How to build a successful trading strategy?

Trading is a risky business.

Even before you begin your adventure into the world of stock trading, you need to have a trading strategy, which is essential for your long-term survival in this space.

There are many components that compose a good trading strategy; however, there are two key steps that any successful trading plan needs to follow. Its absolutely critical when it comes to creating your own trading strategy to first make sure your winners are larger than your losers and secondly to implement sound risk management strategies.

Moving forward, were going to explore what ingredients are needed to build your step-by-step trading strategy.

Why Have a Trading Strategy？

First and foremost, it helps you monitor your trades. If you dont have a system behind your trade it will become very difficult to find new trading opportunities and respond to the new market conditions once you have the trade on.

Developing a successful trading strategy will also introduce consistency because if you already know systematically what youre looking for, it will improve your ability to spot trading opportunities.

Essentials of a Trading Strategy

The essential components of a good trading strategy are comprised of four basic elements:

• Developing directional bias, qualify the entry

• Determining stop-loss and take-profit targets

• Define your preferred time frame

• Utilize risk management

Establishing a directional bias is simply a matter of deciding whether you think the stock is going up or if you think the stock is going down.

Basically, developing a directional bias will assist you in determining the trend direction and whether you‘re going to buy or you’re going to sell.

The process of establishing a directional bias can be broken down into two components:

• Predicting where the stock price is more likely to go: up or down

• Trading rules that validate your directional bias