To succeed in the stock market, you must be clear on the stock trading strategy the best fits you and your trading goals.
The strategy is the concept that underpins your stock trading system – this is what gives you the edge in the markets. Some common examples include:
Many stock trading strategies can make money, BUT, because of your own psychology, beliefs and preferences many of these may not work for you. You must have a valid trading strategy to guide your decisions otherwise you will lose money in the stockmarket.
YOUR TRADING STRATEGY MUST SUIT YOU!
Most new comers to the stock market (or any other financial market for that matter) feel impatient and just want to start using a profitable stock trading system. After all “I just want to learn to trade and make big money” right? BUT this is symptomatic of why most people fail miserably at trading…most people want the quick answers that make the mega bucks. BUT without an understanding of how your stock trading strategy fits your psychology you are unlikely to trade profitably…because it doesn’t fit YOU!
This is not because the strategy doesn’t work. It is because when you try to consistently act against your beliefs and self image it causes psychological discomfort (pain). The result of this psychological pain is generally self sabotage but at the very least it will cause stress and costly mistakes.
For example, new traders often ask “Can you show me how you trade?” but this is the wrong question to ask. Everyone has different beliefs, experiences, preferences, fears, strengths etc. This means that just because someone profitably trades one strategy and system, it doesn’t mean you will feel comfortable following it.
The more useful question to ask is
“What stock trading strategy will work for me?”
Most new traders are not willing to think about their own psychology and preferences before launching into trading. The path to successful trading and making big money is first to understand yourself, and then develop your own approach that is specifically designed to suit you. The great thing is this is actually very easy – especially if you have someone who can help you learn stock trading!
Once you have identified the strategy that fits you best, you can design a positive expectancy trading system and structure your portfolio and position sizing to meet your (written) objectives.
Only by knowing yourself and your preferences, beliefs, objectives can you select from the many different strategies that do work.
What is the impact of selecting your stock trading strategies well vs poorly?
Appropriate strategy for you:
- The trading process is easy
- Little stress
- Few mistakes
- Emotionally rewarding
- Trading is lucrative
Inappropriate strategy for you:
- High levels of stress
- Frequent and costly mistakes
- Inconsistent application of rules
- Emotional decision making
What do you need to know about yourself?
The first step to finding a strategy that suits you is to understand a little more about yourself by doing a new trader ‘Self Assessment Questionnaire‘. This simple questionnaire takes about 10 minutes to complete and will give you a lot of useful material to help you select the best trading strategy for you. Complete this now before moving on.
After you have completed this you will have an understanding of what you have to work with and what some of your relevant preferences are to help select the right trading strategy for you.
What Stock trading strategy will suit me?
Now let’s look at the main trading strategies to choose from. Remember, you simply must have a valid strategy which suits you.
Below is a link to a detailed description of some common stock trading strategies and the personality traits required. Review these and see if it is clear to you what strategy is right for you:
- Trend Trading / Trend following
- Trend Following Stocks
- Swing trading
- Mean reversion
- Fundamental value trading
- Statistical methods
- Pattern trading
Once your ideal strategy is clear you are ready to move onto designing your stock trading systems.
If you are not sure what stock trading strategy appeals to you then I strongly suggest you read Jack Schwager’s outstanding ‘Market Wizards’ series of books shown below. These books are interviews with the best and most successful traders in the world who employ many different trading strategies. The traders describe their approach, philosophy, lifestyle, beliefs and much about the edge that they use to make money in the market. They will be extremely helpful in identifying trading strategies that do and don’t appeal to you.
In summary, here are the recommended actions to help you find the best stock trading strategy for you:
- Complete the self assessment questionnaire to document your preferences, objectives and ideal trading lifestyle to give you a starting point to determine the best trading strategy for you
- Document in detail the ideal lifestyle you want to achieve based on the benefits trading will bring you. This will tell you what your trading needs to look like to reach your lifestyle goals. Trading is not an end in itself, it is a means to get the life you want – so you may as well start with that end in mind! For an example of what this looks like, click here
- Match your preferences to one of the common trading strategies and study that strategy in further depth throughout this website and using the resources recommended
- Seriously consider reading the Market Wizards books and identify which traders you most relate to ensure you are clear on your chosen strategy
Now that you have identified the best trading strategy for you to adopt (at least for your first trading system) you are ready to return to learn what complete stock trading systems looks like and how to build your own. You can do this with confidence that you are starting on a path with a strategy that will suit your personality and ideal lifestyle.