Every trading strategy is different, as every trader is different from each other. Trading strategy of a trader depends on the approach, goals, trading style, and risk tolerance for a trade. Here is what every trading plan should have to become an effective strategy in entering and exiting the trades.
Before you jump into trades which involve real money, try your knowledge and skills on paper trading. Find out whether you can follow your signals with confidence. Trading in the market can get stressing pretty easily if you are not prepared for the wins and losses. Make sure that you are financially and mentally comfortable with your trading plan.
Set risk level
Your strategy can only go on as long as you do not cross your risk limits. It includes the portfolio that you can afford to lose in a single trade. The amount of risk can vary, but you should control it under 1-5%. If you lose the amount of this 5% at any given day, you should close trading for the day and come back another time.
You should set risk-weird ration for each of your trade. Knowing your minimum risk/reward, you will be able to save a considerable amount of money if you lose the trade and make more when you the trade is successful. An ideal risk-reward ration demands at least three times profit on the risk.
Do the homework
Before you invest in the market, update yourself with what is going on around the world. Check the conditions of the overseas markets. Find out the latest economic condition of your country as well as the other leading economies. Stick notes for all the updates and lists of the market in front of you to decide next moves. It is always better to be patient before the market opens and make decisions with the most recent updates. Listening to your gut will not help you all the time when you are trading.
While you are using a specific trading system or program, make sure to label your major and minor support and resistance levels on the charts. If you are using a tool, set the entry and exit signals for your trades and make sure you can easily detect all the signals either by sound or by visuals.
Set exit and entry rules
Many traders make the mistake of keeping their trades for too long even after they are facing constant loss. Hoping for your loss to become profitable is not a healthy way of trading. If your stop loss gets hit, you should exit the trade and find new ones. Similarly, when you make the profit you expected, take out your profits. Do not be too greedy to keep the trade for long as the market can decline the next moment.