How to Develop a Stock Market Trading Strategy

By Sofia Thai
Edited by Taj Schlebusch

Published April 23, 2021.

How to Develop a Stock Market Trading Strategy main image

Creating a stock market strategy requires both knowledge and a methodical approach. So in this article, we’re going to examine ways that investors can develop their personal strategies.

Type of Trader

Before going any further, you need to decide what type of trader you wish to be. Are you looking over a long-term timeframe, or do you want to make money in the next 24 hours? Once you have decided this, you have then effectively narrowed down your chart options.

Type of Investment

Another major issue at this point is the type of market in which you wish to trade. Are you going for stocks, options, futures, forex, or commodities? Or a mixture of each? Would you consider ETF trading? Is short selling worth pursuing? The market conditions will help dictate this, but your own personal feeling is also important.

Testing Strategies

Many online exchanges provide test accounts for investors, and it is certainly worthwhile to utilize these in order to test any strategies that you have created. These are free accounts that simulate real-world conditions.

Stock Movements

Assessing the markets often involves monitoring stock movements particularly closely, as this can be your biggest indicator regarding the future direction of the market. But it's important to look long-term, as well as focusing on short-term trends.

Hedging and Limits

It is always advisable to create a hedging strategy and to have a clear impression of your investment limits before beginning. Hedging enables investors to protect themselves against unpredictable and undesirable market movements.

Emotional Investing

Finally, it is important to dampen down any emotion when you are dealing with investments. This is one reason that algorithmic traders have become particularly popular, and this is certainly an avenue worth considering.