speculation, you may want to focus on forex or commodities.

No matter what you choose, make sure you define that in your strategy.

You don’t want to use a strategy developed for Stocks to trade Forex and you also don’t want to use a strategy developed for indices to trade Stocks.

You may not get the desired results.

4). Trading Sessions.

There are three main options: the Asian session, the European session, and the American session.

Each one has its own unique characteristics.

For example, the Asian session is often more volatile than the other two sessions.

The European session is often more explosive than the Asian session.

And the American session is often more stable than the other two sessions.

You need to take into account the characteristics of each session in order to develop a winning strategy.

For example, if you are trading during the Asian session, you may want to focus on strategies that take advantage of the volatility.

If you are trading during the European session, you may want to focus on strategies that take advantage of the explosive price movements.

And if you are trading during the American session, you may want to focus on strategies that take advantage of the stability.

It all depends on your trading style and preferences.

What time do you prefer to trade? Add that as a factor to consider to make your strategy a winning one.

5). Trade Duration.

How long do you want your trade to run?

This is an important question to ask yourself because it will impact the type of strategy you use or how you develop it.

Some people are comfortable holding a trade for a long period of time, while others prefer to exit a trade as soon as possible.

The key is to find a duration that suits your trading style and aligns with all the other factors you are considering in your winning strategy.

If you are someone who prefers to hold a trade for a long time, you may want to focus on developing longer-term strategies.

If you prefer to exit a trade quickly, you may want to focus on developing shorter-term strategies.

6). Direction of Trade.

Are you looking to trade in the direction of the trend or against it?

This is an important question because it will also impact how the strategy you develop comes out.

For example, if you are trading with the trend, you may want to focus on making trend-following strategies.

On the other hand, if you are trading against the trend, you may want to focus on making mean-reversion strategies.

The key is to find a direction that suits your trading style and aligns with all the other factors you are considering in your winning strategy.

7). Trade Frequency.

How often do you want to trade?

This is another important question because it will also impact the type of strategy you use or how you develop it.

Assuming you want to trade multiple times a day, you may want to focus on developing intraday strategies.

On the other hand, if you only want to trade once a day or even once a week, you may want to focus on developing swing strategies.

How often do you trade? Consider incorporating that into your strategy.

8). Risk Management.

Of course, you can not develop any winning trading strategy and not take into account the risk management rules you will use.

How much are you willing to risk per trade?

What are your stop-loss and take-profit levels?

You need to have a clear idea of these things before you go live with your trading strategy.

For example, if you are only willing to risk 0.50% per trade, you will need to make sure your stop-loss levels are not too close to the entry point.

On the other hand, if you are willing to risk more per trade, you may be able to afford to have tighter stop-loss levels.

Other than using the risk to reward ratio method to manage your capital, you can also use other money management techniques like the martingale.

It is important that you find a risk management technique that works best for you and your winning trading strategy.

Until you get it, don’t trade on a real account with this new strategy.

9). Type of Analysis.

Last but not least, you need to take into account the type of analysis you will be using.

Will you be using technical analysis or fundamental analysis?

Or will you be using a combination of both?

This is important because it will also impact how you develop your winning trading strategy.

For example, if you are only using technical analysis, you may want to focus on making trend-following or mean-reversion strategies.

On the other hand, if you are only using fundamental analysis, you may want to focus on making value investing or contrarian strategies.

10). Indicators.

If you choose to base your new winning trading strategy on technical analysis, then you will also need to identify some indicators to use to make your strategy complete.

Some popular indicators include moving averages, Bollinger Bands, MACD, RSI, and CCI…

The key is to find an indicator or combination of indicators that suits your trading style and aligns with all the other factors you are considering in your winning strategy.

Conclusion.

These are just some of the many factors you need to consider when developing a winning trading strategy.

Don’t be afraid to experiment and try out different things until you find something that fits you like a glove.

And keep in mind that what works for other people may not necessarily work for you and vice versa.

Don’t have a trading account? Create one in Olymp Trade.

Happy trading.

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