So let’s talk about how to find the best trading strategy. And before we do this, let’s first talk about what is the best trading strategy.

Before we can do that, we need to define “best.”

Is the best trading strategy the one that makes the most money, or is it the one that has the most winners?

In this example I want to use The Wheel and The PowerX Strategy to show you exactly how you can find the best trading strategy.

How to find the best trading strategy

Now, in order to do this, first we need to define some criteria that we use.

Here are the ones that I like to use in order to determine the best trading strategy.

So as an example, I want to know the account size needed in order to trade the strategy, right?

I mean, do you need a $5,000 account or a $100,000 account?

Another thing is I want to know the potential return of a trading strategy. How much money can I make? And this is where we are talking about the ROI, the return on investment.

Then of course I would like to know what winning percentage can I expect with the strategy.

I also want to know the risk per trade. So how much am I risking per trade that I’m taking?

Also for me it is important to know the overall drawdown, right? So what can I expect if things go really, really wrong? What is the drawdown of this strategy?

Also, I would like to know the time needed to execute the strategy, and can I use money management? And if so, what money management approach is the best to use?

Again, you might have different criteria. Without it, how will you know if a trading strategy is for you or not?

The Wheel vs The PowerX Strategy

So here’s what I want to do right now.

I want to compare The Wheel trading strategy with The PowerX Strategy.

Both of these trading strategies I’m personally trading on my accounts and I want to show you some very, very specific examples here.

Account size needed

So let’s get started and let’s talk about the account size needed.

For The Wheel trading strategy, where we are selling options, getting assigned the stock and then selling calls against it, I recommend that you have at least $20,000.

The account that I’m personally trading live has $50,000 in there, so I’ve got $100,000 in buying power.

For the PowerX Strategy, you can start with as little as $5,000 to $10,000. $5,000 if you want to trade options, $10,000 if you want to trade stocks.

Potential ROI

What is the potential ROI, return on investment?

For The Wheel it is 30% if you’re not using any margin.

And it is around 60%, that’s what we’re expecting here with a margin account, if you’re choosing a margin account.

For the PowerX Strategy, we’re looking at 60% without a margin account, and this is why we’re looking for 100%, 120% with the margin account.

So, as you can see, this is a more conservative strategy, right?

30% to 60% per year for The Wheel, and 60% to 120% for The PowerX Strategy, depending on whether you’re using a margin account or not.

Winning Percentage

Now, let’s talk about the winning percentage.

The winning percentage with The Wheel, I’m very, very tempted to say that it is 100%, but when it comes to trading, there is no 100%.

So even though I personally, thus far since I’ve been trading this strategy, have 100% winning percentage I want to be conservative here and say 95%.

Because, as you know, it’s all about facts not hype.

With the PowerX Strategy, you can expect 50%. So this means that every other trade you can expect to be a loser. But it doesn’t matter, it still makes money, right?

Risk per trade

The risk per trade with The Wheel is where you can expect around 5% of the buying power.

So if you have $100,000 in buying power, you can expect a $5,000 risk that you have per trade here.

With the PowerX Strategy, it should be 2% of your buying power.

So as you can see, The PowerX Strategy is risking less, and if risk is important to you, then you know which strategy is more suitable for you.

Expected drawdown

So what can you expect as a drawdown?

What does a drawdown mean?

It means that while you’re in trades, your account might go down by 25%. This is something that can happen, you need to be prepared for this.

With The Wheel strategy you can expect 25% of your buying power.

With the PowerX Strategy on the other hand, you’re looking at only a 10% drawdown.

Time needed

So time needed to execute.

If you’re trading The Wheel strategy, you need around five minutes per day. You don’t need a lot of time here.

With the PowerX Strategy, you need between 15 and 20 minutes per day.

Both are swing trading strategies, not day trading strategies.

You don’t have to sit in front of your computer all day long, which I think is great because I don’t know about you, but I don’t want to sit in front of my computer all day long.

Money management

If you want to use money management to really grow your account quickly with this strategy, it is difficult with The Wheel and here’s why.

First of all, you have a pretty high risk and you need a lot of buying power. This is why you need to have at least $20,000.

With the PowerX Strategy it is super easy and we can use the fixed ratio money management to grow your account quickly.

So if money management and growing your account quickly is important to you, I recommend The PowerX Strategy.

The Best Trading Strategy Summary

This trading strategy, The Wheel, is perfect if you are trading for income.

The PowerX Strategy is perfect if you are trading for growth, which means that you have a rather small account that you want to grow.

Now, if you already have a $100,000 — $200,000 account, I highly recommend that you trade The Wheel.

If you have a smaller account use The PowerX Strategy to build your account.

Anyhow, as you can see, in short, there is no “best trading strategy.”

There’s just a best trading strategy for you based on your risk tolerance, based on your availability to trade, account size and so on.

If you found this article helpful feel free to leave a comment below and let me know which trading strategy you are currently using.

 

Trading Futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. The lower the day trade margin, the higher the leverage and riskier the trade. Leverage can work for you as well as against you; it magnifies gains as well as losses. Past performance is not necessarily indicative of future results.

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