The source of the following content: Wechat public number Hui classroom
No trading strategy can guarantee consistent profitability,
There is no one trading strategy that works for everyone all the time,
But investing without a trading strategy is tantamount to gambling.
So for all traders, a strategy still needs to be formulated.
Today we will discuss how to develop a profitable trading strategy?
Basics you should know before building a trading strategy
Formulating trading strategies has two functions for investors, avoiding or reducing trading risks and increasing potential foreign exchange returns.
Before formulating a trading strategy, you first need to have an understanding of the goal to be achieved, and you also need to understand some basic knowledge, such as at least knowing the usage of some technical indicators and charts, otherwise you will not understand the operation of the trading strategy. Can understand price action and why you are making or losing money with this strategy.
What kind of trading strategy is the best
There are thousands of trading strategies in the market, what kind of trading strategy is the best?
This is a relatively open question. It is not that the more complex the trading strategy, the greater the possibility of profit. I think the simplest trading strategies are the best.
Because the more variables in a trading strategy, the greater the possibility of error. Especially for novices, it is difficult to understand a trading strategy that incorporates many technical elements, let alone flexible application?
Simple trading strategies are easier to learn and do not require too much thinking, traders can focus more on the transaction itself. However, every time a complex strategy is applied, it may affect the income anywhere and give people more pressure. So if you are not a bigwig, choose simple trading strategies first.
Most Popular Trading Strategies
As the investment market continues to change, old trading strategies are constantly being eliminated and new strategies emerge. On the contrary, some of the most classic and simplest trading strategies have always been popular, such as the following 4 strategies.
moving average
Moving average (MA) is the most basic technical indicator we often refer to. It enables us to better see the trend and reversal, and we can intuitively judge the direction of the trend through the relationship between the moving average of different periods and the market price.
Generally, a change in the direction of the trend is a good opportunity to enter the market, but it also has shortcomings. MA represents the average price in the past and cannot fully represent the current market price. Therefore, you should pay attention to the sudden change of the price when using it.
Fibonacci retracement
Fibonacci is a classic tool, we use the Fibonacci retracement tool to draw lines to find important support and resistance levels, these are potential entry positions or take profit and stop loss levels.
Fibonacci retracement is also a very simple tool. You only need to distinguish the upward or downward trend, and then find the high and low points and draw the lines respectively. In the series of dividing lines drawn, you can focus on the three positions of 38.2%, 50%, and 61.8%.
Of course, sometimes the market price will retrace at these key positions, so if you use Fibonacci retracement trading, you need to wait for the retest of the price, or combine it with other techniques for further verification.
channel mode
There are many techniques that adopt the principle of channel mode, such as simple channel tools, Bollinger Bands channels, alligator lines, cloud chart indicators, Donchian channels, etc.
The main function of the channel mode is to identify the high and low points of the market price, distinguish the end of the trend, identify the rising, falling and consolidation trends of the market, and can choose to enter the market at the high and low points of the trending market.
double top double bottom
The Double Top and Double Bottom chart pattern is a common top and bottom reversal pattern. Analyze price action without resorting to technical indicators.
After the market price tries to rise twice to form two gradually lower tops, it means that the downtrend starts, and the appearance of the double top pattern indicates that the upward momentum of the market has decreased. The double bottom pattern indicates that the downward momentum of the market is reduced, and the market price tries to fall twice to form two gradually rising bottoms.
After the double top and double bottom appear, you can enter the market to go short or long. But we should pay attention to the multi-top and multi-bottom pattern, that is, the price does not necessarily only try to rise or fall twice.
How to choose and adjust trading strategies
Even if you know the simplest and most popular trading strategy, you still have to choose? Which would you choose? It really depends on what kind of trader you are?
Do you want to trade quickly and make immediate profits, or do you want to be more cautious and choose to wait for a long time before trading. This is the difference between a short-term trader and a long-term trader.
In addition to the adventurous nature of your character, you should also consider how much pressure you can bear when making choices, because long-term trading strategies need to be very firm in your choices and wait for a long time to make profits.
The strategies used by long-term traders may not be effective for short-term traders. Different investment markets have different effects on the same trading strategy. You can't exactly duplicate a strategy.
No matter which trading strategy you choose, it is more important to have a trading plan and stick to it. And the trading strategy and plan should also be adjusted with the passage of time. For example, you can bear 2% risk. When your capital is getting bigger and bigger, 2% risk means larger funds, and you may need to re-invest Measure risk-taking ability.
The adjustment of the trading strategy is also reflected in the fact that if the trading strategy you have spent energy to build is now making you lose money, then you need to measure its effectiveness. It is not necessary to adjust after a loss, because there are many factors that lead to losses, such as trading time issues. A more reliable way is to measure the effectiveness of a trading strategy through the risk-reward ratio.
In addition, pay attention to choosing a good trading strategy and learn to persist. Some people have used nearly a hundred trading strategies for 3 years in trading, and finally found that they are almost the same when used. In fact, the most critical point is to choose the right one, stick to practice, and constantly improve it.
Of course, even if your trading strategy has been profitable for a long time, you can't do it once and for all, because the investment market is constantly changing, and the strategy should change with the changes in the market. The principle of the trading strategy may not change, but as the market fluctuation range increases or decreases, your profit target, stop loss space, etc. need to be adjusted.
As the number of transactions increases, you can observe which parts of the trading strategy are still working and which are no longer valid, and you can delete and modify unnecessary elements. All improvement actions can be followed up in a transaction log to ensure proper evaluation.
There is no one-and-done, always-profitable trading strategy. So if you want to make money in the market for a long time, you must understand what is a good trading strategy and how to modify it.
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