How To Form a Trading Strategy
“Trading System” and “Trading Strategy” are two words that are often used interchangeably, but have two entirely different meanings.
A Trading System is the plan you put in place to accomplish specific goals in the market. Your trading system incorporates your trading goals, resources, and strategies into a plan to accomplish your purpose in the market.
Most of the time, when people talk about trading systems they are actually talking about a trading strategy. A trading strategy defines a set of rules you will follow in order to take advantage of a specific opportunity you see in the market. To build a trading strategy you would follow the following steps:
Step 1. Define what filters you will use to identify your opportunity in the market.
Step 2. Create the rules for your setup.
Step 3. Identify your trigger.
Step 4. Identify your target.
Step 5. Identify your stop.
Step 6. Determine your position size.
Step 7. Apply any trade management techniques.
Step 8. Track your results.
Step 9. Review each trading sessions.
Step 10. Use stats to adjust your strategy.
In the past, we’ve worked through developing trading strategies in some of the classes taught in the Apiary Fund. We have even tested the strategies developed in the trading room before! Don’t forget to note the importance of steps 9 and 10; if you don’t evaluate the performance of your strategy and identify areas that need adjusting you might miss out on the performance or results you are looking for.
Challenge yourself to take the time and actively follow these steps. You might be suprised at what a difference it makes to make every part of your trading strategy intentional. We also encourage you to share your trading strategy, there is a lot to learn from the power of collaboration!