How To Form A Trading Strategy

“Trading System” and “Trading Strategy” are two words that are often used interchangeably, but have two entirely different meanings.

A Trading System is the plan you put in place to accomplish specific goals in the market.  Your trading system incorporates your trading goals, resources, and strategies into a plan to accomplish your purpose in the market.

Most of the time, when people talk about trading systems they are actually talking about a trading strategy.  A trading strategy defines a set of rules you will follow in order to take advantage of a specific opportunity you see in the market.  To build a trading strategy you would follow the following steps:

Step 1.  Define what filters you will use to identify your opportunity in the market.

Step 2.  Create the rules for your setup.

Step 3.  Identify your trigger.

Step 4.  Identify your target.

Step 5.  Identify your stop.

Step 6.  Determine your position size.

Step 7.  Apply any trade management techniques.

Step 8.  Track your results

Step 9.  Review each trading sessions.

Step 10.  Use stats to adjust your strategy.

Here’s what we did this week in our training on developing a successful trading strategy:

On Wednesday, April 1, we walked through the steps to developing a trading strategy.

Then, in the Trading Room on Thursday morning we traded the strategy-resulting in 4 winning and 1 losing trade.

Finally, that night in a class we reviewed the performance and identified a couple of areas we needed to adjust for better performance and better results.

It was a great experience.  Some of you have not had the opportunity of developing a trading strategy and this was a very “hands on” demonstration of the process.  If you want to review the steps yourself, go to the calendar and click on the links from April 1st and 2nd to review the recordings.

About Shawn Lucas

Shawn Lucas is the founder and fund manager at Apiary Fund. He began his career as a broker for Fidelity and Charles Schwab where he worked the trading desk and processed orders for high net worth investors. An expert in the field of technical and economic analysis of the financial markets, Lucas has since established his reputation as a thought leader and guest speaker for several financial companies including Reuters and TD Ameritrade. He has traveled extensively throughout the world providing lectures, training, consulting, and expert testimony to companies and individuals on the art and science of financial analysis. Lucas has authored sixteen books and studies on the use of technical and economic analysis in stock, option, and futures trading. His simple and methodical approach to the markets has helped thousands of investors better understand and improve their performance and profitability in the financial markets.

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