5 Tips for Developing a Winning Trading Strategy

It’s not easy to find a trading strategy that works every time. For some, it takes years of work and an eternity of patience. At the same time, others might get lucky one day and strike it rich by following a “lucky” system. More often than not, though, we believe the latter isn’t likely to happen without the prior being achieved first.

A Strong Understanding of What Moves Your Market

Markets are affected by both fundamental and technical analysis. It’s advisable to have a firm grasp of both to develop a winning trading strategy. Fundamental analysis involves looking at the underlying economic conditions that can affect security, such as GDP growth, interest rates, inflation and earnings releases. Technical analysis, on the other hand, looks at the price and volume patterns to try and predict future price movements.

It’s essential to consider the economic factors that might affect prices in other markets, as they often do. For example: Is the US dollar strong or weakening against foreign currencies? Or is oil expensive because of impending supply shortages? What about international events, and how will they impact your trading strategy? How will a natural disaster affect a commodity like copper? How does Brexit look these days, and what kind of long-term implications could it have on the price of UK shares? Will this trade be affected if China enters another trade war with America?

Strategies that Suit Your Personality or Preferences

Investment goals and risk appetite are two very personal things. Not everyone wants to be a day trader and risk their entire account balance on one trade. At the same time, others thrive on the adrenalin rush of taking significant risks in the hopes of landing a massive payout. Your trading strategy should match your investment goals and risk appetite, not someone else’s.

Winning CFD Strategies Include:

Risk Management

It could be anything from setting stop losses to only trading a certain percentage of your account balance.

Position Sizing 

Trading a fixed amount or percentage per trade can help limit your losses and safeguard your profits.

Chart Patterns 

Learning to spot chart patterns can help you enter and exit trades with greater precision.

Indicators

Using technical indicators can help you confirm or deny the validity of a chart pattern.

There is no one-size-fits-all when it comes to CFD trading strategies. You need to find one that suits your personality, investment goals and risk appetite. Fundamental and technical analysis are important aspects of analysing the markets, but they’re not the only ones.

A Trading Plan with Rules

To succeed in this industry, you need a trading plan with rules to follow no matter who you are. It will help keep you disciplined and focused while trading. A good rule of thumb is to have at least three rules that you never break:

• Always use stop losses: So, even if your strategy or analysis fails, you won’t lose too much on a trade.

• Never overtrade: Have a set amount of money to put into a trade, and then walk away – when that amount is reached.

• Have a specified time frame for each trade: Don’t hold onto a losing position just because you think it will turn around.

Discipline and Mental Strength

• To be a successful trader, you need self-discipline and mental strength. 

• Successful traders should keep emotions out of the trading equation as much as possible.

• It means not letting greed or fear control your trading decisions.

A Back-Testing Model

Back-testing is one of the most critical parts of developing a winning trading strategy. It uses past price data on a given market to predict future movements on that market. A good back-test model will give you an idea of how profitable a system might be in real life, compared to just how well it did during that testing phase.

It takes time, effort and patience to develop a winning trading strategy that works every time, but if you’re willing to put in the work, you’ll be well on your way to achieving your goals.