Why it’s wise to have your very own stock trading strategy
The idea of a stock trading strategy is quite a common one – and it’s also an important one. Nobody wants to get caught out without a strategy behind them, but it’s sadly an all too common occurrence. Traders regularly find themselves making emotional, knee-jerk reactions to price chart movements – and this can pose real risks in the long run.
Having a stock trading strategy in place is a great way to keep yourself on the right path and plan ahead to make sensible, consistent decisions. The best thing about strategic stock trading is that it can be customized to meet your needs – whether this is your preferred risk level, the amount of time you can commit, or something else altogether. This article will look at the reasons why the creation of bespoke stock trading strategies is a good way to proceed if you’re looking for a strong trading approach.
Your risk level
When it comes to risk levels, no two traders are the same. Some traders might be willing to endure periods of low value in order to benefit from market rises, for example, while others may prefer a strategy that allows for modest gains without much risk involved.
There’s no right or wrong way to approach the stock trading sphere – though it is important to make clear that the stock market as an asset class is known for being relatively volatile, so it may be worth avoiding it altogether if you’re highly risk-averse. That said, devising your own stock trading strategy can be a way of allowing you to access the markets without exposing yourself to a level of risk that you’re not comfortable with.
You could consider making an investment in managed funds that mix stocks with bonds and cash, for example, or ensuring that the stocks you choose to invest in are sufficiently diverse and are drawn from different sectors and industries. This will depend in part on the broker you go for, so reading eToro reviews and reviews of others over at informative sites such as AskTraders is a wise move.
Your time commitment
How much time do you expect to be able to devote to managing your stock trading portfolio? The answer to this question can vary depending on your exact position. If you are looking to work on other projects instead of managing trades every day, then a tracker fund for which you pay a management fee could be wise. If you enjoy the technical challenge of certain types of trading, then day trading might be a better approach – even if it’s more time-intensive. It’s possible to answer these questions by building a bespoke trading strategy of your own and keeping it under review as time goes on.
Your duration of holding
Finally, a stock trading strategy that is built around you and your needs is likely to be useful to you in another sense. When you invest in a stock or stocks, it involves tying up capital for a period of time. Some traders choose to make short-term trades and profit from hoped-for profits that occur quite quickly. Those who are taking an investment approach might decide instead that they want to leave stock positions open for years to allow for them to properly rise in value – especially if they’re buying shares in younger companies, for example.
There are clearly upsides and downsides to both approaches. There’s more potential for capital appreciation and market recovery if you leave capital invested for a long time. However, if you take the money out of your trade, there’s a chance that you can use it elsewhere for a more profitable opportunity.
Thinking this question through in your bespoke trading strategy is a good way to iron it out. It’s wise to consider the extent to which you might want to invest in other asset classes as the months and years go on: if that’s on your horizon, you may want to only place trades that you believe can be closed profitably in the short or medium term.
There’s no right or wrong way to trade the stock markets – and that goes for whether you’re a newbie or an old hand. Developing a trading strategy that suits your time commitment, risk level, and duration of holding is a good way to sharpen your strategic nous and start to make decisions that match your own personal circumstances – and, hopefully, start to turn a profit in the long term.