Hello everyone, I just started trading and reading a few weeks ago. Im trying to pin point a strategy I could use. If you don't mind, I could use some help finding a strategy that can fit my objectives. Any comments on what im doing would be awesome too. So I have Ameritrade margin account with $9000 cash. Goal is to learn trading and hopefully make it to $30,000 over years. If I ever make it there I would like to try day trading since It has $25,000 requirement. at the moment 1) Im looking to trade 20$ - 50$ stocks, have 3-4 positions at any given time. Looking to buy on average $2500 per single trade. 2) Trading methods. From what I read so far seems there are, scalping (very small movements), day trading (1 day), swing trading (1-4 days), long term (1month+). Is this correct, am I missing anything? It seems that Swing Trading is what im moving towards. 3) STRATEGY What I was doing: 1. finding a stock that is bullish over years, strong company and has good future forecast (ex: SBUX) 2. wait when it has a drop due to the news or reporting or something else 3. try to look for bottom using TSR, price, volume, MA. Getting a little better at it, but have long ways to go lol 4. buy it 5. if it goes up, I wait until it goes up 1-3$, sell it if it goes down or sideways, strategy changes to long term investing. Basically I get stuck with a stock and wait for as long as it takes for it to go up (weeks - months and maybe never in a case with Fitbit). I see how putting stops in day trading makes a lot of sense. Do people use stops on every trade in swing trading and long term trading as well? What is reasonable stop for swing trading and long term trading? 5%,10%,15%? What is a reasonable loss to gain ratio? For swing trading is it better to use 5min, 10min or 15min charts? are there any popular swing strategies that I could look up? any recommendations how I can improve my approach? any tips for overall success? Thank you so much for your time
If you are using leverage you must use stops. What is your average holding period going to be? (that will determine what your stop should be). It looks like you are going to be putting on far too much risk if you don't use stops (1/3 of capital in a single position, 4 positions at once). I can't tell you how much risk you should put on, as that will depend on your holding period, and your risk appetite. Just to say with this strategy (no stops and a profit target) your losers will be much bigger than your winners. Generally this isn't a good idea. Profit target looks low (and should be a % of price; or ideally based on volatility) suggesting a short holding period; your stop should be a fraction of that to so losers are smaller than winners; it looks like your stops will be very tight so you'll be trading far too much. So the profit target should probably be larger. For the rest of it, there are people who understand swing trading much better than me here, I leave it to them. GAT
thank you for your reply, Ideally I would like to see 1-4 day holding period. How can I determine what is a good stop to use?
hey bebop! im new to trading as well and ive had the recent fortune to be able to talk with a lot of great traders here. However there is one professional trader i would like to view. His name is Meir Barak and his youtube videos are insanely educational. They're all live trading he does and there no more then 10 minutes. Please check them out as they have helped to a great extent. Plus theres a trader i am currently talking to if you would want to chat with him he;s also great at support and help.
My first response is that 1-4 days is probably way too short and you will get killed on transaction costs; but I recognise that is what swing traders prefer. If you insist then a stop loss equal to the recent daily price volatility will give you about a 4 day holding period. For a longer answer (and sorry for the plug), I suggest you read (as a "staunch systematic trader") https://volow.co/book/read/systematic-trading (free for 7 days but registration required). GAT
Thanks for making that available. I gave it a quick read, and it's well done, though it doesn't really offer any special sauce -- specific trade suggestions -- that would appeal to the ET crowd. It assumes the reader already has high-quality edge-laden strategies in hand, and wants to build from there. Reminds me of the old joke about how all Gypsy recipes begin with 'first, steal a chicken'...
Thanks for the kind words. Actually I don't assume the reader has edge laden strategies. I am a firm disbeliever in secret sauce. Secret sauce is eithier (a) incredibly rare and unlikely to appear in a book, or (b) overfitted, data mined, rubbish and hence probably will be in a book. Rather I think that someone who uses fairly basic strategies, in the right way, and sticks to them, will make reasonable money. There's enough in the book to replicate about 80% of the performance of my own strategy (once you've added the extra futures markets I trade). Another 19% is in a few other trading rules which I will happily release publically (eithier in a blog post, or a second book, haven't decided yet). All these rules are very simple; at most half a dozen lines of python code. There is only 1% in a trading rule which I can't release or I'll get myself sued; but it's very simple as well. (debitspread - I think you probably 'get' this already, but I'm posting this for the benefit of the general population) GAT
Strategy point 5) made me very nervous. Buy, if it doesn’t do what I want, it becomes an investment. This is very bad; essentially you are limiting the upside to 1-3 dollars and have more (unlimited, or to 0) downside. This needs to be inverted to where you are AT WORST risking 1 to make 1 and hopefully risking X to make 3-5X. As you get more experience eventually you should have varying degrees of confidence in a particular trade, where if you are very confident but it’s 1/1 risk/reward, you would still take it, maybe with decent size (because of your confidence). Long story short, I would reprioritize everything around risk v reward. It is VERY frustrating to keep cutting stuff when it hasn’t even moved that much against you but if you fast forward your current approach you’re going to have a portfolio of pure losers like fitbit tying up all your capital. You don’t want a handful (or more) of long term positions out of the money while you initiate new ones and aim for a smaller profit on them. When you cut the downside faster you take more losers and it’s frustrating at first because you’re watching your net/closed $ go DOWN. And that sucks. But keeping the position open (or adding more)? Eventually you are going to close those for a devastating loss. A smaller loss sooner is better than a bigger loss later. There are a lot of cliches in trading and most are true. One is that amateurs worry about how much they can make and pros worry about how much they can lose. It’s always good to think of the downside first, before you even enter the trade. If you enter at 40 you say “I’m out at 39, or 43” (or after X time regardless of where it is). [principle should be the same on any timeframe, if you’re daytrading you can risk .10 to make .40] If you think there is a good chance it needs to go to 35 first and you’d still be out at 43 profit then you are willing to pass on the entry. You enter near 35 if it gets there and if it doesn’t and it goes to 43 “without you” then oh well. You need to be consistently profitable over time in order for trading to work for you, so you’re not worried about “missing” $3 if it would take risking $5 to get it. There will be other, better opportunities. If there aren’t, you aren’t good enough yet and shouldn’t be trading real money yet. Not pretty words but if you think it through you’re looking to be right again and again over time, not just once. If you’ve read any trading books at all I’m sure you’ve heard “cut your losers.” I’m a firm believer this is true. Preserve your capital, stay in the game, keep getting experience. Defense first.
Hey, Ferdinand This was supper helpful! It makes a lot of sense and I will work to improve on these points.
I don't know if this is helpful, but here is the approach I take which is 100% mechanical. It consists of two strategies that are traded together in a strategy portfolio. Perhaps you can generate some ideas of your own based on the approach I am taking. http://www.fasterbull.com/members/strategy-portfolio-builder.html?id=22 good luck! fan27