A strategy is an approach or a plan which can be used to maximise gains whilst keeping losses to a minimum and adhering to strict risk management rules which potentially achieve long-term aims.
One thing to keep in mind is that some strategies work more effectively than others or some strategies do not work at all. Working out a strategy can take long periods of time and it can be extremely hard to put into action.
Why is a strategy needed when trading on the financial markets?
Without a strategy, it can be very difficult to trade on the financial market, the reason why it is needed is that trading can require a lot of risks which needs to be managed effectively. Almost 95% of traders will fail due to a poor strategy or poor risk management.
When people think about trading they think 'Wealthy and Rich' but what the majority of people do not know about is the psychological impact it can have on traders, hence why it is important to have a strategy that works for you and something that you are happy with. In my opinion, the human mind is trained to be greedy. What I mean by this is that if a trader was to place a trade which was very profitable they will feel that the strategy is perfect but we all know that no strategy is perfect despite how the human mind feels.
The "I've made so much money on one trade...let me place another” cycle can be repetitive to a point where one begins to lose a large sum of capital. But when the greed kicks in they feel the need to make all the losses that they have made, back up. This can be a very dangerous situation to be in and it can be an extremely hard cycle to get out of.
The 5% of successful traders have trained themselves not to be greedy and be a lot more responsible with the market. The 5% of traders are those who adapt their strategy to the current markets. I am someone who started out trading on the foreign exchange market and I have learnt that the market does not read emotion which means the market doesn't care about your current situation or family problems - it can go against you in a flick of a switch. I have also learnt not to bring any emotion or fear whilst doing my analysis or placing any trades.
I have built myself a simple and straightforward strategy which is not to risk any more than 1% of my capital. This means I will have to allow all my trades to hit my stop loss 100 times in a row for my account to go bust. Having a simple strategy can help you manage your risk. As time goes on my strategy will need to be altered in different situations however I feel I can apply my knowledge of the markets and use some of my technical analysis skills that I am learning to adapt my strategy to help build on it further.