Create Your Great Trading Strategies

Trading Strategies

There are many great trading strategies out there, and purchasing books or courses does save time, but trading can also be a "do it yourself" career. Many traders spend hundreds or even thousands of dollars looking for a great trading strategy. Building strategies can be fun, easy and surprisingly quick. 

To create a strategy, you will need access to charts which reflect the time frame to be traded, an inquisitive and objective mind and a pad of paper to jot down your ideas. These ideas can then be formalized into a strategy and "visually backtested" on other charts. In this article, we go over this process from start to finish including the questions to ask along the way. Then you'll be ready to start creating your own strategies in any market and on any time frame.

Time and Place?

Before a strategy can be created, you need to narrow the chart options. Are you a day trader, swing trader or investor? Will we trade on a one-minute time frame or a monthly time frame? Be sure to choose a time frame that suits your needs. 

Then you'll want to focus on what market you will trade: stocks, options, futures, forex or commodities? Once you've chosen a time frame and market, decide what type of trading you would like to do. As an example, let's say you choose to look for stocks on a one-minute time frame for day-trading purposes and want to focus on stocks that move within a range. You can run a stock screener for stocks that are currently trading within a range and meet other requirements such a minimum volume and pricing criteria.

Stocks, of course, move over time, so run new screens when needed to find stocks that match your criteria for trading once former stocks are no longer trading in a way that is congruent with your strategy.

Creating and Testing Strategies

Creating a strategy that works makes it is much easier to stick to your trading plan because the strategy was your own work (as opposed to someone else's).

For example, suppose that a day trader decides to will look at stocks on a five-minute time frame. She has a stock selected from the list of stocks produced by the stock screen she ran for a certain criteria. On this five-minute chart, she will look for money-making opportunities.

Look at rises and falls in price and see if you can find anything that precipitated those movements. Indicators such as time of day, candlestick patterns, chart patterns, mini-cycles, volume and other patterns should all be looked at. Once a potential strategy has been found, go back and see if the same thing occurred for other movements on the chart. Could a profit have been made over the last day, week or month using this method? If you are trading on a five-minute time frame, continue to only look at five minute time frames but look back in time and at other stocks that have similar criteria to see if it would have worked there as well.