I want to make sure that we’re all on the same page regarding our involvement in the markets as an position trader, swing trader, or day trader. Notice the delineation between the types of participation possibilities.
I’ve found that traders from beginners to experienced will create their own problems by not being clear about what they’re doing in the market. It is critical that you be aware of your trade style so you don’t end up holding a day trade that somehow became a three-week hold. Yes, it’s done, but only with the knowledge in advance that you would do so. That takes a trade plan.
As a beginner, it is equally critical not to commit yourself to any one style. You may find that as conservative or aggressive as you thought you’d be in your trading that after three or six months you’ve evolved into the opposite type of trade. Key word is evolve. You must allow yourself to evolve into a trader type.
The single most important part of any trade is just that… the trade plan. My signature on these emails is always, “Have a plan, trade the plan.”
It is important and significant since its purpose is to assure your emotions are not involved… it assures discipline in your trade. Without that nasty little “D” word, you are the mercy of emotions and they will invariably lead you the wrong way. Hope is not a strategy, nor is “having a feeling” about a trade pick. Maybe over years of experience you can get to that point, but early on discipline is your friend.
Investors: generally buy and hold types care more about the company, not the price action, (sales, management, revenue, long-term picture, buy low sell high, etc.)
Position traders: find a company with solid fundamentals and growth and start accumulating a position in over time. Perhaps they wish to build a $5,000, $10,000 or greater position in the company anticipating whatever- change in government policy that would greatly affect the company, change in industry that would benefit it, something in the future that they see as worthy of accumulating on pullbacks… until that future event develops, at which point they can sell on the news, hold, or whatever. Position traders can be long or short-term. Even a day trader can build a position during the course of the day and sell at the close.
Swing traders: this type is generally referred to as a short-term trade anywhere from a three-day hold period to a three-week period. The fact is there is no time period for a swing trader since a swing trade by definition is simply a trade taken at its current price level and looking to ride price movement up to its previous high or ride it down, in the case of a short trade, to its previous low. You’ll note that across ALL time views of any chart… one day one minute, to nine months daily, have price swings that go from one price level to the next in both directions. So one can swing trade inside a day, an hour, or a month.
Day traders: can be in a trade from minutes to the entire day. They can swing trade, as mentioned above, or just do quick in and outs (a scalp trade). They are concerned only about price movement, nothing else. They, like swing traders, live and die with the technicals shown in the chart action.
All of these variations take discipline, a trade plan, whereby when executing the plan you are in fact trading the plan.
Finally, in all of these types of trading you can appreciate the differences in what data or data points or news or developments each type will be concerned with: macro economic and corporate developments for the investor, micro developments for the very short-term trader.
So here’s the rub. We all read the headlines on any given day from Marketwatch.com, Briefing.com, Bloomberg.com, CNBC, Bloomberg TV, ZeroHedge.com, etc. What do you see and hear every day? An argument on both sides of the bull bear argument. The market’s going up due to blah blah, or down due to boo hoo.
What is a trader to do when seeing the same company being called a buy by one analyst and a sell by another? One answer lies in the type of trader you are.
You know I’m not shy about putting out my daily expected price moves in the broad market and sometimes I’ll go out in time thinking more macro. Since there is so much written about where the market’s going and why, invariably everyone is wrong or everyone is right at some point, I found it best to try and teach you what is critical and separate that from what is important from what is background noise. That to me keeps traders at any level more focused on the only thing that matters- price and volume and the drivers of the action. Those drivers, be it the Fed, interest rates, war, peace, earnings, the dollar, the Euro, oil… whatever, are just that… drivers of action as money moves about accordingly.
In the end, sometimes you just look at the headlines and scream, as one student asked years ago, “Why can’t they make up their minds?” The answer is that the market has no mind. It is illogical, and only a logical person would ask a question like that. You must learn to not only trade what you see, but anticipate what you see. Be the contrarian at the right time but never take a trade without considering the other side of that trade. This is where you remember that when you buy a stock at $30 you’re buying from someone who obviously thinks it’s going down, otherwise why would they sell it? Vice versa if you’re shorting it or buying put options betting it’s going down, the other guy/gal thinks it’s going up.
Of course this is the very essence of the market and trading, isn’t it?
All of this comes down to learning what you’re doing. It isn’t rocket science, but you need to know what a launch pad looks like. Shameless plug: