It is true that a financial market trader must have a trading strategy to be successful but is your trading strategy yielding any fruits? Is it profitable or do you think you could make more money? Mark Fisher, a senior financial advisor at Wilkins Finance answers these question by saying that you must have a trading strategy that you can trust well enough to follow it to the letter.However, since there is always room for improvement, below are a few tips on how you can make your trading strategy better so as to increase your profits:
Incorporate stop levels into your trading strategy
A good trading strategy will ensure that it secures you from risks the best way it can. One of the ways of managing the risks associated with financial market trading is by using stop levels. There are two types of stop levels: the take profit level and the stop loss level. You should learn to always place these levels whenever you place a trade.
The take profit level is the target or the profit level at which you wish to close an order. When you set a take profit, the order will automatically close the order once it hits that profit. For example, lets us say you place buy order on the EUR/USD at 1.34567. Your take profit will be a value/price higher than this; let’s say at 1.34668. If the market prices rise to 1.34668, your order will automatically close, irrespective of whether the prices will drop immediately after touching the level.
The advantage of using take profit level is that you will never miss your targeted profits even if you are away from your computer or smartphone. However, you should learn to set the take profit level at a reasonable level; a level that you are sure that the market will hit according to your market analysis. If the take profit is for a short-term trade, you should place it close to the opening price. But if the trade is a long-term trade, then you can place the take profit a little bit far although still within reach.
The stop loss, on the other hand, is the level at which a trade should automatically close in case it is making losses. It is the highest loss that a trade can make. For example, using our example of EUR/USD, if you placed a buy at that price of 1.34567, then your stop loss should be somewhere below that price. You could place it at 1.34464. Once the market price hits that price, the order closes automatically. The advantage of using a stop loss is that your orders will never make very huge losses that were never planned for even if the market misbehaves like due to news releases.
Use a trailing stop
A trailing stop is just an advanced stop loss level. It is normally set to adjust itself as the market starts making profits. You set the take profit where your trailing stop will get activated once the prices hit that level and from there the stop level adjusts itself to lock the profits according to how you set it, provided the markets continues to make profits. Once the markets start going in the opposite direction, the order is closed at the last level that the trailing stop had moved to. The trailing stop ensures that you take advantage of the markets in case the market continues to move in your favour after hitting the initial take profit level.
Your trading strategy should avoid too many running trades
Some traders especially beginners may think that since they have set take profit and stop loss levels on all the trades, they have the permission to open as many trades as possible.
The number of trades will depend on your trading margin. You should always try to maintain a trading margin that is above 50% so that you can be able to hold your trades for long. If you have a small account balance, you should have very few running trades. Also, the larger the lot size of your trades, the fewer the number of trades you should have. Therefore, a trader with a small account balance should use small lot sizes and also have the least possible number of trades.
With fewer trades, you can be able to hold your trades for a long time when waiting for the prices to hit your take profit targets without fearing that you will be stooped out even in case of a news release that goes against your trades.