#TrendTradingStrategy Trading Strategy

is a fixed plan designed to achieve profitable performance by going short or long in the markets. The main reasons a trading strategy helps are its verifiability, consistency, and objectivity. The development and implementation of a trading strategy involves eight steps:[1]

Formulation.

Specification in a computer-verifiable form.

Preliminary testing.

Optimization.

Performance and robustness evaluation.

Strategy trading.

Monitoring trading performance.

Refinement and evolution.

For each trading strategy, it is necessary to define the assets to be traded, entry and exit points, and money management rules. Poor money management can turn a potentially profitable strategy into an unprofitable one.

Trading strategies are based on technical analysis or fundamental analysis, or a mix of both. Technical strategies can be broadly divided into mean reversion and momentum groups. There are also specific strategies, such as "Sell in May and go away, but remember to come back in September." Trading strategies are generally verified through backtesting, where the process must follow the scientific method, and through forward testing ("paper trading") where they are tested in a simulated trading environment. Momentum signals (e.g., a 52-week high) have been shown to succeed in trading strategies and are used by financial analysts in their buy and sell recommendations.