3 Ways To Speculate The Markets, Which Is Best For You?
During my many years in the trading and trading education world, I have been a day trader, swing trader, and longer term position trader. While my strategy has never changed, the time horizon for finding opportunities and holding positions has changed a bit over my career. Also, I have the benefit of watching so many traders within Online Trading Academy attempt to become successful day, swing, and position traders. The focus of today’s piece is to explain the differences between day, swing, and position trading, and also explore the advantages and disadvantages to these different styles.
Day Trading
Day trading is typically described as the action of entering a position in the market with the intention of exiting that position before the close of the trading session, that day. Day trading requires fast connection speeds, powerful computers, back-up systems, real time data, direct access execution systems, and multiple monitors.
The Pros
For those with high energy, looking for action, yet also have very good discipline, day trading is for you. In general, profitable day traders are not the ones taking 10 – 100 trades a day. The consistently profitable day traders are the ones who tend to take the 1 – 3 quality opportunities offered to them, typically near the open of the trading session. Those who are very good at making key decisions on the fly can do well here. Day trading also allows traders to take advantage of the many short-term imbalances in the markets each day.
The Cons
For many, day trading is attractive due to the "get rich quick" mindset. While some will do very well in a short period of time, most end up losing money in this venture. Emotions tend to run very high when day trading, making rule-based execution difficult for those who have any issues with discipline. There is also the added difficulty of competing with market makers at the day trading level. Lastly, day trading is the the most time-consuming style of trading as it requires you to be in front of your computer screens each day while you’re trading. Those who are not good at making quick decisions are not likely to succeed at day trading.
Swing Trading
Swing trading is typically described as the action of entering a position in the market with the intention of holding that position for one day to a couple weeks, or even longer in some cases. Swing trading does not require real time data or direct access execution though it is recommended.
The Pros
From my experience, swing trading is where I see the largest number of aspiring traders succeed. Swing trading captures the market niche with the least amount of competition. It’s a time frame too large for day traders and too small for longer term investors and institutions. Proper swing trading does not require a big time commitment. Spending an hour or so performing your market analysis two or three times a week will suffice. Typically, swing traders will take advantage of today’s technology and use the "set it and forget it" approach when entering positions into the market. Not having to be in front of your computer to enter positions with precision timing and manage them live helps take the biggest risk to trading out of the equation, you and your human emotion. Swing trading offers the benefit of pre-planning every part of the trade no matter when you are doing your analysis. In fact, the best time to perform your swing trading analysis is when the market is closed.
The Cons
Swing trading is somewhat boring to the active day trader as opportunities are not present each day. For those swing trading stocks, you will find opportunities come in bunches. For example, when the S&P is in an uptrend and price has temporarily declined to a demand (support) level, most stocks will be set up as buying opportunities at that time. As soon as the S&P rallies from that level, most of the swing trading low risk entries will be gone. This is not necessarily a bad thing, but the waiting game is unattractive to most people in general.
Longer Term Position Trading
This style is typically described as the action of entering a position in the market with the intention of holding that position for weeks to months. There is no need for real time data or direct access executions.
The Pros
Longer term position trading to most people is "buy and hold." This may be the best style there is assuming (and this is important) you buy and hold AT THE RIGHT TIME. This style is very hands-off in that every part of the trade is pre-planned, well in advance. Longer term position trading is the least time-consuming type of speculating there is which leaves you plenty of time to enjoy other things in life outside of markets and trading.
The Cons
Many long-term market speculators use news and professional opinions as their primary decision-making tool. Typically, this will lead to buying high and selling low which means losing money. Ideally, price charts, demand, and supply should be your primary set of tools. This style takes time to produce results. Successful trades may take place over a multi–week or month period and some people are not fine with this. As humans, we typically want instant gratification. Also, this style requires capital to be tied up for longer periods of time than day and swing trading, so opportunity cost may be a concern.
Whatever type of trader you are, keep in mind that your rule-based strategy will not change. A strategy that works in one market or time frame should work in any market or time frame. Whether you are day trading on a one minute chart, or taking three trades a year off opportunities found on the weekly chart, the way consistently profitable market speculators derive consistent income is from buying low and selling high, or selling high and buying low. This means you must become proficient in identifying market turning points, which comes down to the ability to objectively quantify demand and supply in any and all markets. Once you can do this, identifying price levels where this simple and straight-forward equation is out of balance is not that difficult and that is where low risk / high reward opportunity lies.
As for me, the most profitable and comfortable trading has always been swing trading. While the other two styles are fine and I still trade them all, I find that the swing trading niche is best for me. If you have any other questions on these different styles and need help figuring out which one is best for you, email me anytime.
Your Ego Can Get Your Trading Into Trouble
By Dr. M. Woodruff ("Woody") Johnson, Online Trading Academy Mastering the Mental Game Instructor
Have you ever heard someone comment on another person's behavior by saying that they have a big ego? What does it mean? Generally speaking when someone is saddled with this label it means that the individual is perceived as conceited, self-centered, perfectionistic, having to always be right, having difficulty accepting criticism, self-absorbed or arrogant. Of course they may exhibit all or none of these negative traits, but more than likely they may have an inflated opinion of themselves that gets between them and healthy relationships; one of which being their relationship with the market as they trade. The person in question may be a good guy overall, it's just that they may be so caught up in self-protection (defense mechanisms that thwart an honest interaction with the environment) or self-promotion (inflated notions of one's importance over others) that they become distracted and begin to distort data. Often, the individual that suffers from ego inflation issues also has a part of themselves that is not only aware that there are issues, but actually attempts to override the self-sabotaging behavior that develops as an outcome of self-defeating emotions like anger, fear, anxiety, stubbornness and impatience. It's tantamount to having different parts of yourself show up in challenging situations that make mindful execution of the trade all but impossible causing impulsive entries, chasing trades, moving stops and other unwanted rule violations.
Don't you have to be mentally ill to have different personalities reside in your body? Actually, it is quite normal to have various "parts" of yourself emerge at different times depending on what is going on at the moment. If fact, these parts of the self speak different languages and see different things as well; which is why you may have wondered how you made a glaring mistake after becoming seduced by your illusions of what the charts were really showing in the wake of a loss. This kind of personal and emotional volatility can wreck your trading account. Similar to the market, personal volatility is a direct reflection of the emerging emotions of the masses as they trade furiously, impulsively, compulsively and at times capriciously. The market is continually sending messages; messages about volume, momentum, and volatility. But, those messages are best captured by first attending to your own volatility so that you can see the charts as they are.
The financial markets are neutral representations of all the hopes, fears, and decisions of everyone executing a trade. When you trade you slip metaphorically into the skin of the market and see yourself in its reflection. And, of course every blemish, character flaw and weakness that you have is in that reflection, because you "express yourself" while in the markets. The successful trader can "feel the markets" through insight and intuition that has been developed through countless hours of observing market charts; but she does not get lost in those feelings. The successful trader has an intimate understanding of the delicate balance between emotional intelligence, i.e., managing emotional volatility through protocols, routines and habits and tracking the mechanical data of the markets. They focus on doing the "right" things habitually (following trading plans, rules, money management and position sizing) as if their life depended upon it...and their trading life does depend upon it. In this way they set themselves up to get the right results habitually. They know that consistent successful execution is intimately related to mastering this process of focusing on what matters most. It becomes a Zen of trading by losing the ego attachment and using mind management tools that engage the subconscious to work "for" them rather than against them. This is accomplished by redefining the relationship to the trade. Your relationship to the trade becomes accentuated as in a business transaction with another human being; the objective is to be in the flow. Being in the flow means that you develop a detached interaction where you are not attempting to get each and every tick of a move, but on the contrary aiming to come away having executed well with a good return. To be and stay in the flow you must be self-aware and "watch" what you are doing. You want to activate your "internal observer" and this is accomplished by relaxing at every opportunity and creating the habit of "being in the moment; fully present and in the Now of the trade." In this way you can maintain a fierce focus on what matters most and promote a shift from fear, frustration, irritation, and stressful tension to relaxation, mental clarity, and self-confidence. Doing this you will be better positioned to do the "right" thing in the trade. There are many, many internal resources that you have, some of which you may not even be aware. Internal resources like for instance, the ability to discern chart details, see the big picture of the trade, initiate a mindfulness regarding supportive beliefs and others. But, it is very difficult to access and activate internal resources without first ensuring that your internal observer is online.
Activating the internal observer can be accomplished by doing the following:
Change your physiology, stand if sitting or sit if standing
Straighten your body
Take a good stretch
Take a few deep breaths, in this way you are initiating the parasympathetic nervous system.
By engaging the parasympathetic of the Autonomic Nervous System you dilate blood vessels and increase oxygen to the brain and muscles, slowing things down and initiating a "Relaxation Response."
When ego investment and emotion rise, trading becomes a reflection of the ego, in other words defensive reactions to neutral events and inflated self-seducing illusions that really distort reality. Overly-invested egos create a sort of delusion, and consequently, what you thought was a great trade was in reality a "fake out" or something that came from internal bias not the objective reality of the charts. For example, Jack, a novice trader, while in a position on the YM E-mini futures, violated his rules and failed to maintain a hard stop. It was on a day when the YM lost over 300 points. The second rule that he violated was to "think" that the ATR (Average True Range) had been breached and that since its average daily range was violated, it would "come back." The third rule he broke, after finally closing out of the trade for a significant loss, was to believe that increasing his position size and essentially "doubling down" would bring him back to break-even in another trade attempt. Now this is a prime example of delusional, ego-fueled thinking. The analysis was distorted by the emotional upheaval taking place after incurring the original loss.
So, your ego is not your amigo. You'll want to get the internal observer involved early and often by being self-aware and wary of ego driven tendencies that come from unsupportive thoughts and emotions. Trading with your highest and best interests in mind is critical to your success. This hinges on promoting a mindset that uses mental and emotional tools and techniques that are designed to shake you out of that self-sabotaging delusion. Remember, as you trade it is important to identify what part of you is showing up to trade your account. Is it the strong, healthy, grounded, centered and focused part; or is it the fearful, frazzled, and fragmented part that is torn by ego-driven thoughts and emotions? Monitoring your ego can keep you from getting your trading into trouble.
Written by Sam Seiden , Online Trading Academy VP, Education.
As the Vice President of Education at Online Trading Academy, Sam brings over 15 years experience of equities, forex, options and futures trading which began when he was on the floor of the Chicago Mercantile Exchange where he facilitated institutional orderflow. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated thousands of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.
