How to Choose the Best Trading Strategy?

Choosing the best trading strategy for beginners is a task that every new trader has to deal with. There are hundreds of various approaches out there: day trading, news trading, scalping, counter trend trading and many more. Each approach has its advantages and disadvantages, so choosing one can be extremely challenging and time consuming. Today we take a look at the important factors that traders need to consider when planning their trading strategy. 

What Is the Best Trading Strategy?

When talking about trading approaches, there is no such thing as the best trading strategy. Some are more effective than others, some are simpler for understanding, but there is no one-size-fits-all approach that will work for everybody. 

A common mistake that beginner traders make is choosing their trading strategy spontaneously, getting disappointed after trying it once or twice and moving on to the next one. An important part of developing a trading strategy is analyzing your personal preferences and building up on them. 

So, how to choose a trading strategy and what are the factors that have to be considered? 

The Four Main Components of a Good Strategy

Make sure that the trading strategy you choose considers and aligns with your preferences on the following four points.

✅ Trading Instrument

First of all, before choosing a strategy, decide on the assets that you will be trading. For example, Binary Options trading will require a fast-paced approach with some technical and no fundamental analysis. At the same time, trading stocks will require you to do research on fundamentals before entering a position, and learn about the company you are investing in. Forex traders will need to learn all the basic concepts including base and quote currencies, major and exotic currency pairs, etc. 

The type of the asset you are trading will likely determine the other factors, for instance, the time frame.

✅ Time Frame

The length of the trade is a major factor to consider when choosing the best trading strategy for beginners. Some approaches work best on short trades (from several minutes to hours), while others are suitable for longer timeframes (days or even months). For example, those that have a lot of time on their hands might opt for news trading or position trading, while traders that focus on short timeframes might stick to swing trading or even use candlestick patterns.

✅ Risk Tolerance 

Your trading strategy will also largely depend on your risk tolerance level. This includes the size of your capital, your financial status, how much leverage you are willing to use and how often you are ready to trade. Traders with a large capital tend to have higher investment amounts and longer duration of trades, while traders with a smaller capital prefer accumulating returns from a large amount of short trades with smaller investments.

✅ Experience 

Choosing a complex strategy that has a lot of components might be a great idea for an experienced trader, but it might make life much harder for a beginner. Your choice of a strategy has to consider your level of experience and knowledge. If a strategy is too hard to understand, if it requires too much of your time to figure it out, it might not be suitable for you. Practice the basic approaches before you try more sophisticated strategies. 

Tailor and Practice

Instead of wondering “what is the most successful trading strategy?”, you can construct your own trading approach. This will take some practicing and patience, but it will be worth it. Remember that there is no strategy that works every single time. There is always the possibility of a loss, so do not reject a strategy immediately, if it didn’t give you the results you expected. 

Instead, keep track of the different strategies you’re trying out and make notes on when a certain strategy is working well or failing you. You can keep a trading journal to help you with this task. After a while you will be able to ditch the strategies that do not work and combine the elements that show good results into your trading plan.