4 Basic Principles of a Simple Trading Strategy

Looking to make money trading but don't know where to start? A simple trading strategy can help you get up and running with minimal risk and effort. This guide will walk you through the four basic principles of a successful trading strategy, including understanding market trends, setting limits on risk, managing your portfolio, and developing a sound plan for success.

Know the Markets You Trade.

Knowing the markets you trade is essential to developing a successful trading strategy. This means not only knowing the ins and outs of the particular exchange on which you are trading, but also understanding market trends as a whole. Researching technical and fundamental analysis can help you understand how different markets move and allow you to make informed decisions about when to buy and sell various investments.

Set Yourself a Simple Plan and Stick with It.

A simple and successful trading strategy requires having a plan in place. This should include identifying how much capital you’re willing to risk, what sort of investments you feel comfortable with and when you will enter or exit a trade depending on the trend. Developing this plan in advance allows you to set clear parameters that will guide your decisions and help guard against impulsive trading.

Develop Your Money Management Rules.

Establishing rules to manage the amount of money you’re going to invest in each trade and how much you are willing to risk is a crucial aspect of any trading plan. Limiting how much capital you are willing to risk stops you from taking too big a loss if the market moves against you. Additionally, setting parameters such as position size, amounts and types of investments also helps traders take measured risks and stay within their comfort zone when it comes to volatility.

Implement Intraday Strategies as Appropriate.

Intraday trading, otherwise known as day trading, can be a great way to use the fluctuations of the stock market to your advantage. When it comes to intraday strategies, instead of holding positions over one day, you move in and out of securities on the same day. This type of strategy can help you make reliable returns on small price movements up or down. Consider using chart patterns, candlestick breakouts and indicators to detect potential opportunities and decide when to enter or exit trades accordingly.

Record Your Results and Analyze them Regularly.

It’s one thing to have a simple trading strategy, but it’s even better if you can track and analyze your results over time. Doing so will allow you to tweak or refine your trading plan in order to make sure that it is appropriately optimized for current market conditions. Record each of your trades, including the rationale behind why you executed them and how profitable or unprofitable they were. Then review these records on a regular basis to get an overall sense of whether or not your strategy is successful in its current iteration.