Trading Strategy: How To Enter And Exit The Market
To anyone trading in markets, it’s advisable to have a strategy to enter and exit the market. Just ‘guessing’ isn’t likely going to work out too well in the long run for anyone trading in markets. Having a trading strategy can be extremely helpful. What is trading strategy? What is the purpose of a trading strategy? What elements needed to develop a trading strategy? How do we create a trading strategy? All questions answered in this article.
WHAT IS TRADING STRATEGY?
A trading strategy is a method consisting set of rules that help a trader make decisions to enter or exit the market. Having trading strategy reduces subjective judgement and guessing. Trading strategy or trading method is a part of a complete Trading System.
WHAT IS THE PURPOSE OF TRADING STRATEGY?
With a trading strategy, traders can focus on situations in which the market may be giving them the best probabilities of success. Without a strategy to enter or exit the trade, you are simply buying or selling something with the hope that your trade will somehow end up in profit. Thus, having a solid trading strategy while reduces subjective judgement and guessing, in the same time increases your probability to make profit and minimize loss.
ELEMENT OF TRADING STRATEGY?
The basis of a trading strategy consists of the following elements:
- ENTRY RULES. You must determine when is the best time to open trading position, buying or selling
- EXIT RULES. After open trading position, the price goes to the desired direction, and you are making profit. You must determine when is the best time to close position to maximize profit. Here you set Take Profit level.
- STOP LOSS RULES. There is always the possibility that the price goes to the opposite direction. You need to determined when in the best time to close position to reduce loss. Here you set Stop Loss level. This is importance, because you should not let the losses getting bigger and ruining your trading account
HOW DO WE CREATE OUR OWN TRADING STRATEGY
Usually trader uses Technical Analysis to spot the market situations that give the best probabilities of success. For example trader with Trend Following strategy tries to find uptrend or downtrend and decide when to enter or exit the market based on the current trend.
Hope this article inspires