The adoption of strategies in trading. Is there a better strategy than another?

over 2 years ago

Trading strategies are something really important when operating in the markets, especially in the cryptocurrency markets; and for this reason is that many people ask themselves (and it is a completely reasonable question, in addition) what are the correct strategies for trading?

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The reality of things

And the reality of things is that there is no single answer for this, I mean, it does not exist, in that sense, a satisfactory and valid answer for everyone, because it depends on many elements, both external (at the market level) and internal (at the level of our personal way of being) that influence the fact that a strategy can be valid or effective for a person or not.

The relativity of the effectiveness of strategies

Technically, if they are well thought out and devised, there is none strategy better than another, there are only strategies that work for some people and strategies that do not work for them.

A trading strategy that works for me, will not necessarily work for someone else, and vice versa, that is, other people's strategies may not be effective in my case, but whether they are effective or not, will depend more about me than the nature of the strategy itself.

The point here is that there does not exist, nor will there ever be, a strategy that works for everyone, because each person, each trader, must adopt the strategy that best suits their needs, their way of being and the characteristics of the market and asset that trade.

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To create a personal strategy

Therefore, the best thing for each trader is to create their own strategies and test them widely in demo accounts, since this will allow us to adapt them, by understanding what we must change or do to improve their effectiveness and all without risking real money in the markets.

Once we have created and back-tested a strategy sufficiently and broadly, then we are ready to use it in the real markets, that is, operating with real money.

What if you don't have a strategy and you don't know how to create one?

If you don't have your own strategy, and you don't know how to create one (or if you just don't want to create one), then try to understand someone else's trading strategy, and apply it, but you need to know that you must understand it very well and before using it, backtest it, so that you can use it effectively in your operations. Once you have a good understanding of a trading strategy and make it your own, you can improve its effectiveness by developing a better eye for the trades and assets you plan to use it on.

If you think, after to do backtesting, that the strategy is not very good, you can either adopt another, or improve the one you know, adapting it to your vision of the market and your needs, but be careful, this should be done carefully (that is, doing a correct risk management), because you should know that even if you think you have a bad strategy to operate, it is better to have a bad strategy than to have none. I mean, even a bad strategy is better than none strategy.

Things you need to know to create a trading strategy

But if you want to properly create your own trading strategy, from the outset you must consider a number of factors; for instance:

1. The type of trader you are (intraday, scalper, long term, etc).

Since each case is different, since being an intraday trader, who intends to obtain intraday profits, is not the same as being an scalper, since in each case, the timing of the graphs to be operated are different, and the attention to detail and the waiting time for results is different too.

2. The goals you have in the market and the capital you have available

Yes, it is true that the primary objective of every trader when trading the markets is to make a profit, but beyond that, what I am meaning to here is the fact that someone with a small capital, has fewer options and should be more careful in the market, than someone who owns a medium or big capital.

A person with high capital can afford to operate more patiently than someone with little capital, and can expand their investment portfolio much more, so they can aspire to much higher profit levels and in less time than a person who owns small capital.

3. Your individual characteristics, that is, what is your personal character

That is, we must know if we are aggressive, leisurely or both when we operate in the markets. When we trade, do we get nervous easily when the market does the exact opposite of what we think it should be doing? And when the market does exactly what we think it should be doing (or is reacting better than we estimate), and we are making a profit, we go crazy with happiness and euphoria and we feel invincible and that nothing can go wrong? Or are we thoughtful and analyze in the best possible way every movement of the market and every action that we take and that we have taken around it?

The point here is that we must know exactly how we are and how we react to pressure and moments of success, in order to be aware of what it is that we must reinforce in our character to be more methodical and successful operating the markets.

4. Attention to the fundamentals

Taking into account or not the news of the projects and cryptocurrencies that we operate is an important decision. The fundamental newses are, from my point of view, important things for the definition of any trading strategy that we want to draw; and in conjunction with the analysis of technical patterns and indicators in graphs together with, logically, the price action, they allow us to obtain greater profits in the markets.

However, many traders in the markets, maintain that the fundamentals are not necessary, and decide to operate by simple technical analysis of the markets, and it is something respectable, since it is what works for them, but not everyone will work that way, because there will always be people of the three trends, that is, there will always be: a. Traders who operate only with fundamentals; b. Traders who trade only on technical analysis; and c. Traders who trade using both technical and fundamental analysis.

The point here is that we must define whether or not the use of fundamentals is important for us to carry out a more successful operation and act accordingly.

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But the most key thing about strategies

The most key when defining, creating or adopting a trading strategy is regarding: a. The entry points and b. The exit points:

a. Entry points

Knowing what has to happen in the price behavior of an asset at the graph level is, in my view, critical to be able to define when to enter the markets or not. That is, you have to know what has to happen at the price level so that we enter long or short, respectively.

b. Exit points

In the same way, we must know what has to occur in the market so that we can exit the operation, whether everything goes as we wish or in the opposite direction of what is desired, for this, we need to define two things: 1. A take profit level appropiate and 2. An Stop Loss level appropriately. A risk-benefit level in relation 1: 1 is always recommended, although depending on the case, we can also adopt a risk-benefit level 2: 1, or higher.

Synthesis

100% infallible trading strategies, adapted to all types of traders, there is none; otherwise no one would lose in the markets; Knowing this, and starting from this base, we can create and implement personal trading strategies that help us operate the markets more efficiently.