The 3 Essential Trading Focuses: Which one is for you?
Trading and Investing have so many ways it could go. How do I know what direction to go in?
What are you trying to accomplish?
I have met and discussed trading & investing with many individuals that come to me for advice. The discussion usually starts with something like: “I just can’t get this trading strategy to work, etc…”
As we get into the discussion, it usually will expose many other aspects of the individual’s challenges and personality that are getting in the way of their success (or happiness). Many can’t let go of the speculation and “fun” aspect of trading and investing, while others can’t get “off the bench” due to fear, anxiety, and many other factors. Many are a mix of this.
Very often, the individual was first exposed to a specific technique or strategy that “caught their eye” or initiated some interest in them. They spend time attempting to work with the strategy in their own way, but never really take the time to define and align with “why they are there”.
It is so prevalent and widespread; you really can’t fault the person. Nearly everyone does it in many different and unique ways.
Most often, the person’s actions are simply misaligned with what they really want to accomplish, and what they can personally do effectively.
Often, they are focused on results and do not understand the approaches they can take that would fit them best (or better) to get to those results.
Most often, their actual trading style FOCUS may be inappropriate for their experience.
Therefore, the most important aspect of an individual’s trading plan is determining what FOCUS works best for them and their goals for each account.
Short-term FOCUS (Day-trading)?
Since the internet and desktop trading took over the industry, the exciting way to do this is day-trading.
Well, as we know – 95% of day traders are UNsuccessful.
Does that mean that they are losers and never enter the market ever again?
What they DID learn provided many lessons for the future.
In fact, one of the most prevalent ways people learn price-action is through day trading (if they are following a strategy and not speculating, that is).
They learn very quickly that not having a trade plan is fatal.
The value of leverage is also quickly learned. Good or bad – you may want/need it someday.
The structure of a trade is driven home. Entry, Stop, Target. If not used, you will fail.
Emotional aspects of being in a position and being patient are also learned, among many other things.
Day-Trading definitely has its place, but is likely not where many end up with most of their assets and attention.
I would recommend at least simulator day-trading of futures for anyone just beginning to learn trading, as it is fast, which provides many quick opportunities to see how trades work.
It keeps us focused on specific (and varied) markets and the potential that knowing when to buy and sell, and what that can mean to you.
However, for 95% it is not THE final destination for them, you see?
Imagine that through learning how markets work and securities’ price moves, you can apply learned skills to investments and long-term positions.
Long-term positions quite literally are the most realistic goal for any individual as no one has unlimited time.
Many people I correspond with haven’t yet seen the powerful aspects of having and growing a larger account in safer and more predictable (probable) ways.
Managing risk, managing profits, managing distractions, being patient, seeing the benefits of being patient, and managing ourselves, is much easier if our expectations match our abilities.
Using leverage is also much easier and more powerful when taking long-term positions.
Extreme care must be taken to move away from speculation and fundamental sources to unleash the power of using trading skills in long-term positions (where the real great profits are).
Waiting for entry, and planning targets, are the new edge many have been looking for, and they really pay off in long-term positions.
Mid-term (or Swing) FOCUS?
The behavior of markets is a key driver when it comes to Swing trading.
Markets move up and down on their way to wherever they are going. They also can range for very long periods of time. Commodities can range for weeks, months, and years. Therefore, the greatest advantage of someone that has learned to buy low and sell high is through what we call swing trading.
The total price movement on lower timeframes can quite often be 10x to 50x what it is simply buying and holding for longer periods. By capturing many trades, profits can be made at any time, and in any direction.
Futures and Options have expiration dates, which makes them often the security of choice for aggressive swing trading, but stocks and all markets can be used just as well.
Swing trading can also be a nice balance between the overly aggressive trader and the passive long-term trader.
Identifying and using the profit zone analysis is the “mother’s milk” of the Swing Trader.
Achieve confidence in entering and exiting positions for any trading focus (A Starting Point):
From experience over the years, I have found that the most important aspect that I have is my confidence in the driving strategy that eliminates the fear of the market.
Confidence can be gained in many ways, but here are a few things that especially new traders and investors must take to heart:
- The market isn’t out to get you.
- You have the power of the institutions on your computer (and maybe more). Don’t think they have any say in your success as a result.
- Many people that don’t have a background in finance are very successful.
- There is no “secret” to being successful.
- Pure speculation is the path to guaranteed failure.
- Financial institutions (of all shapes and sizes) are not necessarily your friends, but that’s ok, as just realizing that frees up your choices and reduces your distractions.
- While there are potentially thousands of things you could do, you just need to create and identify a few for yourself.
- Simplicity is your endgame.
- Patience can be learned and is very important. Patience in the market, your securities, yourself, etc.
- People that master understanding of this list end up loving what they are doing.
This discussion ended with a talk on confidence.
All three FOCUSes mentioned (Day-Trading, Swing, Long-Term) are enhanced and enabled by the confidence an individual can gain through market-movement experience. By gaining experience and confidence in trading itself, all three styles will likely become part of your own plans in your financial world.
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