The Building Blocks Of A Profitable Trading Strategy

By David Hobart
2 March 2009

Approaching the trading game for the first time can seem a daunting endeavor. There are so many markets to trade, offering almost infinite opportunities. So how should you approach trading if you are new to the trading game? The first thing to do is define the boundaries of your game. Once these boundaries are defined, then we introduce some simple rules to get you started.

Define the boundaries of your game

You need to know what your boundaries and objectives are before you can start trading. If you were standing in the middle of a big open space and someone threw you a rugby ball and said “off you go!”, what would you do? No sidelines, no try lines, which way are you to run? What makes Rugby fun and purposeful is the basic rules that define it (not the complex ones which no one understands – but don’t get me started!).

The same applies to trading. How much capital am I willing to risk? Given this risk, what returns on that capital can I reasonably expect? Once these basic rules and objectives are decided we can then add a few more which will give you some structure in the way you play the game.

KISS Principle

Keeping it simple is always a good start. The first thing; which market will you trade? Find one market that you are interested in and look to develop a simple strategy that works for that market. There are hundreds of markets that you could trade, but when starting out, focus your initial attention on one market. Markets are markets - they are irrational at tops and bottoms; they’ll kick you when you’re down and reward you when you don’t need it or expect it. What you learn from trading this one market will be valuable to you for years to come, regardless of the markets that you trade over time.

Start short term

One of the more difficult challenges faced by novice traders is holding onto a winning position. It is one thing cutting losses, but letting profits run is an acquired skill. Running profitable trades for long periods is often quite emotionally draining for novice traders. For this reason, when starting out, it’s best to keep your time-frames short, until you get the basics of your strategy working effectively. When I started trading, all of my trades were day trades; now I can hold trading positions for months.

Trends or ranges? You don’t need to be all types and capture all moves.

There are many schools of thought regarding the best way to trade. Simplistically, markets tend to go up, down or sideways, depending on the time-frame. So decide whether you want to capture trends, or trade ranges, and focus your efforts in developing a strategy suitable for either of these two types of markets. You needn’t capture all moves, and in fact, by trying to, you’ll end up missing most.

Just be aware that trend followers typically get chopped up in ranges, and range traders tend to lose money in trending markets. The trick is knowing 1. which type you are, 2. which type of market you are in, and 3. keeping losses to a minimum when markets are working against you.

There is plenty of money to be made in executing one type of strategy well. And there is plenty of time to add other feathers to your bow when your initial strategy is profitable.

If you would like to find out more about David Hobart’s trading coaching and mentoring programs, please email David at dhobart@traderemotions.com.au  . 
 

Bookmark this page

Delicious Digg Facebook Furl Google Bookmarks Reddit Stumbleupon Yahoo My Web

Disclaimer: The contents of www.traderemotions.com.au is general information only and in no way provides advice in a personal or general nature. David Hobart and his related entities can not be held responsible for any loss, cost or expense resulting from your activities related to the subject matter in this document and or relating to www.traderemotions.com.au

Home
Traders Curriculum
Coaching Programs
About David Hobart
Contact Us

Back to Top