When fishing, you should choose the tackle to catch something significant. The same is true when you trade. You must correctly compound a financial instrument and your strategy. Otherwise, you can ruin even very good trading results. Here’s an algorithm on how to avoid this.
What not to do
Now I will give two specific examples of what not to do. After this, we will move directly to the correct algorithm.
Example 1
Idea: Let’s say you decide to trade stocks, and you plan to hold the position for 3 days to a week. The volatility of these movements can range from a few percent to dozens of percent.
Rating: Not a good idea.
Explanation: Stock trading comes with high commissions and is therefore not suitable for active speculation. If you use leverage, it will be even worse, because you will have to pay for the rollover. A professional would use a futures contract instead of this stock. It’s much cheaper, also because you don’t have to pay for borrowed funds.
My solutions on MQL5 Market: Vladimir Toropov’s products for traders
Example 2
Idea: Let’s assume you trade Forex. One day you thought you could make a successful big bet and then just wait to see where the price of the currency pair goes. This way you were planning to make really big profits in a couple of months, instead of fussing around at these endless price levels.
Rating: Not a good idea again.
Explanation: Forex trading involves a swap, that is, a fee for holding a position. Therefore, holding positions there for a long time is a rare practice. Stocks are the best choice for a “buy and hold” strategy. They allow you to hold a position as long as you like without having to pay for it. Of course, I mean going long, that is, buying shares.
How about good ideas?
In my next post we will move on to the correct algorithm on how to combine your strategy with the right financial instrument.
My solutions on MQL5 Market: Vladimir Toropov’s products for traders
