Having a smart trading strategy means having proper instrumentation to protect your capital. At the same time, the smart trading technique makes it possible to establish the right psychological approach with a well-structured and organized trading framework that can work as the basis for your daily trading routine.
This time we are going to introduce a smart trading system that really works. It relies on three M’s as the fundamental aspects of the strategy. They involve Mind, Money, and Methodology. In this article, we will describe the approach in detail letting you easily apply it to your trading personality and style.
It all starts with a proper mindset. So, we have a success formula with three M’s. The first one is the Mind. It is responsible for your ability to keep emotions under control and stay cool even when the market moves unexpectedly and everything seems to get out of hand. The idea is quite simple – follow your plan whatever happens.
The methodology is actually the trading strategy you apply. It considers the specific amount of capacity required to work out a winning and smart trading technique over time.
Last but not least, Money here refers to the ability to keep risks under control. It is all about money management and risk management as an essential component of your smart trading approach.
The main thing you need to understand is that all three parameters can only work together. Even the most successful and proven methodology will never guarantee success without risk and money management. Besides, with markets being extremely volatile, emotions can affect even the most coldblooded traders.
Now, let's have a closer look at each of the trading framework components.
Every time investors are scared or too excited about the trend, it affects markets greatly. Most of you are probably aware of the fear index and how it works. It all comes from our mind but for some reason, the majority of beginner traders underestimate the role of trading psychology. It is the baseline element of any strategy, while emotions are generally the main reason for common mistakes or even huge losses.
Here are several effective ways to beat your emotions while performing in the market:
The methodology is supposed to describe a trading plan as a structured and well-organized process. It is not just the technique you choose as the major tool to achieve goals. It is a step-by-step outline that highlights the decision-making process. It shows how and why you exact a specific order in this or that way.
What’s more, the methodology must involve additional instrumentation featuring indicators, technical or fundamental analysis depending on a preferable trading model. The methodology contains backtesting methods to ensure a chosen tactic may have success. This is where you may need some niche-specific software and other tools to generate historical data as well as overview other crucial conditions.
Even the smartest trading system will never guarantee 100% success. You should be ready to have losses and failures as part of your daily trading routine. So, your mission is to learn how to deal with them. On the other hand, the smart technique supposes some options to keep a bigger number of successful trades rather than misses.
You all know most of such instruments and stop-loss orders, trailing stop losses, take-profit orders, and so on. Additionally, a part of your money management approach is supposed to take into account the risk and reward ratio. The idea of money management is to minimize your risks and maximize the potential return.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.