There is a problem that most people encounter when developing trading strategies or developing any type of strategy, not just trading strategy. During the course of this article I am going to show you what the problem is and how beat that problem to ensure that your strategies work. Before we look at the problem I am going to build a foundation of strategies. As you read this article write down how these strategy tips apply to what you are currently trying to accomplish.
What is Strategy?
Strategy what is it? It is defined as this: a plan of action or policy designed to achieve a major goal or overall aim.
The purpose of this article is to look at strategic planning in respect to trading. To help gain a greater perspective of trading strategy, I will be examining mainly other examples of strategy to help traders see the importance of strategy. The purpose of for taking that specific angle is to teach you how to gain greater insight with the development of your own trading strategies.
When creating strategy of any kind it is critical to have specific goals.
What kind of goal? Let’s look at some examples: (we will look at trading as an example last to give us some perspective)
- In business the goals could be to increase profits or decrease spending or both.
- In sports it is to win the game or score a specific number of points.
- In a family it could be to raise brilliant and productive children.
- In a marriage it could be to have a great relationship with our spouse.
- In war it is to win the battle or to conquer a specific piece of ground such as a hill, city or beach.
- Finally in trading our goal could be to make a certain number of dollars or to have a certain win loss percentage.
Problem Most People Encounter In Strategic Planning:
Here is the problem: Most people have goals, visions and dreams, very few people have a strategy to achieve them. If you are on a soccer team and your team’s goal is to win the game, how do you propose to win the game? If your answer is to score more points, then that is the goal not the strategy.
I have many times heard people will say I plan to win the game because we have more heart and desire and that is going to help us win the game. Yes that of course will help but it is not a strategy.
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Most people have the wrong perspective about strategies and most people don’t actually have a clear strategy but rather a generic idea that is not clearly defined. That type of non-strategy is going to stop you from achieving true success.
A strategy is a set of specific actions that will allow you to accomplish your goal. If you plan those actions in a focused targeted way and aimed at a specific goal that will increase your chances of victory.
One key to success in strategic planning is to develop your plan where you have an edge that you can take advantage of which will enable you to achieve your goal.
Find Your Edge or Advantage:
Before you start planning your strategy write out your strengths and abilities so that you can use that edge in your strategy. After that you should write down your weaknesses or shortcomings so that you can be sure that you work on those so they don’t cause your plan to fail when writing out your strategy.
If I was to write a specific strategy on how to win a soccer game I could include the elements I wrote about above in the total strategy to make it more complete and exact. Read this strategy I just wrote about soccer and we will see if that sounds more strategic than the previous examples.
Winning Soccer Strategy:
We will use a diamond formation throughout the game with the focus on pairing our key scoring leader who is fast and agile against our opponents left midfielder who is slower and cannot keep up with our team. We will have an offensive strategy to put the pressure on them while keeping the pressure off our weak spot which is goal tending. We will keep using that strength throughout the match while also using our desire to win in conjunction with our strategy to score more points and win the match.
Doesn’t that seem more effective than just planning on having more “desire”? Next I am going to break down the key components of an effective strategy.
1. First you must clearly identify the goal or objective.
If you don’t know where you are going you will not get there. It isn’t going to happen on accident, you will wander aimlessly wasting all your time trying to go where you think you want to go but yet you never once clearly defined your goal. So the bottom line is set clear and defined goals, once you have done that you can start working on your strategy.
2. Clearly identify Obstacles that can stop you from achieving your goals.
Every goal has a point of resistance that will work to stop you from doing what you plan to do. If you do not identify those obstacles then your chances of success will be much lower. Identifying these problems will help you come up with creative solutions in building your strategy. If you do not identify obstacles ahead of time you are susceptible to creating ineffective strategies that do not work. If we look at classic examples of bad strategy many times it can be attributed to overlooked or underestimated obstacles.
3. Write out a step by step sequence that identifies specific steps to accomplish your goals.
The more specific the sequence the better chances you have of achieving stunning and amazing success in your execution of your strategy. The reason that being specific helps you is because it gives you’re a better template to start with. Once you begin to execute your strategy there is no way of knowing what the end result will be so the guidelines set in the strategy will help you to execute when troubles and problems come up.
One Final Warning About Strategy
The final warning is do not be married to your strategy. There are many times when someone develops a strategy and even though the strategy is failing they will not depart from it. If you have a strategy that does not work then you need to adapt. Continuing to execute the same strategy over and over again that does not work is bad strategy. You must make adjustments when things are not working. It is a good idea to measure the results on a regular basis and then make adjustments accordingly.
Please leave a comment if this article gave you any insight in strategy development. Also if you found this article helpful please share this article via your favorite social media service.
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Winner’s Edge Trading, as seen on: