What is a Trading Method?

Author：佚名 Source：none Hits：37 UpdateTime：2008-10-18 23:54:33


Trading Method Definition:

A trading method could be defined as a procedure used for investment purposes that will help you be successful while trading stocks, options, forex, futures, ETFs, and other investment markets.

Basically, a trading method will give you the skills and tools you need to invest your money in such a way that you will be profitable and increase the value of your portfolio.

What Makes A Trading Method Good?

A Trading Method must contain several things in order for it to be successful. While it is always up to you, the investor or trader, to find or make a trading method that works for you, there are some basic things that all trading methods should have:

Teaches You How To Identify A Trading Opportunity

If a trading method doesn't show you in detail how to identify WHEN to trade, then you are left to your own devices to try and guess when to get into the market. A Trading Method must show you exactly how to identify potential trading opportunities so you can concentrate on other things and not have to worry about how to figure out when you should enter a trade.

Teaches You How To Avoid "False" Opportunities

Some methods will teach you a lot of ways to get into a trade, but the good trading methods will also show you how to stay OUT of a trade when you should. Trading Methods should contain information and rules that show you how to identify false trading opportunities so you don't get caught in a trade in the wrong direction. Many times indicators can resemble a good trade opportunity, but if you look carefully, there will often be false signals that should flag it as a trade you shouldn't get into.

Teaches You When To Get Into The Market

A good trading method will give you step by step rules on exactly WHEN you should enter the market. If the method doesn't explain when to get in, you could get in too early (and possibly lose money in a false trade signal), or you could get in too late (which means you will reduce or eliminate your profit potential). Always make sure a trading method you research will include rules on when to get into the market for maximum profit potential.

Teaches You When To Exit The Market

I feel this is the most important requirement of them all. Very few trading methods give detailed information about when to get out of the trade. Many of the market analysts you see on TV or even your own broker might tell you to buy a stock, and hold on to it for dear life as long as possible. That may have been true 20 or 30 years ago, but in today's market, that mindset will almost always lose a lot of money for you. So look for a trading method that will tell you exactly when you should get out of the trade, which will help you protect your profits and minimize your loses, as well as reduce your risk.

Teaches You How To Minimize Your Risk

This is probably the #2 most important thing. We as stock traders will have losses. We will enter into risky trades. Some of them will go against us. That is the fact of life in the markets. Accept it. But MINIMIZE it. A good trading method will have rules and information on how to minimize your risk in a trade, in order to protect your money. Yes, we will always have bad trades and lose money. But minimizing the risk in our trades will reduce those losses, which means overall we will be more profitable and successful when trading.

Summary

When researching Trading Methods, you must always make sure that the trading method contains those 5 requirements as a bare minimum. If the Trading Method does not have those things, then the chances are very good that the trading method will NOT work, and will wind up hurting your overall portfolio rather than helping it. And as always, be wary of any trading method that promises you success, or says that you won't ever lose money, or guarantees a profit percentage or amount. There are no Holy Grails in trading. You will win some, and you will lose some. The key is to find a trading method that works for you that maximizes your profits and minimizes your losses.