How to make the perfect trading strategy: 5 important steps

There are numerous trading strategies on the Internet. However, most of them were developed for the stock market. Every market has its unique features. For example, a perfect forex trading strategy won’t be that perfect for the cryptocurrency market. Therefore, you need to develop your own approach to trade successfully. Still, you can use the standard strategies as a base for your own method. 

What’s the best trading strategy? Let’s find the answer. 

1. Money management

What is a good trading strategy? It’s one that doesn’t allow you to lose all your funds. You need to invest a sum that won’t affect your daily life. Be ready for losses, and make them comfortable for you to bear. One winning trade doesn’t guarantee another—so don’t risk more funds than you can afford in hopes of another successful trade.

According to statistics, 25%-50% of traders spend only 2.1% of their budget on Forex trading. 

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2. Choose the market

Every market has its own features and factors that affect the value of certain assets. For instance, Microsoft Corporation’s internal events won’t affect Bitcoin’s direction. However, they will determine the value of Microsoft’s own stocks. 

Risk-Adjusted Return and Sharpe Ratio Guide

Also, the assets differ with the level of volatility. The cryptocurrency market has high volatility, while the major currency pairs on Forex are considered stable assets. Therefore, before you start building your own strategy, define what assets look more attractive to you. You can base your choice on various factors, including:

1. Knowledge. Maybe you already know something about the asset you can trade. If you are interested in stocks, you may know what factors affect their value. Or, if you are a crypto lover, you are supposed to know everything about the cryptocurrency market. 
2. The level of volatility. Highly volatile markets may provide larger returns, while markets with low volatility may provide stable rewards.
3. The sum you have. Assets require different investments. Therefore, you need to evaluate how much you can afford to achieve the goal. 

3. Timeframe

A trading strategy should fit the timeframe you trade on. For instance, the perfect intraday trading strategy will be built on short-term timeframes (lower H4), while the best position trading strategy will require you to hold a position for months or even years. 

If you choose low timeframes, you need to be ready to monitor the market constantly, be aware of all events that can affect an asset’s price within a day, and be ready to open numerous trades within a short term. This may result in increased fees. 

However, if you trade on higher timeframes, you need more funds to avoid a position liquidation in case the market turns around. 

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4. Determine indicators and their settings

What is the best trading strategy for beginners? The most effective strategy for beginners is one that combines fundamental and technical analysis. An indicator applied on a price chart has standard settings. However, they can’t work the same for short- and long-term trades. Therefore, you need to test them and determine the parameters that will work on the timeframes you are interested in. 

5. Stop-loss and take-profit orders

Even if you want to build a perfect day trading strategy and plan to stay in front of the monitor the whole day, you must set take-profit and stop-loss levels, especially if you trade on events or on highly volatile markets. As the price changes rapidly, you need to be able to exit the market with minimum losses or maximum returns. Determine these levels according to your trading approach. 

What is the most successful trading strategy?

The most successful trading strategy is the one that fits your goals, balance, and lifestyle. There is no perfect strategy for every trader. Only a trader that can develop their own approach can succeed in the long term.