I am often asked, what is the importance of strategy and why is it so valuable? Using simple words, I would say that strategy is the art of spotlight these issues that ensure we do not walk in the darkness. And it is valuable because if you are walking in the darkness means that you will never know the reasons you have positive or negative returns, as well as, you are not able to see what are the obstacles when you stumble.
Therefore, in the strategy, we need to define, the critical issues of how, when, and why we can get returns while recognizing the obstacles.
In a strategy of trading, the critical issues that need to be spotlighting include:
When do you participate in a trade?
The answer must be logical: when specific criteria for trade are confirmed. The point, then, is to define the criteria. How are these criteria defined? Following patterns that define with clear rules, the entry price, the stop-loss price, and the target price. So, the first crucial issue is: DEFINE CRITERIA USING PATTERNS.
Why are you in a trade?
The answer must be rational: because the expected gains are much higher than the expected losses. How can this be measured? When the target price is much higher than the stop-loss price, then the expected profit /loss ratio is positive. Therefore, the second issue is: SET THE EXPECTED PROFIT/LOSS RATIO TO ALWAYS BE POSITIVE.
How much, do you need to participate in a trade?
The answer is based on psychology as it depends on the loss that a trader or investor can accept. As a rule, no one can rationally manage a capital loss for an individual trading or investment position, if it exceeds 10% of his total capital to be invested. Based on this, a trader or investor should not take, an investment or trading position that could cause a possible loss in terms of total wealth if the loss will exceed this number. So, the third issue is: DETERMINE THE SIZE OF A TRADING POSITION BASED ON THE MAXIMUM LOSS OF CAPITAL that should not exceed 10% of the total capital to be invested.
Once a trader has identified these three issues, he or she will be well placed to know the reasons behind the positive or negative returns and to be aware of any obstacles that may arise.
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Editors’ Picks
EUR/USD steadies above 1.0600, awaits German ZEW and Powell speech
EUR/USD is holding above 1.0600 in the European morning on Tuesday, having hit fresh five-month lows. The pair draws support from sluggish US Treasury bond yields but the rebound appears capped amid a stronger US Dollar and risk-aversion. Germany's ZEW survey and Powell awaited.
GBP/USD stays below 1.2450 after UK employment data
GBP/USD trades marginally lower on the day below 1.2450 in the early European session on Tuesday. The data from the UK showed that the ILO Unemployment Rate in February rose to 4.2% from 4%, weighing on Pound Sterling.
Japanese Yen bears turn cautious amid intervention fears and geopolitical tensions
The Japanese Yen remains depressed near a multi-decade low amid the BoJ’s dovish outlook. Reduced Fed rate cut bets lift the USD to a fresh YTD top and further lend support to USD/JPY. Intervention fears and a softer risk tone could help limit deeper losses for the safe-haven JPY.
Editors’ Picks
GBP/USD stays below 1.2450 after UK employment data
GBP/USD trades marginally lower on the day below 1.2450 in the early European session on Tuesday. The data from the UK showed that the ILO Unemployment Rate in February rose to 4.2% from 4%, weighing on Pound Sterling.
EUR/USD steadies above 1.0600, awaits German ZEW and Powell speech
EUR/USD is holding above 1.0600 in the European morning on Tuesday, having hit fresh five-month lows. The pair draws support from sluggish US Treasury bond yields but the rebound appears capped amid a stronger US Dollar and risk-aversion. Germany's ZEW survey and Powell awaited.
Gold price holds steady below $2,400 mark, bullish potential seems intact
Gold price oscillates in a narrow band on Tuesday and remains close to the all-time peak. The worsening Middle East crisis weighs on investors’ sentiment and benefits the metal. Reduced Fed rate cut bets lift the USD to a fresh YTD top and cap gains for the XAU/USD.
SOL primed for a breakout as it completes a rounding bottom pattern
Solana price has conformed to the broader market crash, following in the steps of Bitcoin price that remains in the red below the $65,000 threshold. For SOL, however, the sensational altcoin could have a big move in store.
Key economic and earnings releases to watch
The market’s focus may be on geopolitical issues at the start of this week, but there is a large amount of economic data and more earnings releases to digest in the coming days.
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