These 6 key elements could make or break your trading strategy…

by , 27 June 2018
These 6 key elements could make or break your trading strategy…
Q. “What are the most important components I'll need to create a profitable trading strategy?”

A. This is the most important question you should be asking yourself before you start to trade.
 
Today, I am going to share with you the 6 key things you should be asking yourself:
 
  1. Markets – What markets will you buy or sell?
  2. Position Sizing – How much will you risk per trade?
  3. Type – What type of trading strategy will you use? 
  4. Entry – What criteria will you use to enter a trade?
  5. Risk – What criteria will you use to exit a losing trade?
  6. Reward – What criteria will you use to exit a winning trade?
 
Once you have written down these six key components, print it and laminate it.
 
This piece of paper will be your profitable trading strategy you’ll need with you every day to spot winning trades and grow your portfolio. 
     
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Q. “Is there an exception where you won’t use a stop loss when you take a trade Timon?”
 
A. Absolutely not!
 
When you trade derivatives, such as CFDs, you’re risking anything from 10 to 100 times your initial deposit.
 
This means without a stop loss, if the trade goes against you, you can lose a lot more than the deposit.
 
But it’s not just the money you’ll lose but your sanity.
 
You’ll find that when you don’t place a stop loss on a trade, anxiety and panic will creep in as you’ll know your entire portfolio is at risk.  
 
One of my mentor’s once told me, which has stuck…
 
“When you close a trade for a loss, you’ll have another opportunity to find a new and better trade.
 
However, if you don’t close your trade for a loss, then there will be no more opportunities to open a new trade for a profit when you find your portfolio is bust” 
 
Q. “Timon, in your own words, could you tell me the difference between fundamental and technical analysis when it comes to shares?”
 
A. Sure, here is my take on the two.
 
Fundamental Analysis is information and data you use to calculate a company’s intrinsic share price value. 
 
Fundamental analysts use the following information:
 
  • Financial statements
  • Share ratios
  • Prospects and projections
  • Economic, geographical, socio and political factors
  • Management structure
 
Technical Analysis is when you use historical data to help you predict where the market’s share price will move to next.
 
Technical analysts use information such as:
 
  • Price action
  • Indicators and oscillators
  • Volume
  • Trends and momentum
 
So in short…
 
Fundamental analysts uses all of the macro and micro company related information to calculate its “intrinsic” value of the share price.
 
Technical analysts uses all of the historical data and chart information to calculate where the share price will move to next. 
 
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Q. “I’ve been holding onto a trading position for the past four weeks, and it’s done absolutely nothing. Do you have a rule you use in this situation. I find this trade is an opportunity cost, where I can do better things with my money?”
 
A. Yes, indeed. As a short-term trader, I get impatient holding onto a trade for weeks on end.
 
And so I have, what I call, a “Five-Week-Time-stop” rule.
 
If my trade hasn’t hit the take profit or stop loss level within those 35 days, I close the position no matter where the market is trading at.
 
It’s better to take a small reward or loss and look for a better trade, than having your money aimlessly tied up in a position that’s going nowhere.
 
Always remember, “Wisdom yields Wealth” 
Timon Rossolimos,
Managing editor, Red Hot Storm Trader
 


These 6 key elements could make or break your trading strategy…
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