Too many traders mistakenly believe that there is only one “right” way to trade and that the only way to succeed is to replicate the trading style of another great trader. The fact is that no two successful traders have exactly the same trading strategy. A trading style is something essentially personal, not a cookie-cutter method to analyzing and exploiting opportunities in the markets. Your trading style will be a reflection of your talents and interests.
Successful traders specialize and gain competence by developing their trading strategies. Consider the legendary basketball player Dennis Rodman. Rodman was a vital contributor on several championship teams despite being a poor offensive player. He excelled as a rebounder and defender. Rodman concentrated on his abilities rather than attempting to be a carbon copy of others, just as you will while building your trading technique.
Your ability to build a trading style that speaks to your strengths will be a significant driver of your final success as a trader. Use the five questions below to help you discover and define your own distinctive trading style:
1. What are your favourite stocks to trade?
Based on their price, volatility, and liquidity, stocks have diverse characteristics and react differently. Your pick of equities to focus on will have a significant impact on your trading strategy.
Some traders like to trade low-priced, volatile stocks, while others prefer to trade high-flying companies like AAPL or PCLN. Some traders like to focus on stocks in a certain industry, while others may stock-hunt all day to uncover attractive stocks. Determine which stocks you have success trading and which ones you should avoid based on your trading results.
2. How long do you keep your trades in your portfolio?
The length of time you hold your average deal is another important aspect of your Trading Technique. Some traders like to profit from rapid, minor stock moves via scalping, which involves holding positions for a few seconds to a few minutes. Others use a Longer-Term position trading strategy, holding bets for several hours in order to profit from lengthy market changes.
Your holding period will have an impact on how you evaluate trading opportunities. Position traders may identify chances inequities that scalpers ignore, while scalpers may locate opportunities on a longer timescale than position traders.
3. What Motivates You To Start A Business?
While expert traders will have a playbook of trades, new traders should concentrate on only a few setups that make sense to them. These fundamental setups will be crucial to your trading approach.
When trading returns to trendlines, some traders, for example, focus on buying strong equities. Others might opt to trade breakout or breakdown trades in order to profit from the subsequent momentum. Others may want to trade against the trend in order to profit from a reversion to the mean.
Regardless of the primary settings you focus on, you’ll be scouring your universe of stocks for those possibilities. Make sure your fundamental configurations make sense to you and that you understand how to use them.
4. How do you handle your posittions?
Your overall Trading Strategy will also be influenced by your position management tactics. Keep in mind that trading isn’t only a buy/sell choice, and that having good position management skills can help you maximise your earnings on successful trades while minimising your losses on failing deals.
You should figure out how you’ll decide on position sizes for your trades, as well as what criteria may prompt you to increase your position size on a winning transaction. Some traders like to start with smaller positions and increase their size only when they are profitable, while others prefer to start with larger holdings and not add to them during trades.
5. How Do You Exit?
How you leave your transactions has an impact on your entire trading strategy, just as your entry criteria do. In fact, because most new traders are focused on finding the best entry opportunities for their positions, this may be the area they miss.
You could decide to exit your trades all at once when a profit objective is reached, or you might like to get rid of a section of your position for a scalp while keeping the remainder for a position trade. It’s easy to examine how your departure preferences influence your average holding time.
While this isn’t a comprehensive list of all the elements that go into making up your Trading Style, these five questions can help you narrow down your strengths so you can concentrate your efforts there. Finding your trading style should come naturally as you examine your performance and keep doing what works while removing what doesn’t. While it’s always a good idea to work on your flaws, growing traders improve faster when they select a trading strategy that focuses on their strengths.