Market have refined a standard procedure that I use for the process of creating a trading strategy. I always start with the big picture and make increasingly more detailed decisions about the strategy.
I begin with the assessment of what type market action i would like to trade and what quite trader i'm . Then I end up with making decisions on exits, and how far away to put my money management stops.
How are you able to adapt my strategy making to your personal psychology?
You Must Pick the Market
The first decision you would like to make is what sort of market you want to trade. Although this may look like an easy decision, in fact, it is a difficult judgment, because most new traders only consider the profit aspect. They simply try to pick the strategy that they think will make the most money. Focusing on money will probably lead you to make the wrong decision. It is the psychological aspect of trading each of the markets that is the most important consideration. It does not make sense to create a very profitable strategy if you are unable to trade psychologically.
What is Your Trading Time Frame?
You need to decide whether you will day trade or trade on daily or weekly charts. It is very difficult to have a job and trade intra-day. It is not totally impossible, just very difficult.
Most people want to trade part time and still hold down a day job. If you want to do this, it is better to trade daily or weekly charts. You will only be able to look at the market outside of your working hours and your strategy design will have to take this into account.
The strategy should not require you to check the market during the day. I think that there is only a certain amount of money that you can get from the markets and that depends on the time frame you choose to trade.
Time frame choice is a personal decision, and of course there are no right or wrong answers. The ultimate decision is personal preference influenced by financial your considerations. But you have to make this decision before you start looking for indicators, as the choice of indicators is influenced by the time frame selection.
However remember the old saying: "if you 'buy and hold' then eventually everything are going to be fine. Remember the expression touted - "It's time in the market, not timing the market."
My guess is that more active investment management will be the key for anyone wanting to make a better-than-inflation return from shares over the next five years.
What I am trying to point out is that short term or day trading in this type of market is better than buy and hold. But it must fit in with your time availability.
The Types of Market
There are three sorts of market action: trending, directionless and volatile. I think a directionless market is very hard to trade, thus I will not discuss the directionless market here. I would suggest trading either a trending market or a volatility market.
You can choose a trend strategy, knowing that you simply are getting to need to trade through periods of corrections during the directionless phase, otherwise you choose a volatility strategy that will give you extended periods of doing nothing while you wait for the next trade. Which one is for you?
We will check out a volatile market and a trending market and build our strategy accordingly.
What is a Volatile Market?
A volatile market is characterized by sharp jumps in price, up or down. This type of market action involves a fast and unexpected change in volatility. One measure of volatility might be the difference or spread between two moving averages - the spread increases with volatility. Price action, like gap openings or a rise within the daily range, also can be considered a sign of a rise in volatility.
Each of those two sorts of markets (Trending and Volatile) are tradable, but with markedly different trading strategies. Let's take a look at each type of market behavior and the strategies that are appropriate to that type of market.
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