May 10, 2006 at 10:17 am | | Comments 2

The Road Map

(This is Part 4 of the Great Expectations Series for traders. In case you missed them, check out Part 1, Part 2, and Part 3!)

The cat’s out of the bag. You’re fully aware that it might take some time to become a great trader. Does that mean you just sit back and wait for time to elapse? Of course not! Your job now is to set up your trading plan by implementing a strategy that will suit your needs and serve as your road map, so let’s get to it.

The two most basic active trading strategies are day trading and swing trading. Each one has its own benefits and drawbacks, so we’ll look at them both. When it comes to your own trading plan, consider your own situation and which strategy will cater to your needs best.

A day trading strategy has a number of benefits over other trading styles during certain market conditions. Day trading offers up to 4-to-1 intraday buying power ($25,000 account minimum), which allows the aggressive trader higher leverage in order to generate big profits in short-term price moves. Day trading also requires less homework outside of market hours than other strategies, because a good real time streaming alerts program can generate trading signals for you based on your criteria intraday.

Swing trading is a great way to trade during trending markets, allowing the trader to capture overnight stock gaps with a multi-day holding period. Swing trading requires more homework outside of market hours, but requires less attention during market hours. I prefer to swing trade as my primary method of trading, as I like to locate opportunities on the daily charts and place trades based on chart patterns with wider stops and larger profit objectives. The conditional orders offered by my broker, CyberTrader, allow me to require that certain conditions are met before my orders become active, and I can walk away from the PC knowing that my positions are taken care of. Furthermore, the recent market environment has been marked by narrow trading ranges, and swing trading allows me to structure my trades in such a way that my risk/reward profiles remain where I like them, not sacrificing any opportunities as a result of the lack of intraday movement.

Deciding on which stock trading strategy you’ll implement will enable you to determine your position size, which is one of the biggest factors when it comes to profitability. Trading too big or too small for the strategy you’ve chosen will leave you with sub-optimal results, so make up your mind on your primary strategy first.

Having a trustworthy trading strategy is an absolute must if you are serious about your trading, and knowing which trades to seek out is half the battle. Day trading and swing trading each have their pros and cons, so weigh every option as you decide which strategy to implement. Further down the road you’ll be able to blend the two of them to allow you to trade whatever the market throws your way.

Be sure to catch Part 5, where we’ll take a look at the importance of goals in trading. Everyone wants and needs them, but it isn’t always easy to determine the right ones for you.

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Jeff White
President, The Stock Bandit, Inc.

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  1. From » Eyes on the Prize on May 16, 2006
  2. From » Great Expectations Series - Conclusion on May 18, 2006

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