Sunday, April 27, 2014

Strategy: The Fruit Provider

        Strategy or Method is a set of rules through which we trade in market. First of all we should have a strategy for trading, otherwise we will feel like a lost person in a forest, and could hurt our capital. It is a necessary element of trading and all our trading analysis is done for a strategy. Only strategy is responsible for providing profits in market, so we should trade with a best one of we have. But how should we prepare a strategy?

          There are few key elements which should be included in a strategy, which are:-

1. Tradable logic
       The logic which we are choosing for trading, must be tradable in real time. It should not be just a paper trade method. We should first back test it, evaluate the probable profits and draw downs and then implement it.

2. Simple 
       We should try to make our rules simple, because if we are using too much indicators or conditions, then we can confuse ourselves during trading.

3. Check the psychology
       We must add our stop loss, profit target etc. in the strategy for a trade, but they should also match with our psychology. Suppose, if a trade should have a 2% stop loss, but we are not in a position to bear that draw down, then we should either stay away from the trade or prepare ourselves mentally to take that draw down. Otherwise, we will swing in a position of frustration.



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