Decide your approach | stockbee

3/21/2014

Decide your approach



Either trade infrequently , in which case you will need to find big winners only. This is extremely research intensive approach and it works if you are willing to do concentrated positions. 

The downside is you will have higher drawdown if the large size position does not take off . 

More practical issue is for someone just starting out in trading it will be difficult to learn this kind of style as there are very few trades in a year. 

You will not be using your skill frequently so it will take you years to gain expertise.

Trade frequently with small targets.

That is the approach used by I think 99% of active traders. 

You make money by catching several small moves. 

It is comparatively easy to learn as you will do large number of trades and learn quickly due to sheer volume of trades.

Those are two clear choices.

You can do combination of both.


Trade infrequently

Approaches to study :

Value investing : buy stocks that are undervalued hoping market will discover them and they will get back to value

Growth investing: Buy stocks of companies growing earnings and sales faster than average stock and find these stocks right at the start of the move

Contrarian investing: Buy weakness and sell strength


Trade Frequently

Approaches to study:

Momentum breakout : buy stocks that are going up during. During that move they will frequently go sideways or retrace and you have to buy on b/o once that period ends hoping momentum will reassert

Momentum anticipation/pullbacks : buy stocks that are going up during. During that move they will frequently go sideways or retrace and you have to buy in anticipation this will end hoping momentum will reassert

Momentum contrarian/mean reversion : Sell a high momentum stock near its high hoping the move will fade or buy stock going down near its low hoping it will bounce back.

Prey on market structure : Mostly done by quant funds, day traders and market makers where they use knowledge of order flows, stops, news effect, correlations, historical tendencies and seasonal tendencies to find small profits.

Many variations of these basic approaches exists. People call these things by different names, use different scans, use automation , claim they have secret sauce , but when you strip it down to basic they do one of the above.

No comments: