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Characteristics of a Great Technical Trading Strategy

Characteristics of a Great Technical Trading Strategy


30th November 2019
Updated: 9th September 2020

A sound trading strategy is a must-have for anyone looking to create wealth by trading securities in financial markets. A proven trading strategy is one that is able to spot reliable entry points for opening trades while also factoring in potential exit points as part of a risk-reward play.

Characteristics of an excellent trading strategy

Time Frame

While it is possible to look at charts from various points of view, a good trading strategy is one that focuses on a given time frame. For short-term traders, a trading strategy should be geared towards price movements in smaller time frames, such as five and 15-minute charts. Long-term traders should focus their trading strategies on longer time frames such as hourly, daily, and weekly charts.

For traders looking at smaller periods, the trading pattern provides a way to get in and out of the market quickly. Traders looking to take profits from bigger market moves should be focused on longer time frames.

Trend Direction

An ideal trading strategy capable of generating significant returns from the market should be able to determine the overall trend direction. Money is made in the financial markets by determining the trend and trading along with it until it changes direction.

While most successful trading strategies are trend following, you can also use a counter-trend approach. Whichever strategy you follow, just make sure you stay consistent.

Determining Trade Levels

An excellent trading strategy is to identify key trading levels before you open a position. You should factor in the price point at which you want to exit the market via profit and stop losses. These are the price points you peg ahead of time when trying to either make money or limit your loss.

While plotting trading levels, it is important to consider the risk/reward ratio. You’ll want to consider potential risks and rewards when deciding whether to go for short-term profits or to let profits run. That said, any approach should include cutting losses quickly, should they occur.

Money Management

Money management is an essential aspect of any great trading strategy. When it comes to money management, a trading strategy should factor in the fact that losses will always come into play, as no trading system wins all the time.

The trading pattern should detail the amount of risk one would be taking with each trade. The trading strategy should also factor the number of trades you plan to make at any given time. Proper lot size should also come into play, as a way of ensuring you don’t take on too much risk.

Trade Management

A great trade strategy is one that also details what ought to be done once a trade is opened. For instance, you should know in advance whether you want to let a trade run until stop or profit levels are triggered. The trading strategy should also detail if you were to take partial profits along the way.

You should also have a plan in advance on whether to cut trades earlier than usual, be it at a loss or with a small profit.

By Harry Atkins
Harry joined us in 2019 to lead our Editorial Team. Drawing on more than a decade writing, editing and managing high-profile content for blue chip companies, Harry’s considerable experience in the finance sector encompasses work for high street and investment banks, insurance companies and trading platforms.
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