Behind every successful portfolio, there is always a well researched and reliable investment strategy. Investment strategy plays a very important role in every investment portfolio as this ensures a constant and sustainable profitability of the portfolio with the minimum risk associated with the investment. However, in the market, the majority of traders and investors tends to jump from one trade to another, without putting effort to create a good investment strategy which usually results in a loss-making trade and portfolio.
In this blog, we will give you the full stepwise instructions to make your own unique trading and investment strategy which can help you build a high yielding and profitable portfolio by keeping the risk factor under check to ensure high profitability and trading success by keeping the emotional and impulsive trading and investment decision away from your trading.
Steps to create a successful Trading and Investment Strategy
Set your investment goal first.
The first step to creating a trading and investment strategy is to first set you trading and investment goal according to your risk taking capacity. this the most important and most neglected aspect of a trading investment strategy as most of the traders usually neglect this aspect which leads to an unrealistic trading and investment goal which pushes them to take bad investment and trading decision which ultimately results in a loss-making trade and makes the overall portfolio loss-making.
It is highly important to first set a realistic trading and investment goal in line with your risk tolerance and then make a detailed plan to achieve that goal as every successful portfolio requires a disciplined process and well-researched trading and investment strategy to give the trader and investor the desired outcome. After setting the goal a trader should write down the strategy which helps an investor and trader to avoid making emotional investment decisions which can lead to a losing trade.
Set the Risk and Reward ratio:
After setting the investment goal it is very important to calculating your risk apatite as every individual is different and everyone has a different risk tolerance. After knowing your risk tolerance or risk-taking capacity the next step is to set a suitable Risk and Reward ratio according to the risk apatite.
A well suitable risk and reward ratio is a very important part of a profitable trading and investment system. A trader must work on the risk and reward ratio by considering all the important factors of trading and investment like market movement, risk apatite, trading signal accuracy, and profit expectations. A good and well-researched risk and reward ratio which suits your risk apatite is a must for every investment strategy as it is the backbone of any trading and investment strategy.
Every trader should set the risk and reward ratio according to the risk-taking capacity and the accuracy of the traders trading decisions. for a new trader whose trading decision is not very accurate, he should keep his trading risk and reward ratio higher so that if in a losing trade accuracy will reach 50% also then too he will not lose his investment and manages to make the profit out of the market.
Measure the performance of your portfolio
Measuring your trading and investment strategies usefulness and performance is a very important and vital part of improving the system as without fully understanding the system it is close to impossible to make important changes in the strategy. So every trader and investor should work on a system to evaluate the performance of the investment strategy which he had made of his portfolio. A trader must have a benchmark to measure the performance of the trading and investment strategy. A trader should also work on the benchmark which should match your investment goal and trading and investment strategy.
Always test and re-evaluate your trading system and make changes if required:
Now you know how to make an effective trading and investment strategy now it comes the time where you need to sharpen your blade and rearrange and make necessary tweaks in your trading and investment strategy and system as every financial market is dynamic which constantly change time to time and every trader should always need to make necessary changes in the trading pattern and style to keep up with the market.
The Bottom Line
A well researched and managed trading and investment strategy is the backbone of a successful trader as it not only ensures high profitability but it also helps an investor and trader to limit the level of risk which is associated with every financial investment and trading activity. The importance of a good investment and trading strategy in the financial world is very huge. The biggest mistake a new trades and investors make is neglecting the importance of a good trading and investment strategy as this is the tool which prevents impulsive and emotional trading and investment decision and gives a player a chance to grow the investment in a much safe and stable pace.