Nobody is going to argue that the returns that are generated by a trading strategy are one of its key parameters but it is not the only one. If you wish to create an easy-to-use trading strategy then it makes sense to analyze several factors. If you do this correctly and take everything into account then you can create a strategy which is able to satisfy all of your expectations and generate an income for you, for a long time.
What exactly should you pay attention to when creating your own trading strategy?
1) Stability. In fact it is rather more important than returns. Stability is an opportunity to profit from a trading strategy for a long time. Before you start to trade on one or another trading strategy, it is worth trying it on a demo account and making sure that it is effective, especially if you have never used it before. You should test your strategy for at least a couple of weeks and not just one day. If your trading strategy passes these tests then you can expect that it has passed the exam on stability. If you could only win 2-3 times then it shows that it was a pure luck and is not a reason to proceed to live trading immediately.
2) Drawdowns. By “drawdowns” we mean the maximum amount of loss which your trading strategy could incur. Theoretically, if you manage your deposit appropriately then you will not be able to incur heavy losses in one trade. However, your trading strategy can be evaluated by a drawdown rate of your deposit over a certain period of time during which you made a series of losing trades. Of course, one would not continue with a strategy which has deep drawdowns. That’s why you should also put it to test for this parameter. However, you need to distinguish between a real drawdown of your strategy and any spontaneous trades when you decided to play a game of chance, against your own rules, and lost all of your money.
3) Lifestyle. It might seem for someone that the phrase is devoid of clear meaning, that isn’t true. If you are used to high risk environments and earning huge profits then you will probably have a style and trading strategy based on this. Otherwise, you will have quite a different strategy.
4) Profitability. It is not at the top of the list. Generally speaking, profitability largely depends on how well your deposit management system is organized. As a rule, profitability is calculated in percentage (that is, how many times you can increase your deposit, for example, in a month) or in dollars. If you know the profitability of your strategy then you’ll be able to calculate your approximate budget. The most important thing about it that it will teach you practical things, for example: you’ll know that if your strategy’s profitability is 500$ per month then you’ll hardly earn 15 000$ if you don’t increase your deposit and use another principles to your advantage. That’s why it is so important to evaluate the profitability of your own trading strategy.
5) Win-loss ratio. It is worth noting
Only when you answer all of these questions will you be able to decide which strategy is suitable for you. Taken as a whole, don’t forget to use these kinds of tests to be sure that your strategy is successful.
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