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Trader
or Investor? Why Not Both. Page
3 |
| Our intention now as a swing trader
is to identify key pivot points in the overall market
and then locate stocks that are following the current
market trend. You would now be establishing trades
that will last anywhere from days to possibly weeks.
A good example of this type of market activity
occurred during the months of July and September 2000. The NASDAQ bumped its head at 4250 during the
month of July, retreated to a support area and then
rebounded during the month of August and was set up
for a potential reversal as we once again approached
resistance at 4250. The minute the NASDAQ hit 4250 and
began to reverse direction, you would immediately
begin to establish positions on the short side in
anticipation of the decline. You would then continue
trading using your intermediate-term objectives until
the market once again broke to new highs and you were
able to return to trading on a longer time frame.
Since this strategy requires proper timing and
involves more risk, you would probably never want to
have more than 40% of your total portfolio allocated
to this method of trading. |
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| The final approach
that needs to be covered is our short-term trading
strategy. This type of strategy should be implemented
on a daily basis and is generally used more as source
of income than a means of increasing your net worth.
By directing your efforts toward a day trading
strategy, you are now forcing yourself to do battle
with thousands of other professional traders. Because
you are now competing against some of the best traders
in the business, there is a higher risk of losing your
money, and no more than 30% of your portfolio should be
directed toward this effort. Fundamental analysis now
plays almost no role in our trading decisions, and
trades will be based purely on technical analysis. In
general this type of trading is only a viable option
if the trader has an ample amount of capital. Since we
are now looking to profit from the most minute stock
moves, the share size traded needs to be substantial
enough to generate profits after deducting the cost of
round-trip commissions. You must select a small group
of aproximately15 to 20 stocks and get to know them like
the back of your hand in order to be successful.
Trades will be initiated throughout the day, and this
portion of your account will generally be brought home
flat at the end of each trading day. This strategy
would be used in conjunction with our other two
strategies and could be implemented during all of the
previously mentioned market conditions.
In summary, by training yourself
to trade on three totally unique time frames you will
not only be able enjoy the luxury of having to do less work during
trending market conditions but will also allow
yourself to be involved in the market at times when, as
a long-term investor, you should probably stay out. If
you currently consider yourself to be an investor,
your challenge will be to rid yourself of the anxiety
associated with entering and exiting trades and learn
to be disciplined in keeping your losses small. As a
short-term trader, you will need to learn the patience
required for watching your investment grow. The
trader/investor who is able to master the traits of
both patience and discipline will enjoy great success.
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