May 04, 2006 at 7:19 pm | | Comments 4

Blending Your Style With the Current Environment

(This is Part 2 of the Great Expectations Series for traders. Part 1 can be read here.)

So you’ve taken a personal inventory in Part 1 and looked at your resources (time, money, personality and tolerance for risk). Now let’s move a step further and look at how you can blend your resources and style with the existing trading environment.

[Note: The phrase “day trading” is often used to replace what should be described as “active trading.” For the purposes of this blog, “day trading” will simply be used to refer to a timeframe of trading, meaning any trade which is opened and closed in the same day is a ‘day trade.’ Many would-be traders expect that merely having time available to trade actively each day must mean they should day trade. I disagree. Just because you have all the time in the world doesn’t necessarily mean you should become a day trader!]

Once you’ve determined the timeframe you ought to be trading, get connected with other traders. Networking with other traders to find out what seems to be working is a great way to stay focused on blending your style with what the market is currently offering. More importantly, finding out what isn’t working can also be a huge benefit of being connected. When I started trading, I learned far more from the mistakes of other traders than from their successes. Sometimes just knowing the kinds of plays to avoid can put you miles ahead in this game!

Next, constantly gauge how the market is acting on your timeframe. Is it trending? Is it range-bound and offering little follow-through? If you’re a day trader, you’ll want to see some good intraday volatility. A Nasdaq range of 12 points isn’t going to offer you much! If the news flow is active and volume is strong, then there are going to be some great opportunities to capture intraday with some quick scalps. On the other hand, if the market is trending better on the daily chart than it seems to be during market hours, then most of the opportunities are going to be found in a swing trading approach.

Staying aware of the price action on your timeframe is a crucial element of knowing when to trade and when to step aside. If the price action you’re observing doesn’t fit in with your timeframe, then it’s a clear signal to sit on your hands. There’s no need to become a jack-of-all-trades, at least initially, so you might as well learn some Patience. There will be plenty of times to be patient in the market, so get used to it!

Ultimately, knowing how to best apply your own resources and strengths as they relate to the current market environment will be a great advantage as you strive for success. The best part is that this rests entirely in your hands! So keep close tabs on how the market is moving on your timeframe, get connected with other traders, and be willing to step aside if conditions aren’t optimal for your approach.

In the next post of the Great Expectations Series, we’ll take a look at the time it takes to become a profitable trader, so don’t go away!

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Jeff White
President, The Stock Bandit, Inc.

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