Developing your own personalized strategy and approach to trading is a lot like a basketball player deciding on his free throw shooting routine – everyone’s aim is the same, but it’s an important mental step to define your approach and stick with it – while leaving options open for tweaking if need be.
With trading, the aim is to find success without taking too many risks. When you’re starting out, it’s a trial and error approach, but as you find some success, you’ll start to build your routine around certain behaviours. These eventually coalesce into something you can call your own.
Here are five tips to guide you in developing that personal routine:
- Define Your Trading Goals and Risk Tolerance
Before you get into market analysis and strategy development, the wise first step is to clarify your financial goals and how much risk you’re willing to take to get there. Is your goal to have a steady income as a trader, or are you hoping to invest and grow your capital? This clarity will help you define your objectives and align your strategy to achieve them.
- Choose Your Market and Asset Class Wisely
Not all markets are created equal, and different asset classes come with their own set of dynamics and risk profiles. You may enjoy the faster pace of the foreign exchange market, the giant choice menu of the stock market or the relative stability of bonds. Choose the market that resonates with your interests and investment style, then dive into discovering its nuances.
- Analyze and Educate Yourself
Market analysis is the cornerstone of successful trading. Familiarize yourself with both technical analysis, which involves chart patterns and indicators, and fundamental analysis, which focuses on economic factors affecting market prices. You can never get enough training and education, and there are plenty of online courses that could help you refine your strategy. Some offer direct mentorships with experienced professionals, such as Certus Trading run by long-time Toronto trader Matt Choi. The Certus Trading reviews have plenty of stories about traders finding their way through one-on-one training. Another is Warrior Trading, with courses for all skill levels of traders. It’s a great idea to learn some strategies and try them out before diving in and trading on your own, where the losses can pile up quickly.
- Develop and Test Your Strategy
Once you’ve gained a solid foundation of market knowledge, it’s time to craft your strategy. Whether it’s based on trend following, mean reversion, or another methodology, make sure the approach is well-defined and testable. One great tip is to incorporate historical data and check your strategy against past market results and conditions. This will help you refine it before applying it in the real world.
- Review and Refine Regularly
The markets change very quickly, and while you can try to stick with the rules and principles that define your approach, it’s wise to diligently review your performance and question your strategy. Your financial goals may be shifting based on your results or situations in your life. Be flexible and incorporate these factors into your trading strategy. Adaptability is a key trait for successful traders.
By setting clear goals, choosing your market, continuously learning, testing your approach, and staying adaptable, you can develop a trading strategy that’s built around your goals and will survive the many storms in the market.
