In order to be a successful trader or investor, one need to have a strategy based on their goals and style at first place. Actually, the main goal is to earn more profit and income. Basically, there are several methods, which one can use for this purpose. In order to make it clearer, we begin this topic with an example related to soccer games. A soccer team is aware of its goals and style before manage the team for every match. A team may take conservatism strategy and the other may play aggressively. As a result, traders and investors should always have a goal and style in order to sustain their position. In this article we are going to talk about goal, style & strategy in trading. One can use them either for trading and investing in cryptocurrency market or other financial markets.
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First of all, one need to set a goal. The first set of questions regarding goals should center on risk and return. It is not possible that one considers returning without analyzing risk. Risk and return are two interrelated elements in investing. The riskier be a trade, the more profit a trader can make. For instance, one can make more profit in the markets, which are highly volatile. Meanwhile, there is higher possibility that one loses their asset. Consequently, in order to have a clear goal, one should choose the most suitable market for themselves.
Once the goal is set, one should choose a suitable style in order to achieve their goal. A reasonable return of investment and risk will have impact on trading and investing style. If one is looking to have a safe and secure investment, it would not be a suitable strategy to buy a stock with the price higher than intrinsic value or sell it below real value. Therefore, if one is looking to make a profit and will accept the risks, Gap trading or Bottom fishing could be suitable options.
A gap appears when a stock experiences a sharp movement. It means that one cannot trade before and after the price movement. In this case, a gap appears on the chart, which there is no correlation between the previous price and current price. Making profit out of this gap is a strategy, which many traders use to make a profit.
Bottom fishing is another risky strategy. In this strategy, an investor buys when the stock price declined due to internal or external factors.
Trading style depends not only on the goals, but also on the level of commitment. Those who are trading on a daily basis, mostly act aggressively. This trading style requires high level of concentration and energy. Conversely, trading on a weekly basis or even longer, requires less commitment and energy.
Goal, style & strategy in trading; Trading strategy
The next step is to choose a strategy. One should choose a strategy based on preferred risk and return of investment. In addition, it should be in relation with trading style, it could be either trading or investing. Finally, one should consider the level of commitment. There are different types of strategies. Therefore, we are going to make it clear with providing an example.
Assume that the goal is to make 20% to 30% profit annually. Basically, it is a high amount of return of investment. Consequently, it would be highly risky. One should assign a small amount of capital (around 10%) to highly risky strategy and use the rest in a conservative strategy. Although one has intention to follow the market on a daily basis, the level of commitment is not enough to use hourly or minutely charts.
As a result, one should choose “Trading Position” style. By using this style, one begins trading based on main trend, which may take long around a week to two months. There is no need to pay attention to short-term fluctuations and daily news while using position trading style unless the news impact long-term vision. Capital management is a part of this trading style. It means that one specifies stop loss since could recognize the main trend.
An example of having strategy
It is notable that one should choose trading strategy before recognizing trend. Then, specifies profit limit at 5% of the total capital for each trade. Assume we have a capital of $1000. Therefore, we specify $100 (which is 10%) to trade in this market. In this case, profit limit would be $5 for each trade. Now we have to choose a strategy. The strategy in this condition is that if we recognize the next market trend as a bullish trend, one should take a long position (buy) close to support level with the hope that the price will increase. Conversely, if the market was bearish, one should take a short position close to resistance with the hope that would be able to buy at lower price again.
This was just an assumption which combines goal with style and commitment. Some people choose a different type of portfolio management. Therefore, they choose different goals, style, and strategy. For example, they specify a little of capital for aggressive and risky strategy and use larger part of it for conservative strategy.
Goal, style & strategy in trading; Conclusion
Once one chose goal, style and strategy, need to stay committed to them. However, it doesn’t mean that no changes are required. In fact, staying committed to goals, style and strategy help one in order to control their emotions when the market is volatile. Choosing the mentioned factors totally has depended on type of one’s personality. Therefore, to have a suitable choice, one need to be completely self-aware. In addition, goals, style and strategy become mature by getting experience in trading and understanding the market. As a result, learn from your mistakes and by understanding goals, create your own style and choose a suitable strategy based on them.