HOW TO FIND YOUR TRADING STRATEGY ?! IN 3 STEPS
How to choose your trading strategy in the foreign exchange market? A number of own features must be taken into account: psychotype, comfortable timeframe, and risk level. Consider 3 of these important parameters.
Almost every trader with whom I happened to either work or just communicate, started his career in this profession “backward.” We, humans, are strange creatures. For some reason, we need to try everything, collect all the cuffs and bumps, and only then listen to the voice of reason and the opinion of professionals.
The path to becoming a trader is too complicated for most people. Therefore, many novice traders give up and return to their previous occupations and sources of income. That is why the number of successful traders who realized their dream is so small. But you must admit, after all, in other areas, there is not a large number of those who stubbornly went to their dream, did not give up and did not give up, and finally achieved the desired. So, in this sense, trading is no different from other types of professional activity.
But for those who survived, did not give up and found the strength to go forward, the reward can be huge. In this article, I will try to maximize your chances of success, and I will offer you three components of your personality type that you must understand in order to improve your trading results.
At the same time, I will also try to show you what is likely to happen if you do not initially determine the psychotype of your personality as a trader. I understand that we always learn from our mistakes, and each of us has his own unique path in life. But maybe someone else’s experience will help someone understand that going in the reverse order is much more difficult than from start to finish.
WHAT HAPPENS IF YOU START FROM THE END?
The most popular reason that I have become traders that I heard was the desire to earn a lot of money, work remotely and travel the world. What a wonderful thought! But this is the biggest mistake. Such people are only chasing money and are obsessed with finding a trading method that will bring them the greatest profits.
For the vast majority of traders, this does not work. Ultimately, fatigue and disappointment ensue. However, with a little patience and foresight, you can significantly improve your chances of success in trading. The main thing is to understand what types of trading methods will most closely match the psychotype of your personality and your lifestyle. This approach will allow you to choose what is best for you, and not get confused in a huge mass of different strategies and options.
If you use a trading strategy that goes against your personality, then no pumping discipline will save you. You will systematically disrupt the trading plan, trade intuitively and be stressed during trading. Such is the grim reality of trade.
I hope I have given enough arguments in favor of the need to understand your psychotype. Given all of the above, let’s look at the three main parameters to determine what is right for you.
1. PERSONALITY AND TIMEFRAME
The first thing to determine is your ideal trading timeframe or, in other words, “the timeframe of your personality”. This will require a little experimentation. Three options can be taken as a basis:
- intraday trading
- swing trading
- long term investments.
Read how to choose a trading style in this article.
You can take several systems that are publicly available and start trading on a demo account. This will allow you to feel well which timeframe is best suited to your personality, your pace of thinking and your daily rhythm of life. Remember, you are looking for a time frame that suits you personally best. Not the system that makes the most money.
2. PERSONALITY AND TRADING APPROACH
In addition to finding the optimal time frame for trading, you need to choose a method for assessing the market situation. To summarize, then you need:
- technical approach (based on the price chart),
- fundamental (based on the news background, affecting the movement of a working asset).
The challenge here is to start with one single method and to master it as well as possible before moving on. You can earn by owning both equally well or using only one of them. From personal experience, I can say that when I was trading, I relied more on technology than on the foundation. The ratio was approximately 80/20. These numbers can be very different depending on the trader.
If you are more a technical trader, then you can conditionally break down strategies into three categories:
- breakout models
- reversal models.
Understand what is most comfortable for you psychologically. You can always add more strategies to trading but do so later. You need to start with a detailed and detailed development of one thing.
3. PERSONALITY AND RISK TOLERANCE
The third important thing you need to find out is your personal financial pain threshold or level of risk tolerance. I’m sure that you have heard and read on the Internet a thousand times that in no case should you risk more than 2% of your capital in one transaction. And that’s a great tip. But then the question arises: how much can you risk?
In fact, everything is extremely subjective. It is necessary to determine not by rigid formulas, but at the level of psychological comfort.
If you fit into the mathematical 2%, but at the same time experience stress and discomfort, then your level of tolerance is lower. As a rule, if you exceed a comfortable level, then difficulties with fear, insecurity, early closing of transactions and problems with discipline begin.
The problem is that when trading on a demo account, it is extremely difficult to determine this parameter. Here you do not risk real money, and, therefore, psychologically do not perceive the loss as a loss. Therefore, I would recommend opening a small real account, but not less than $ 100, and try to trade. The invoice amount can be any, but only the one that you are not afraid to lose. And in no case do not immediately open a large real account!
If you start your trading path in trading by defining these three parameters for yourself, you will get a much greater chance of success. When you define your timeframe, approach to assessing the market situation and the level of risk tolerance, you will know where to go next, in which area to look for additional knowledge. It is much more effective to develop your strengths than to go against yourself in blind pursuit of money.
When you want to find a mentor for yourself (and you will definitely come to this if you develop in the profession), then understanding the points listed above will greatly facilitate your choice. Save you a ton of money and time.
In the next article, we will see what happens if nothing is done, and to trade everything and everything in a row, not taking into account our own psychological characteristics.