The trading strategy is essential to earn and grow your capital over the long term. Unfortunately, having a strategy is one of the basics of investing that most newbie traders don’t have. This then results in significant capital losses because a novice trader will have no method to enter a position and especially when to exit the market.
At Geneva Trade Center , we know this concept of stock market strategy perfectly because we have specialized in futures markets for more than 15 years. We are going to offer you the secrets to prepare a good trading strategy and thus guarantee you better profits for your trading account.
The difference between a strategy and a trading plan
Types of existing trading strategies
The methodology to define the long-term and short-term roadmap for your stock market investments
So let’s get started right away and you’ll have more confidence in trading the stock markets .
You can already sign up for our FREE trading training to learn the basics of futures markets after reading this article.
ACCESS FREE TRADING TRAINING
THE BASICS FOR DEFINING A STOCK MARKET STRATEGY
First of all, let’s set the scene. Indeed, in our opinion there is an amalgam between the trading plan and the trading strategy. This is why it is necessary to define these concepts well because it is not the strategy that will make you take positions on a stock market index, a Forex currency, a listed action or even a cryptocurrency. Finally, and to answer the question right away, there is no better trading strategy. For the simple and good reason that there are as many trading strategies as there are traders.
Analysis of future markets to establish a strategy
Moreover, depending on the underlying, you will certainly have a different strategy if you trade the DAX 30 and the CAC 40 against a currency like the EUR USD or even a commodity. This depends on a whole host of factors that we will specify. Fundamental analysis and technical analysis will be essential whatever your trading technique and your strategy.
Find our article to do a fundamental analysis on the stock market and learn more.
DEFINITION OF THE TRADING STRATEGY
The trading strategy is simply the philosophy of your financial investments or your investments. This is the vision that you will adopt to carry out and place your orders. The trading strategy is based on several criteria and it will be scalable depending on market conditions, investor psychology but also the stock market cycle in which the asset(s) you are trading evolve.
A novice trader or a professional trader must systematically have a strategy for trading or speculating on the markets. It determines the method for taking a position on a stock market action, an index or a derivative such as futures. In addition, each underlying will have a different strategy because the nature of the asset is subject to generally different fundamentals.
DIFFERENCE BETWEEN A TRADING PLAN AND A TRADING STRATEGY
You have to know the difference between a trading plan and a strategy. It is from the trading strategy that you will establish your plan. Although strategy gives you the method to take a position, it is the plan that will tell you where and when you are going to enter the market.
With a plan you know the support zones and the resistance zones in which you will look for a buy signal or a sell signal.
For example, you have a trend following strategy. This means that you will determine in your plan areas to enter the market following the long-term uptrend or downtrend.
Trading plan based on trend strategy
Finally, we can say that your strategy is established according to the fundamental analysis and the stock market cycle . The plan is based on your technical analysis to find the right time to look for technical signals to enter a position.
Find our articles on how to do a trading analysis and how to establish a trading plan .
WHAT ARE THE DIFFERENT TRADING STRATEGIES THAT EXIST?
We have seen above a possible trading strategy. But there are many more:
STOCK MARKET ENTRY AND EXIT STRATEGY
Knowing how to enter a market is one thing, but you also have to know when and how to exit. For a winning trade or a losing trade, you need to plan in advance how to exit. That is to say that you have simply planned stop losses and take profits in advance.
Let’s go back to the example of the trend following strategy. From this method of speculation, you will look for buying signals or selling signals depending on your trading plan. So you know where you are going to invest and when. Moreover, in taking a position or even in establishing your plan, you have already planned when you will exit the market.
We also have a complete guide to becoming an independent trader . This will save you from many trading pitfalls.
EXAMPLE BEGINNER TRADING STRATEGY AND PLAN
A strategy for starting out in trading is simply to use the swing trading technique by diversifying your portfolio. If you have a small trading capital, the idea is to be in a swing trading position on an index (Dow Jones, S&P 500, DAX, etc.), have a Forex position on a currency (EUR, USD, JPY ) and a position in commodities such as gold.
The interest is that you are diversified in assets and especially on medium to long-term positions, your leverage is limited. Moreover, the idea is to combine this position management trading strategy with a trend following strategy. It is very useful to strengthen a position and thus increase its profits.