How to Build an Optimized Professional Trading Strategy

Synopsis:

Building an effective trading strategy requires clear objectives regarding assets you want to trade, your risk tolerance, your trading technology and both your short-term and long-term financial goals. Even if you’re a seasoned trader and have already chosen a trading strategy that fits your market outlook and trading objective, a quick refresher on the basics of how to build an optimized professional trading strategy can be a helpful exercise in improving your existing trading strategy.

While diversification and asset allocation can improve returns, systematic and unsystematic risks are inherent in investing. Risk management is a crucial process used to make investment decisions involving identifying and analyzing the amount of risk involved in an investment, and either accepting that risk or mitigating it. Understanding these metrics can help professional investors differentiate high-risk investments from stable ones. Here’s how Lightspeed Risk can help.

Determine the Right Assets to Trade:

When seeking to develop an effectively balanced trading strategy, many professional traders opt to trade options alongside futures and other securities. Options, by definition, are conditional derivative contracts that allow option holders to buy or sell a security at a chosen price. Options are “leveraged” instruments, in that they allow traders to amplify the benefit by risking smaller amounts than would otherwise be required if trading the underlying asset itself. While options are complex and carry a higher level of risk, they can also offer more flexibility and a lower upfront investment than stock trading.

Futures, on the other hand, carry an even higher level of risk and therefore require a more precise strategy. Despite the risks, futures can offer increased liquidity as well as exposure to a wide range of financial instruments including stocks, currencies and commodities. With a well-implemented strategy, they can also offset the risk to other parts of your portfolio and serve as a way to hedge against market swings.

Establish Your Risk Tolerance:

If you have a shorter investment horizon, you may do best with lower-risk asset classes that can help to diversify your portfolio while keeping your overall risk at bay. If you have a longer investment horizon, you may be able to tolerate a higher level of risk and it may be beneficial to look for trading opportunities during periods of volatility.

Even so, while diversification and asset allocation can improve returns, systematic and unsystematic risks are inherent in investing. Many professional trading strategies incorporate risk management software to help automate the risk analysis process. Incorporating risk management software like Lightspeed Risk can serve as a tool in monitoring and managing risk exposure across markets and asset classes in real-time and can be a great asset in an effective trading strategy.

Determine the Right Trading Platform for You:

Once you have taken the time to determine what assets you’re looking to trade, the next step is to determine the right trading platform for those assets and your newfound trading strategy. Here are a few key things to consider.

Available Order Types:

Most trading platforms offer market, limit, stop and stop limit orders, but more advanced platforms might include trailing stop, market-on-close and conditional orders. Professional traders might also look for platforms that support futures trading and complex options strategies including covered calls, protective puts, debit and credit spreads, butterflies and long and short straddles and strangles.

Customization Options:

With advanced trading strategies, customization is key. More robust trading platforms offer customization options for order entry and routing. Advanced features often include custom hot keys, hot buttons, screen layouts and list order entries. Some platforms allow for customized watchlists and alerts. If you’re an active trader, you’ll likely want to look for a platform that supports alert notifications and multiple watchlists based on personalized criteria.

Charting Features:

Note the kind of data a platform allows you to plot, how easy it is to transition between charting technical studies and reviewing fundamental or market data and what you can customize and save for later reference. Many platforms allow you to compare different stocks and indices on one chart, and some let you create trend lines, diagrams and other custom mark-ups to help you best analyze current and past data. You might also wish to easily link charts to Level II screens, create hot buttons to view multiple charts, automatically plot trade executions into charts, configure time frames and change display options within your trading platform. Access to comparison charts, moving averages, relative strength indicators and Bollinger Bands are key charting considerations for many professional traders, as well.

Social Media Analytics:

“Social sentiment” investing tools like Social Market Analytics have become a common resource in providing investors with aggregated social media data to produce predictive market analytics. When integrated into trading platforms, social media analytics can give indications of future market and economic performance along with, in some cases, positive or negative ratings of stocks and potential trading and investment strategies. While other types of investment analysis should be included in investment decisions, access to social sentiment tools can be a great asset to any professional trading strategy.

Before committing, take a platform for a test drive with a demo or free-trial period, if offered. Lightspeed Financial Services Group offers a Free 10-Day Demo to let prospective traders get acquainted with their flagship trading platform, Lightspeed Trader. Many trading platforms allow for similar demo opportunities.

For more specific platform considerations when determining strategy, brokerage offerings and trading software, read our comprehensive guide on Determining the Right Broker-Dealer for You.

For more information regarding Lightspeed Trader and other available trading platforms, visit Lightspeed’s Trading Software webpage, and for more professional trading insights, check out Lightspeed’s Active Trading Blog.

Active Trading with Lightspeed

Lightspeed provides professional traders with all the tools required to help them find success in stock trading, and we have been developing and honing our active trader platform to offer an optimal user experience. With the intuitive interface layouts and institutional quality stock and options scanners, we aim to help traders reach their goals, no matter what their strategy is. We also offer our clients some of the lowest trading fees in the industry.

For more information on a professional trading platform with Lightspeed, please call us at 1-888-577-3123, request a demo, or to open an account.