In this article we are going to analyze the different trading methodology, considering time devoted, concentration level, scalability, and learning curve.
We start on the basic premise, a trader wants to get the maximum benefit in the minimum time possible.
Maybe your first trading experience was depositing money in a trading account, and investing directly with the maximum leverage and without any defined strategy in an asset that was having strong movements.
After these two things could have happened: that the market goes against and see right away how all the money in your account disappear, or that the market goes in favour of obtaining a huge rentability.al.
Then, the trader without a defined strategy and a high leverage level, sooner or later, (usually between the first 5-10 operations) will have one operation that will make decapitalize his account.
When this moment arrives, a lot of people generalise their bad experience to all trading sector “trading does not work, is a fraud”. Others, however, accept that trading is not as easy as they thought, and they are willing to learn and improve.
For those that continue making trading operations, they will realize very soon that there exists a random factor which is impossible to predict. Against that factor, the best tool to fight it is the expected value.
Those who have already learnt the first market lesson will realize that they need strategies to get rentable and sustainable trading, besides learning from mistakes and experience, but more important to be able to manage all you need to have planned.
Two terminologies often get confused and that must be differentiated.
The trading plan refers to the methodology that it is going to apply to operate. It takes into account factors such as objective definition, devoted time and learning. In summary, all the factors associated with the person, the organization and planning to trade.
A trading strategy, however, refers to the operation planning. It takes into account the trading type to apply, asset type, market schedule, the indicator to use, combinations of entry and exit rules, strategy validation and finally monitoring results. In this case, everything related to an applied trading methodology and the impact it is having on our income statement is included.
The trading plan is a consideration every trader should think about to manage all his time and efforts to achieve his trading objectives.
Here you have some approaches that can help you to define a better trading plan, following the order:
On the internet there exists a lot of information about how to do a trading plan. However, information about how to establish a trading plan to operate automatically is scarce. This will be the topic of our next article.