⤵️ #SwingTradingStrategy ⤵️

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Trading Strategy Explained

A trading strategy outlines the investor’s financial goals, including risk tolerance level, long-term and short-term financial needs, tax implications, and time horizon. Before executing a trade, an investor needs to perform solid market research on the current market trends and patterns.

A trading plan sets out the strategies of buying and selling assets, ranging from bonds, stocks, futures, options, FTEs, among other securities. When creating a trading strategy, an investor works alongside a broker-dealer to choose profitable trading products and manage trading activities.

Once a trading strategy is created and executed, the trader monitors the markets and manages the trading positions to ensure they align with the initial strategy. The trading strategy keeps track of the risks, returns, and impact of current trades on the investor’s portfolio.

Key Components of a Trading Strategy

⭕ Risk tolerance

Risk tolerance refers to the degree of risk that an investor is willing to withstand in their trading activities. It determines the trading strategy that an investor will adopt. Throughout the trading period, risk tolerance is bound to change. For this reason, it should be assessed regularly, especially in the face of financial or lifestyle changes.

For short-term investments, traders should consider time-based risk tolerance to craft an optimal trading strategy. Long-term investment can accommodate higher risk levels, and investors can identify trading opportunities when the market is volatile.

On the other hand, a short-term investment may tolerate lower-risk asset classes that help escape losses and secure gains by diversifying the portfolio. Limiting risk exposure to the lowest possible level can help investors secure their capital and cap the extent of losses.

⭕ Trading products

Developing a well-balanced trading strategy requires investors to determine the potential added value to the portfolio❕