5 tips for developing a winning trading strategy

Trading stocks, options, or futures is a great way to build wealth and achieve financial independence. However, that doesn’t mean it’s as easy as placing bets at the races. Trading CFDs successfully takes time and effort; you need some edge over other traders to make money consistently.

trading strategy

There are some key factors you need to keep in mind when developing a trading strategy:

1. Trade with an edge

The first point is probably the most important: always trade with an edge! When choosing and fine-tuning your CFD trading strategy, ensure that it gives you a better than 50/50 chance of winning (ideally more like 60/40). Many novice traders go into what they do without this crucial element. If you can’t be sure that your trading strategy will give you an edge, it’s probably not worth pursuing further.

2. Keep records

Every great idea needs proper testing before it can be realistically implemented in the real world and when developing a trading strategy is no different. It would be best to see how your systems perform under various market conditions and over different periods (e.g., days traded vs. weeks traded vs. months traded). Only then will you know whether or not your idea has legs! The key is to keep records of every trade; if you don’t want to write down things by hand, use a spreadsheet or financial analysis software like Metastock/Amibroker/TradeStation.

3. Don’t listen to other people

It’s probably the hardest thing for novice CFD traders to get their heads around, but it’s crucial. It’s all well and good reading about markets, strategies, and ideas on websites or in books, but you need to take everything with a grain of salt. Many “experts” are no more than charlatans trying to promote their products or get web traffic; what they say may not be true at all! Even if someone appears trustworthy (e.g., seems like an experienced trader), that doesn’t mean they always have your best interests at heart – again, think of poker players giving away “secrets”. You can learn a lot from other people in the market and verify information as much as possible.

4. Always have a plan

A trading strategy without a well-defined exit strategy is going to be even more useless than all those scam emails promising millions of dollars just for helping them launder money. When you enter a CFD trade, know when you’ll sell out if it starts to go against you and don’t deviate from this plan no matter what happens – in the heat of the moment, many people will do anything to save their position, but sticking with your original premise is critical. Even if your initial selling price isn’t hit, having an exit plan means that you can cut losses before they become too great when your edge starts failing.

5. Don’t overtrade

This tip relates to tip #1. It’s easy to become over-excited when you have a new idea for a trade, but don’t go crazy! Limit yourself to only one – or perhaps two at most – new ideas per week (and make sure that each hypothesis has been tested for quite some time before venturing into the market). It ensures that you’ll be entering new trades with realistic expectations; if things go tits up, it will be possible to cut your losses without having too much of an impact on your overall trading budget.

Bottom line

The best traders consistently make money after their initial learning period; no strategy is foolproof, and even the simplest ones require effort to maximize returns. If you keep these factors in mind when developing your trading strategies, you’ll be well on your way to successful CFD trading at Saxo.

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