What Is A Stock Trading Strategy?

Part of the learning process of a stock trader will involve finding out "what is a stock trading strategy?", and ways to develop one to fit each of our individual needs.

A strategy that works for one person may not necessarily work for another person. An example would be a system that involves trading within the first hour of the regular hours trading session which may suit Trader Larry fine, but what about Trader Kim who has a full time day job where she works during that time period? See what I mean?

Just because a particular strategy doesn't work as originally designed though, doesn't mean it can't be adjusted to be more flexible. In fact, many that I've come across myself over the years are indeed variations of others I've already read about before.

So let's get to the original question, What Is A Stock Trading Strategy?

As I hinted to above, there can be many variations as well as different degrees of how complex each strategy is. Here is a basic structure with only a few examples within each step to think about that can be built upon as needed:

  • Stock Selection: How will you determine which stocks to select and trade? Which markets? Technology? Healthcare? Oil? Gold? Indice ETF's? Technical analysis and/or fundamental analysis?
  • Position Entry Rules and Guidelines: Things to consider here such as position sizing, time of day to place order, type of order, what is your buy signal.
  • Position Management: How will you handle price flucuations in open positions? Scaling in and out of positions, how often to check prices, how many open positions at once, maximum pain threshold.
  • Exit Rules and Guidelines: Profit targets, stop losses, trailing stop loss orders, hard stops, mental stops, technical stops, time stops.
  • Recordkeeping and Review: What type of journal should you keep? What data will you record in your journal? How often to review trades? What mistakes if any were made? What improvements can be made? What was done right?

When learning what is a stock trading strategy and developing your own, remember that you can have different strategies for different situations. For example, you may have a different system in place for individual stocks compared with commodities. You may have a different one on place for trading stocks during earnings season.

There is nothing set in stone to limit what you decide to do. As with any business, once you find something that works you can try and expand that strategy to it's maximum potential by itself, or you can work towards finding additional strategies that produce acceptable results and use multiple strategies.

Don't think that you must use complex and numerous methods though. Many people are successful concentrating on a single method and continue to produce profitable results over the long term.




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