What is the best stock trading strategy? It seems like a simple question, but the answer can get more complicated than you might first imagine.
First, think about what it means to be a stock trader. It sounds simple and specific, doesn’t it? Labels like doctor, lawyer, accountant or carpenter suffice for those professions. So why should stock trader be any different?
When we look a little deeper, we start to get the picture of why it’s not so simple. Consider what it would be like to have a corporate lawyer represent you in a divorce case. Or how about an eye doctor performing your heart surgery?
The terms doctor and lawyer aren’t specific enough to describe those situations. It’s the same with being a stock trader. That’s not a focused enough way to describe exactly how, what and when you will trade.
I want to help you create the success you want in the markets. To get this success, you will have to create get specialized. So here are 5 keys to creating a focused and high performing stock trading strategy.
Best Stock Trading Strategy – Key #1: Trade a short list of symbols each day
We only have two eyes and a limited amount of focus to spend at any given time. There is only so much information that we can take in before making a trade. And there are only so many symbols we can watch at one time.
What about technology? Well, for now, let’s put it aside. Forget about octa-core computer processors and shoe-box-sized video cards. Forget trading screen setups that would make any flight simulator aficionado jealous.
Most trading comes down to you, the trader. You don’t want to be outsourcing your most important decisions. And when you trade a short list of symbols, you don’t have to.
A great solution to the issue of limited focus is to narrow down your stock trading list. To start, pick no more than 10 stock symbols to trade. This prevents you having to identify entry setups over thousands of available stocks.
When narrowing down, make sure you pick the right stocks for your specific strategy. Pick stocks that present the types of opportunities that you want to trade. Many great traders produce great results with 10 stocks or less. You can be one of them.
Best Stock Trading Strategy – Key #2: Keep it simple to make it effective
Over-complication is the enemy of good trading. How do you know if you have made things too complex? Take a good long look at your trading screen.
If it has so many indicators overlaid that you can’t even make out the original market bars, you may have a problem. When your screen looks like a cat coughed up a hairball on top of it, there is no way to make good, clean decisions.
“Complexity is your enemy. ~ Richard Branson”
You don’t need thirty different indicators to make decisions. A small handful of quality indicators is better than a bucketful of low quality ones. These can reduce the criteria required for a trade to happen, so you also get more setups to take.
Simple setups have the advantages of easier identification, testing and tracking. You will be able to trade better when you don’t overwhelm yourself with complexity. Choose a few good indicators, and keep things simple and effective in your trading.
Best Stock Trading Strategy – Key #3: Consider trading long-side only
There are two primary ways to make money in trading. The first is to buy, or “go long”, and then sell. The second is to short sell, or “go short”, and buy to cover.
They are both legitimate ways to trade on their own as well as in combination with one another. But going long is not only easier, it’s got a higher probability of success with reduced risk.
When you start out in trading stocks, consider a strategy where you go long only. Once you have a year of proven success, then start betting on downward moves through shorting. Your practice going long will serve you well when you move on to the more difficult business of shorting.
Many traders fall into the temptation of the short side of stock trading. It sounds exciting to chase the falling knife, to bet on a crash down and win. It’s exciting, but it’s also more tricky.
Don’t add the unnecessary complication of going both long and short too early. Start by going long only. Build your skill and when you are ready, then join the short side as well.
You will need patience and the ability to ignore trades that do not qualify for your strategy. These qualities are the hallmarks of the disciplined and high-performance trader. Build them up while you practice trading the long side.
Best Stock Trading Strategy – Key #4: Stick to your (working) strategy
There will be days where your trading setup will not appear for the stocks that you have chosen. It happens. It’s okay – and in fact, it’s good – to let a day pass without a trade if your desired opportunity does not show up.
“If it’s not a planned trade, it’s a bad trade (even if it works out).”
Many traders sustain losses because they succumb to impatience and place unplanned trades. Even if the unplanned trades produce a profit sometimes, it is still poor trading. It will catch up to the trader over time and leave them wondering why they are not profitable.
Ensure that you stick to your strategy. It is the only thing between you as a professional trader, and you as an undisciplined gambler. Only trade setups that you have planned. Power goes to the trader who sticks to their strategies and holds impulse at bay.
Best Stock Trading Strategy – Key #5: Be wrong, make money, be happy
Traders often fail because they do not like the idea of being wrong. They hold on to losers longer than they should. They move stops away from their entry to give the trade “time to work out.”
In short, they invest too much ego into each trade.
A trader who is operating to protect their ego is one setting themselves up for failure. What’s worse, traders who do not like being wrong shy away from the next opportunity. Since opportunity is the lifeblood of any trading operation, those who let ego make them fear it will lose out.
Trading is a process. There are inevitable ups and downs in the equity curve. The ultimate goal is to have your account balance move upward in as smooth as possible way over the long run.
You can achieve this smooth growth by being alright with being wrong. Be wrong lots, and learn to enjoy it. If you can do this, you will be on your way to making money and being happy while you do it.
Wrapping It Up
There you have it. Five keys to a high-performance stock strategy.
- Restrict the list of stocks that you are going to trade.
- Keep your charts and your strategies simple, clean and effective.
- Stick to long only trades.
- Trade your strategy and be okay with doing nothing when your setups do not appear.
- Be happy being wrong and take losses, knowing it’s part of the successful trading process.
For more day trading techniques, tools & strategies, check out these articles:
- 5 Ways To Bulletproof Your Forex Entries
- Market Profile Day Trading Strategies In Focus
- Day Trading In International Stock Markets
Use these five keys to high performance to create the best stock trading strategy for you.
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