How to Develop a Trading Strategy: A Complete Guide

How to develop a trading strategy is hatever kind of financial instruments you are trading, there are two common requirements for trading consistently profitably: a set of sound trading strategies and an excellent money management system. Therefore, ‘How to create a trading strategy?’ is among the first questions one asks when they start trading. Although there is no trading strategy with a 100% win rate, we all need one to remain focused amid the huge inflow of news and economic data that can seriously impede our analysis process. With this blog, you will learn the definition, the importance, as well as how to develop your own trading strategy for higher profitability and lesser risk. 

Every trader needs trading strategies to navigate volatile markets.

Every trader needs trading strategies to navigate volatile markets.

What Is a Trading Strategy?

A trading strategy is a fixed plan designed to achieve a profitable return by going long or short in financial markets. A properly researched trading strategy should be consistent, objective, quantifiable, and verifiable.

A potentially profitable strategy can turn unprofitable if the trader does not know how to assets to trade, entry/exit points, and money management rules. 

Trading strategies are based on fundamental or/and technical analysis. They are usually verified by forward testing (paper trading) where they are tested in a simulated trading environment, and by backtesting, where the process should follow the scientific method.

Understanding Trading Strategies

A trading strategy includes a well-considered investing and trading plan that specifies investing objectives, risk tolerance, tax implications, and time horizon. To develop a trading strategy, a trader needs to research, adopt, then adhere to ideas and best practices. Making strategies for trading includes developing methods that include buying or selling stocks, ETFs, bonds, or other investments and may extend to more complex trades such as options or futures.

Placing trades means working with a broker or broker-dealer and identifying and managing trading costs including spreads, fees, and commissions. Once executed, trading positions are observed and managed, including adjusting or closing them as needed. Risk, return, portfolio impacts of trades, and tax implications are all well measured.

A solid strategy helps you stay focused on your trading goals

A solid strategy helps you stay focused on your trading goals

Why Is a Trading Strategy Important?

No matter the reason one starts trading, the ultimate aim is to achieve consistent profitability in the markets. A trading strategy is developed for the purpose of ensuring they will stay on track on their journey to their desired destination. And here are the main reasons why you should learn how to make strategy for trading

  • Sticking to a trading strategy allows you to stay focused, especially for novice traders who do not have profound knowledge of the pricing characteristics of a certain asset or asset class. With a predetermined trading strategy based solely on price action, you will be able to profit, disregarding the constantly incoming news.
  • With a solid strategy, you will be able to assess, and thus improve your performance. By adjusting certain parameters and comparing the new results to the historical data, you will be able to determine whether the upgrade was successful or not.
  • You can control your emotions, including greed and fear. With a well-designed trading strategy, you will be able to disregard volatility in your current performance, which helps you rule out emotions and focus on your long-term success.
  • A trading strategy also helps you refrain from initiating more trades than you can handle.
how to make strategy for trading

How to make strategy for trading

How To Develop a Trading Strategy?

Here are the detailed guidelines on how to develop a trading strategy for novice traders. With these 10 steps, you will be able to make your very first trading strategy that might not be profitable but indispensable for your trading journey. 

Step 1: Form Your Market Ideology

Before making your own trading strategy, you should do extensive research about the chosen markets, both technical and fundamental analysis, to form your market ideology. 

Step 2: Choose A Financial Market

The rule for a profitable trading strategy is that you must understand the market you choose to trade.

Step 3: Pick A Trading Time Frame

Ask yourself if you are more suited to quick scalping or longer timeframes.

Step 4: Pick A Tool To Determine The Trend

Choose a tool to help you judge the market context to see if it is rising or going sideways. 

Step 5: Decide Your Entry Trigger

You need an objective entry trigger to enter the market without hesitation. Consider bar, candlestick patterns, or oscillators like the RSI and stochastics.

Step 6: Define Your Exit Trigger

The market can always go wrong and you need to plan to exit without heavy losses. Even when the market goes your way, you also need an exit plan to take profits.

Step 7: Limit Your Risk

Watch your position size carefully to control how much money you are putting on the line.

Step 8: List Down Your Trading Rules

To ensure discipline and consistency, you should write down your trading rules.

Step 9: Backtest Your Strategy

Backtesting your trading strategy is a great way to develop your market instinct and improve your trading strategy for higher profitability.

Step 10: Always Look to Improve Your Trading Strategy

As stated above, there is no perfect strategy. But you can always improve yours with growing experience and knowledge.

Learning how to develop a trading strategy is not a piece of cake. If your first strategy does not work, don’t sweat it, it is not static, it is a living object that can always be improved. For more reference, you can check out some courses about trading strategies such as:

 Trade Like A Rockstar Course – Tradingoptionslive,

John Richardson – Unique Options Trading Strategy,

Ultimate Day Trading Strategy Elite – Simpler Trading,

Everyday Profits Strategy – Base Camp Trading, and many more.

Simply type in “trading strategy” in the search bar above and you might find a course matching your financial market/trading style. 


Felix Pham
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