how to develop a trading strategy

Your system should be complicated enough to be effective, but simple enough to facilitate snap decisions. If you have 20 conditions that must be met and many are subjective, you will find it difficult to actually make trades. In fact, computers often make better traders than people, which may explain why most of the trades that now occur on major stock exchanges are generated by computer programs. There are at least two possible exits for every trade.

how to develop a trading strategy

To become an expert at identifying profitable trading opportunities and building strategies around them will take time and practice. To begin with, you should look for academic research papers, read quant blogs as well as trade journals. But most of all, it is important to build a sound conceptual understanding of the quantitative methods underlying it.

Create Your Own Trading Strategies

For this final step , remember that your aim is to achieve positive expectancy with every trade. Plan how you will obtain feedback and improve your trading strategy. If you have a mechanical trading strategy and a coding background, you can speed up this stage. You will find it useful when you are trying to refine it. Having a written trading plan is a robust method to ensure discipline and consistency. Even with the right market context, you need an objective entry trigger. Or if you choose to trade equities, you must know what a share means.

  • For a trading plan to work it needs to be backed up by a trading diary.
  • If the price leaves the boundaries of risk parameters, brokers forcibly close margin positions.
  • Impressive numbers of stock-market traders jump every day on the latest news as the basis for deciding to buy new instruments or to sell their current holdings.
  • Reading books and watching videos can help you find a good strategy.
  • It is quite important to know your particular trigger to enter the market without any hesitation.

Trend is a focused price movement, taking into account which the trading is conducted. The ascending trend opens, mostly, longs, while the descending – shorts.

Simple Gold Trading Strategy – Gold Trading Secrets

Then, we cantrade the stocks when they are at extremes. This means that the stock is doing something that it hasn’t done all year and that the price action is very clean. After you have developed your algorithmic how to develop a trading strategy tools, you can deploy them to execute the trades when you are there and when you are not. You can also develop algorithms to automatically alert you once a particular market meets your trading expectations.

A trendline is a charting tool used to illustrate the prevailing direction of price. Strategies fall in and out of favor over different time frames; occasionally, changes will need to be made to accommodate the current market and your personal situation. Create your own strategy or use someone else’s and test it on a time frame that suits your preference. Keep in mind you do not need to look for strategies that work 100% of the time.


Quants traders make use of programming tools such as R, Python, and Matlab to build and backtest their trading strategies before deploying them for real trade execution. Whether you’re using technical analysis to day trade or gauging future earnings growth for a decade-long investment, you’ll need to understand the pros and cons of your strategy. The best investors in history have a track record littered with mistakes, so it’s unrealistic to think you’ll never encounter a losing streak or a run of bad luck.