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Getting Started with a Basic Trading Strategy

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Updated on November 17, 2022 by
Getting Started with a Basic Trading Strategy

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If you're a beginner trader, getting your footing and becoming comfortable risking or making money on trading platforms can be challenging. You might need to figure out where to start, or if you know, you might not be 100% certain your plan will work. However, if you formulate your own basic trading strategy before starting, it will be easier to gauge your progress and make adjustments as needed. 

A trading strategy helps you create a repeatable process that can more or less guarantee success whenever you trade in the markets. It makes your life easier and allows you to master the fundamentals of being a successful trader. This trading guide will look at how you can create your own basic trading strategy and what aspects of the industry you should pay keen attention to. 

Pick Your Instruments of War

As a beginner trader, your first challenge is learning about the different trading instruments in the market and the ones you want to concentrate on. This will narrow your focus to a few fields, which will help you build expertise in them quickly. Some of the instruments in the market include stocks, crypto, currencies, indices, options, futures, and commodities. 

The other aspect of your trading you need to figure out early on is what type of trading you want. Different trading strategies take different amounts of effort and produce different results. Your goals and objectives should help inform what style works best. Some types include day trading, swing trading, scalping, and position trading. 

The Average Household Income in the...
The Average Household Income in the United States

Know Your Fundamentals and Technicalities

Have you ever heard of the saying that knowledge is power? This is more true in trading than in most other industries. The ability to quickly analyse instruments and have a basic indication of how they will move or react to different market forces is invaluable in this industry. To help you out, ensure you understand how to conduct fundamental and technical analyses of instruments before locking your positions. 

Learn to Read a Price Chart

Another invaluable skill you need in your trading strategy ammunition belt is knowing how to read a price chart. This is because price charts and candlestick formations go hand in hand with the style of trading you choose, as well as give you insights into how the market will react to the current activity. Furthermore, knowing how price charts work allows you to adjust your trading strategy as situations evolve preemptively instead of reactionary. 

Create a Testing Benchmark

At this stage, you already know your trading style and instruments, have analysed the price chart, and have a pretty good understanding of how your trade might turn out. However, it's not yet time to place the trade. As expert carpenters will tell you, measure twice and cut once. Test your trades on the platform's demo account or using the backtest function and adjust it as needed. Then you can place your trades when happy with the results. 

In addition, make a habit of testing your strategies even when you feel comfortable trading and confident in your trading strategy. Testing is the only way to see how well an approach works without doing any real damage. 

Quit While You're Ahead

Learn how to calculate your take profit and stop loss levels for each trade to help you exit position at the optimal times. Luckily, most trading platforms already do this for you automatically. A stop loss limits the amount you can lose on a single trade, while a take profit closes your position after a trade meets your profit threshold. However, it's essential to remember that the only way to know how a trade or a candlestick will form is by letting it develop. So trust your research and instinct, and let trades play out. 

Conclusion

The only way to become good and efficient at something is by forming processes you can use to replicate results, and trading is no different. However, you don't have to invent the wheel as a beginner trader. There are many online resources and trading books you can read to help you implement what already works for others. Furthermore, in no way is this strategy guide a comprehensive look at what goes into creating a trading strategy, but it's an excellent start. 

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