Trading Strategies

Trading strategies are sometimes the most ignored aspect of success in trading and investing in the stock market.

Without a plan of action or trading system, the chances of creating consistent profits from stock trading over any time period is severely diminished.

Any stock trading strategy needs to fit not only your trading style but your trading time frame.

Trading strategies generally fall into three broad categories (not including forex trading strategies, other currency trading strategies, or futures trading strategies):

• Day Trading Strategies

• Swing Trading Strategies

• Buy and Hold or Long Term Investing

Day Trading Strategies: Nothing can be more boring and mind-numbing than staring at a computer screen all day trying to shave a nickel or a dime profit on an intraday move in a security. 

For most stock traders - especially those that have full-time jobs - day trading strategies are just not workable.

Buy and Hold or Long Term Investing Strategies:  Many buy and hold investors at some time have had to deal with watching their portfolios sink 20%, 30%, 40% or more until a bear market finds a bottom and turns bullish again.

In percentage terms, losses in a bear market require more gains than is lost. For example, it takes a 25% gain to offset a 20% loss or a 200% gain to offset a 50% loss.  And that is just to get back to the break-even point!

Buy and hold is a great strategy in bull markets, but portfolios can be decimated in bear markets.  Another problem with buy and hold trading strategies is that there usually is little thought given to profit taking or any other series of events that indicate a good selling price has been reached or a mistake has been made.

Even worse, securities usually decrease in price faster in a bear market than they rise in a bull market.  So I’m quite content to sit out or short a bear market once our technical analysis suggests a bear market is in place.  A bear market right before you need the money can be disastrous.  Check out our market timing signals.

Swing Trading Strategies: Take advantage of relatively short term moves and is absolutely the best of the short term trading strategies.

This trading strategy typically holds a position for an average 2 to 5 days.  Because of our stringent stock selection criteria, sometimes it makes sense to hold stocks longer, but only if prices are moving solidly in our direction.

The benefit to the swing trading approach you are no longer are competing with two of the most dominant market participants.

Swing trading strategies take advantage of a highly overlooked trading niche.  It falls between day trading strategies because day traders don't like to hold positions overnight, and large institutions that just can't be as nimble trading stocks as the average trader (you) can.

Components of an Effective Swing Trading Strategy

Market Trend
When prices start moving in either direction – up or down - the probability increases that prices will continue to move in the same direction. This reality is what creates trends and you can observe this phenomenon in just about any time period you want to review.

A price trend will last until momentum decreases sufficiently to allow the direction to reverse. And when prices start moving against us we are typically going to sell and find another position.  Keep in mind that all big price moves start with little ones.

View our history on calling market trends here: Market Timing Signals

Top Stock Picks
We screen stocks for stringent swing trading strategy criteria after the market close on each trading day.  These stocks are then sorted into 3 lists:

• Stocks that are making new yearly highs (or lows if the market trend is down).

• Stocks that are making new six month highs (or lows if the market trend is down).

• Other stocks that aren't necessarily making new highs or lows but nevertheless pass our swing trading screen.

Visit top stock picks to view a weekly summary of the stocks that are sent to subscribers after the close on every market day.

Get a 30 day trial subscription here for just a buck!  Cancel anytime!

Trade Entry & Exit Criteria

Trade entry and exit criteria follow strict strategies:

The stock needs to have closed over the midrange of its trading range on the day it met the filtering criteria.  Stocks on the lists that are sent to subscribers are screened for this criteria.  On the day after being sent to subscribers, the stock needs to be moving with the market trend between 10am and noon on the following market day before purchase is valid.

Automatic sell stops are used to establish the exit criteria for each stock.  In general, the first stop is set 10 cents lower than the low it set on the day the stock was sent to subscribers.  As the position matures, the stop loss is moved upwards until we get stopped out or decide to sell and take a profit.

View the associated articles for more detail on all these topics.