What Kind of Trader Are You?
Stockscores.com Perspectives for the week ending December 6, 2010
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In this week's issue:
Are you an investor, position trader, swing trader or day trader?
Your answer and your approach to the market will depend on many different things. How much time you have to devote to trading, your emotional make up, the state of the market and how quickly you can do analysis are all factors which should be considered when determining how you intend to trade.
Here is how the different trading types are defined with the Stockscores Approach.
An investor's aim is to find 10 stocks per year. Once you have learned the Stockscores Approach, you will need to spend 30 minutes a week doing the analysis and monitoring your stocks with the work typically done on the weekends. The investor should analyze weekly charts for the correct chart pattern set up.
A position trader is more active, perhaps able to find 10 trades per month. With more trading opportunities comes more time commitment, I suggest that a position trader spend 30 minutes a day 5 days a week. The focus of analysis is on daily charts.
A swing trader can trade 10 times per week by focusing on intraday charts on a 15 or 60 minute time frame. Ideally, the swing trader will spend an hour at the beginning of the trading day and an hour at the end to identify the good entry and exit points.
Finally, if you are a day trader using the Stockscores Approach, you should be able to find, on average, 2 to 5 trades per day. To do so will require a substantial commitment of your time; it is essentially a full time job. 2 minute intraday charts are the best way to uncover the good trading set ups.
Here is what you may find surprising. No matter how you approach the market, the analysis method is essentially the same. We look for stocks that are trading abnormally out of predictive chart patterns. The only difference is the time frame of the chart we are considering. The investor looks at weekly charts, the position trader at dailies and the swing and day traders at intraday.
With any of the trading types, we must still practice good risk management, have a clear set of rules for entry and exit and always battle to control our emotions.
What method has the best potential to make money? The shorter the time frame that you trade, the more active you can have your money working. If you can make 1% on a stock in an hour and keep rolling the money over and over in to new trading opportunities a few times a day, you can really get some great returns in a year.
However, the shorter the time frame you trade, the harder it is to succeed. For most people, it is too challenging to be a great day trader, at least at first. I encourage any aspiring trader to start with a longer time frame to learn and shorten the time frame as they gain skill and confidence.
So, you will make the most money trading the time frame that you are good at. It is easier to be an investor trading off of weekly charts because you have a lot more time to think about the trades you are considering. There is less emotion involved but of course, this ease requires patience. Your average hold period as an investor may be measured in years.
The trend of the overall market will have an impact on your trading performance. As the saying goes, a rising tide lifts all boats. When the market is trending, a longer time frame will benefit. In a choppy market, shorter term time frames have a better chance of success than longer because the moves will be shorter lived.
So, decide how much time you want to devote to the market and trade accordingly. If you love the market enough to want to be a day or swing trader, you should still start with position trading so that you can learn how to read charts, manage risk and keep your emotions in check.
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This week, I went searching for investment opportunities by looking at weekly charts. The research method I used is different from what I normally do. Rather than use just Stockscores.com to scan the market and look for good charts, I also utilized the Gallery view tool in the Chart Watch of Tradescores.com.
First, I did a Market Scan on Stockscores for stocks on the Canadian markets trading at least 200 times a day, but under $5. That gave me a long list which I grabbed using the Export to Excel function at the top of the Market Scan results page. I then went over to Tradescores.com and created a Sector in the Canada section called Most Active under $5. You can see that Sector by logging in to Tradescores.com and looking in the right column once you have clicked on the Chart Watch tab. This tool is free for you to use.
I had already set my default chart view to a five year weekly chart. If you want to do this, first call up a chart from the link in the upper right of the page, click on the Control Panel and change your chart settings. Doing it this way will set your default chart so that any subsequent chart you call up will be a five year weekly chart.
I then scrolled through the small, daily chart thumbnails in the Gallery View. If a stock had a good week, I clicked on the chart and the five year weekly chart appeared. With this, I could see if there was a good long term chart pattern breakout.
I was able to go through the charts of the 148 active stock under $5 in about 5 or10 minutes. Here are a couple of charts that stood out as worth considering if you are interested in a longer term hold.
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1. T.ARG
T.ARG had a good week, breaking through $0.95 resistance out of a cup and handle pattern. Support at $0.85 and the next level of resistance is at $1.50.
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2. T.SWY
T.SWY came to life this week, moving out of its $0.60 trading range to move up toward $0.75. This takes the stock on a breakout from an ascending triangle pattern on the weekly that has been building since the start of this year. Good potential to move toward $1.25 provided support at $0.56 is not broken.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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