Stock Trading Strategy - Critical Considerations

At the core of a trading business is the stock trading strategy, so before choosing a stock trading plan or system, some questions must be asked and answered. Since the strategy drives the selection of the plan and system, it must satisfy certain criteria in order to achieve the objectives of the business. In order to end up with a system and plan that can be traded well, it must suit one's personality, so the criteria includes a number of specific considerations. In order to achieve the optimum strategy and plan, this article examines these considerations and questions to be asked.

The trader's available time is a key factor in deciding which stock trading strategy to pursue. This goes hand-in-hand with the desired level of involvement in the activity of trading. Time considerations include both how many hours can be set aside for trading plus when and from what those hours will be taken. If a person has a full-time job, a spouse and kids, then it probably wouldn't be suitable to pursue day trading.

Capital turnover time is another critical consideration. How long it takes from entry to exit is the capital turnover time, as this is how much time it takes to turn the capital over and have it again available for trading. The greater the capital turnover time, the fewer the number of trades can be placed for a given account size over a given period of time. The second result of the capital turnover time is that of per-trade ROI versus annual account ROI. The lower the turnover time, the higher potential annual ROI, even with the same per-trade profit. While it sounds favorable to pursue a shorter turnover time, there is much more work and involvement required. With regards to stock trading strategy, it is a critical business decision to find the desired balance. An overall determining factor is the desired annual ROI. One may choose an aggressive or conservative approach depending on the objectives for income and wealth-building.

To ensure that the chosen stock trading strategy and stock trading plan suit the trader, they must work with the trader's comfort zones. Following the system and rules should be reasonably easy for the trader . Good trading is quite difficult when emotions come into play and affect the trader's decision-making. Contributing to this problem is a strategy or system with aspects that are too far outside the comfort zones of the trader.

Certain attributes of a stock trading strategy should be aligned with the comfort zones of the trader. A certain percentage of losing trades are inherent to any system, and a reasonable winning percentage is necessary so that the traders confidence can be maintained and not lost from too many losing trades. A tolerable maximum drawdown goes hand-in-hand here and for the same reason. A system should not be too limited regarding market conditions and should be fairly robust. The financial goals must be attainable, so the stock trading strategy and system must have a sufficient profit-potential - this is one of the most important facets.

To achieve a consistently profitable and reliable trading business, one must have a well-reasoned stock trading strategy before selecting a system. Once a system is chosen, it must be backtested, analyzed and measured so that the aspects are within the trader's comfort zones and have a realistic potential to fulfill the profit objectives. Prior to any money being risked in the markets, backtesting and review of the metrics should be conducted so that the confirmation is completed without risk.

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