Posted on October 20, 2010 by Rich Browne

There probably are more trading strategies than traders! A successful strategy consists not only of technical indicators and a proper interpretation of a never-ending news feed but to the greater extent it incorporates the individual characteristics of a trader! The majorities of us see the same data being plotted on the chart, react to the same chart patterns, and exit at predefined points! It’s all good! The thing that actually separates the good from the bad traders is their reaction to abnormal market conditions, to situations that go against the chart patterns or technical indicators! And such situations happen! And a good strategy includes a sold preparation for them.

This is a key factor for a trading strategy on the road to long-term success as a day trader! Below are outlined a couple of factors, which compiled together may lay the foundations of a sound trading system!

Rules

In an environment as free as the market is traders’ rules are the only safety a trader has! The rules may be the popular and common sense rules. However, the first and most important rule of them all is: Never break your rules! Rules are designed to take care of a situation, for which the trader does not have a response! They prevent the trader to take emotional decisions on the fly! So, a good strategy must incorporate a set of rules and forces their execution every single time!

Time Frame

A trader should select a time frame, which is most comfortable for them! Some prefer a tick-by-tick chart, following the super-volatile moves of individuals opening or closing positions! Others prefer the more stable, in terms of trend 15- or 30-minutes, charts! The bigger the frame is, the stronger the trend is, the more patient the trader needs to be to enter or exit a position in the right moment! A good strategy is to check the higher time frame than the one that you usually prefer so that to check the direction in which the market is trending and then on the smaller time frame to devise a precise entry point.

Trading Volume

It is extremely tempting to throw the better part of a trader’s account in one entry, counting on analysis and luck! Unfortunately, more often than one can expect, the market does not go according to the analysis and even with a tight stop the damage to the account may be significant! The bigger the loss, the harder to recover from it (just for example, in order to recover from a 50% account drop down a trader needs a 100% profit on the remaining account just to go back to zero) and throwing the whole account at once means too much reliance on lady Luck! From strategic point of view, one should never risk destroying a big chunk of the trading account no matter how luring the idea of fast profits may be.