Whenever a trader or investor meets me in public somewhere the first question they always have is:
"What stock should I buy?"
And my answer is: "What is your trading style?"
Most traders have no idea what I mean by this question. But if you don't know your trading style, you will struggle and struggle, no matter how many weekend seminars you take, no matter how many free webinars you attend, no matter how many free internet articles you read. Why?
Because until you know what trading style is best suited for YOU, you will not be selecting the correct stock charts. And no matter how many recommended stocks you accumulate you will not be consistently successful. If you do not know what stock charts to select, your results will be disappointing or inconsistent.
Consistent success is the win all scenario. Without consistent success you will be lured into the realm of trader gambling rather than professional trader.
Let me give you some chart examples. Below are 4 different charts. Can you tell me which charts are ideal for what trading style?
Chart 1: Trading Style:
Chart 1
Chart 2: Trading Style
Chart 2Chart 3: Trading Style
Chart 3Chart 4: Trading Style
Chart 4 You may think at this point, what does it matter? All the stocks moved up. But it matters a great deal what trading style you used to trade each of these stocks.
Let's examine why.
A Trading Style Defines:
1. What entry signal you should use and what indicators you should use.
2. How support and resistance will behave.
3. Where to place stop losses.
4. How to calculate run or target gain potential.
5. How to calculate the risk of the trade versus the potential profit.
6. How long you need to hold the trade to gain the highest profits.
7. When and how to exit the trade.
8. When to use trailing profit stops.
9. How often you will need to monitor the trade.
10. The type of order and trading instrument you will use.
Trading Styles are:
Velocity Style for very fast moving stocks.
Swing Style for fast moving stocks that pause and rest intermittently within the run.
Position Style for platform building stocks that often gap.
Day Trade Style for intraday trading on momentum energy stocks.
Each style has its own set of rules and parameters that take into consideration how price is moving, how support and resistance will react to the price action, what indicator patterns you need to look for or avoid, and how much capital and number of shares you should trade.
Each style has unique time demands and constraints, risk factors, and profit potential. Just wanting to be a daytrader because you hear that is the "top of the trading" doesn't mean it is right for you.
Let's use an analogy to help you see this in perspective. Your son or daughter is going to college and you are planning on spending quite a bit of money to help them go to college. You ask your child: "What are you going to major in?" And the reply is: "Gosh, I haven't thought about that. I really don't know. I guess I will just go for a year and see what I can figure out."
Do you think the college student who has no clue to what they want do will be able to succeed? Or will this student flounder and struggle, trying to figure out what they want and what they need to learn to achieve a goal.
It is not enough just to want to make money in the markets. That is not a goal but a dream. Setting down and determining what trading style will work for you will dramatically improve your profits and reduce the time you are working on trading.
Time is money just like college tuition. So every moment you spend trying to figure out what you want to do is an expense.
The charts may look similar but how you trade them is very different for each one, the entry point, length of time you hold the stock, risk, stop losses, all are different.
The answers for the above charts are:
1 & 3 are best suited for a position style trading method.
2 & 4 are suitable for swing trading.
None are suitable for velocity trading.
2 is suitable for limited day trading.
Questions email: reference MetaStock SPRS: info@technitrader.com. Trade wisely,
Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner
(c)2011 Decisions Unlimited, Inc.
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