Why You Need A Trading Strategy To Profit From The Markets 

"If you fail to plan, you plan to fail". So says one of the best quotes on planning. Same thing goes with trading. If you don't have a plan, you are planning to give your money to others.

The quote above is said by Benjamin Franklin.

I think it would be wise to take his advice in all matters in life including trading and investing.

I have spoken and interacted with so many different traders and investors. What I found out is that 90% of people do not have a plan. I once ask someone whether they are taking the trade for a swing trade and they told me he was not sure. If the trade works against him, he says he will turn into an investor. Holding on hoping that the stock will go up again in the future.

There is another quote taken from the Good book. 

"The plans of the diligent lead to profit, as surely as haste leads to poverty." Proverbs 21:5

Proverbs are observations by wise people in the past. Many a times, it is good for us to ponder upon them and put it into practice. There are 2 things that we can apply from this proverbs.

  1. You must have a plan if you want to succeed in the stock market
  2. Hasty decisions to buy or sell stocks will lead to ruin

"The plans of the diligent lead to profit, as surely as haste leads to poverty."

Do You Have A Trading Strategy?

First of all, be honest with yourself and ask this question.

Do you have a trading strategy?

If your answer is no, then you are really heading for trouble.

A trading strategy is a set of conditions that the stock needs to satisfy before you can enter it. They should be time tested and should work most of the time. The win rate for that strategy should be high enough and the risk reward should be good enough for you to make money in the long run.

Right on this website, I have a ton of strategies in the making. I have written a few which you can check out.

This trading strategy takes advantage of the ascending triangle pattern that can be found in a stock that is about to start a new uptrend after it has bottomed. You can also find the ascending triangle in the middle of an uptrend. You will learn how to trade this pattern in an unusual and unique way that you probably won't find in other books or websites.

This trading strategy takes advantage of the popular double bottom reversal pattern. We all know what a double bottom pattern looks like (in hindsight LOL). But do you know how to spot it in real time? Do you know how to have multiple entries to take advantage of what this pattern offers?

This is another strategy that takes advantage of another popular chart pattern. Although I wrote it as an introduction to the cup and handle pattern, you can still find gems on how to enter and exit this chart pattern for a trade.

This trading strategy takes advantage of stocks that consolidate or rest while on track to greater heights. By now, you should have known that not all stocks go up in a straight line. Some take time to rest before they continue. We try to spot stocks that are resting and enter them just right when they are about to take off.

If you like to short stocks but do not like to stare at the computer screen the whole day, this one is definitely for you. You will learn how to short stocks that gap down, find the best gap down trading opportunities and learn how to exit the trade for a nice profit. You take advantage of the fact that stocks fall 3 times faster than they rise.

There you have it. 4 trading strategies for Longs and 1 trading strategy for those who like to Short. Long means buying the stock and selling it higher. Short means... well, you make money when the stock goes down.

I have tons of trading strategies which you can find in the Stock Market Course but I need time to slowly write them out. So do check them out from time to time. I try to put in one new trading strategy a week. Those are the ones I know and if I discover some new patterns or trading strategies I will share them with all of you.

How Many Trading Strategy Should You Have?

All it takes to rake in profits from the stock market is "ONE" strategy. You master it, you breath it day in day out and you only enter a trade when the setup appears. Who says you need 12 different strategies?

It's good to be aware of many trading strategies at first because it exposes you to the style that you will eventually like. But when you start out, just try to master one first. The maximum that you should focus on is 3. You can paper trade the rest of the other trading strategies that you learn but for real money, you should stick with a maximum of 3 before you move on.

By having a maximum of 3 you allow yourself to discover the ins and outs of the strategy. You allow yourself to grow with the strategy. You will also find it easier to master the nuances of each trading strategy knowing when they work and when they do not work.

An Example Of A Trading Strategy

A trading strategy is there to help you find a stock that will move. It also helps you to filter out good stocks and lousy stocks. With more than 10,000 stocks in North America alone, you will find that too many stocks will leave you crazy with choices. But do you need to buy all of them? You might as well buy an index that tracks them.

You need a filter, a strong filter which narrow 10,000 stocks down to one to three trading candidates a day (for shorter term) or a week or a month (for longer term holds).

The chart above shows one of the trading strategy that I love. I called it the 60 min Bullish Cross Box Trading Strategy. Basically you wait for a bullish cross in the 60 min chart and if it forms a nice box or consolidation, you buy the stock when it trades above the box and put a stop below the box. Then you ride the trend higher. This stock went from 109.50 to 114.50 in a short period of time. These kind of trading opportunities happens 5 - 10 times a week.

Will this setup work all the time?

No.

Probably a success rate will be 60% to 70%. But the reward are many times higher than the risk taken and over the long run, a trader who follows these kind of setups religiously will come out on top in the long run. It won't happen though if the trader jumps in and out of 10 different trading strategies in a week. By following one trading strategy, he or she saves a lot of work and also a lot of frustration.

Be Diligent In Following Your Trading Strategy

A trading strategy will do 3 things for you:

  1. It tells you when to enter a stock
  2. It keeps you from being hasty and ruin your portfolio
  3. It helps to grow your account over time

Sometimes its amazing to hear how people enter stocks based on "guru" recommendations or rumors of a big project coming in. Some will enter just because the frontpage of the Business Section in their local financial newspaper says that the company is "....On Track To Grow Sales By 300% Next Year".

The moment they buy the stock, it tanks by next week.

These kind of hasty decision with no objective analysis will bring financial ruin to any trader or investor. If you have a reliable trading strategy, it will help you to spot good stocks most of the time and in the long run, it helps you to grow your account over time.

Remember the wise advice " If you fail to plan, you plan to fail.

Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com

Charts with the investing.com logo are courtesy of Investing.com powered by Trading View

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