Much has been said about having a trading strategy and sticking to the plan, but what exactly do you need to build a profitable one?
If you keep a detailed trading journal (and you should!), you probably have a good idea of which indicators and setups tend to work out in your favor.
This can be as simple as Big Pippin‘s textbook break-and-retest plays, which involve a combination of Fibs, support and resistance, moving averages, and stochastic in a trending market.
Identifying building blocks like these not only makes your strategy potentially more profitable, but it also helps you maintain the discipline to trust and follow the plan.
- Market Environment
Understanding the market environment is one of the most important considerations when taking trades. This is why it’s an essential building block for a profitable trading strategy.Simply put, this means gauging whether asset prices are trending or range-bound.You want to be able to use the right kind of indicators and drawing tools appropriate for the current environment.In a trending market, asset prices move in a particular direction for a prolonged period of time. During these cases, it makes sense to use the likes of moving averages, Fibs, and trend lines in your strategy.In a range-bound market, asset prices typically bounce off strong support and resistance levels. A trading strategy that incorporates pivot points, Bollinger Bands, or oscillators could work out better in this case.Note that a bunch of these technical indicators can be applicable for both trending and ranging markets depending on how you apply them, so it’s really crucial that you know what type of environment you’re trading in!