Have A StrategyCan You Win Without A Clear Strategy?
A great man once said, "Planning is the key to success" and when it comes to financial trading, the sooner you understand the importance of this quote, the sooner you might actually taste success.
As beginners, we tend to spend most of our time researching about the best ways to win a trade, learn about hiring the right broker , but there is very little focus on planning the right strategy for your journey with trading at this stage. Here are 4 lessons which you ought to learn when it comes to strategy:
Strategies Do Not Guarantee Wins Always
During any day, oscillations are a part and parcel of your life when it comes to trading and hence, strategies do induce a small amount of risk into your trade at all times, since the possibility of a loss can never be fully eradicated but it can be minimized.
How could this happen to anyone to see the wave movements in market charts, developments have followed a strategy of high and low curves. Therefore, although in the long run have a positive trend, sometimes strategies can be negative in the short term.
Build A Diversified Portfolio
To overcome the impact of risks, it is always a wise idea to build your trading portfolio which comprises of trades with a variety of strategies, which will help you to level out the gain/loss oscillations to an extent which is bearable.
It would be more advisable to alternate strategies that have different ratios and methods in a manner that does not associate causes loss of between one and the other.
As if we have a strategy that works on the reverse movement it is good to associate a strategy instead of working on the continuation of the movement.
Similarly if we have a strategy that works on short deadlines it is better to map a strategy with longer maturities etc.
Analyze & Plan Your Long-Term Strategies
While oscillations could be common in your trading journey, it is advisable to run some tests to analyze your strategy which you've planned for a longer duration of time.
More often than not, traders tend to ditch a strategy pretty soon as it does not fetch the expected gains. It is always a better idea to analyze the behavior of your strategy over a three month period before dumping it out of your plan.
Post the three month testing period, you could restructure your strategies and eliminate the ones which are not doing pretty well.
Optimization - The Key to Strategy Analysis
The best way to extract the profitability of a strategy is by making optimizations.
In layman terms, optimization simply means to put every strategy of yours to test and analyzing them at different hours of the trading window , understanding the specific arcs of time at which your strategy actually does a better job.
Another important aspect to perform a perfect test on your strategy would be to see how it fares with different assets.
Finally it would be appropriate to assess the behavior of the strategy according to the months of high / low volatility.
Happy Strategy and Trading!