If you’ve ever read anything telling you that there is a system that works for everyone in every market – it is a LIE.
There is not a “one size fits all” to trading and different approaches work well in different markets. To try and clarify this for you, I will classify traders into three tiers.
Tier 1: Active Traders
These traders can be in and out in minutes if not seconds. They thrive on volatility and must possess the two big T’s… Time and Temperament. They need the time to be there all day and wait for the big moves (think of a poker player who sits for 5 hours doing nothing waiting for that one big hand). They need the temperament to handle extreme volatility. Active Traders often use bigger size positions because of their short holding periods.
Tier 2: Swing Traders
These traders will move in and out of positions over days, weeks, months and sometimes, in very rare cases, years. These traders are trading for themselves because they want double and triple digit percentage returns, vs. the sub 5% people who get in mutual funds. They have less time to be around then active traders, but do stop and check the markets 3-5 times a day for around a minute each time. They don’t like the big swings but they can handle a little volatility. Swing Traders often use smaller size positions to allow for tiering in and out. The smaller size and number of positions allow them to handle market volatility by always maintaining limited exposure.
Tier 3: Investors
These traders buy stocks without a plan to sell them or place their money in mutual funds or hedge funds. They typically do not have the time to trade or do not wish to spend their time trading. These investors are content with single digit percentage returns. They do not like market volatility and do not have the temperament to trade it.
So who is this message directed at?
So which type of investor stands to make the most from one stock over time with patience?
First I’ll tell you why I have eliminated two tiers.
Investors – They don’t take an interest in their own finances so I won’t either! I want to help the people who want more get more.
Active Traders – They were my bread and butter in the 90’s! But black boxes and algorithmic trading have saturated this market to the point where you might as well be playing black jack because the odds are no longer in your favor.
That’s why today I am talking to Tier 2 Swing Traders.
This is the strategy that I currently employ. Recent months have seen a huge uptick in market volatility and that has only enhanced the benefits of swing trading. Let’s take a real trade I just made but a fictitious symbol (because it doesn’t matter what the stock is). Let’s call it XYZ.
I bought XYZ at 25. When it traded down to 23 and had earnings coming out, I sold 1/2 ahead of earnings. Following earnings, the stock traded down to 17.90. In looking at the stock at it’s new price, my position was small (this goes by your own standards). Because my position was small for me, I was able to assess the situation with no emotion.
This stock was a Bio-tech that specializes in drug development, so earnings was somewhat irrelevant. The selling was not because of the earnings, the event was just a catalyst for profit taking on a stock that had gone from 11 to 28 in a year.
With that in mind, I waited for the stock to find support at 18 and started increasing my position. Please note, I don’t consider this averaging down. I tiered into the position as I got to know it better. I then waited for it to stop going down and bought on the way up… above what I had identified at support.
At this point I began to get to know the stock very well because it was one of only three stocks I was focusing on. Remember: Swing traders carry less positions so they can focus and be less vulnerable to volatility;in fact, it becomes an asset to them.
I continued to hold a core position while making short-term plays as well. By the time it got back to 20, I was up in the stock!
The stock then went to 22 and I proceeded to tier down my position, reducing exposure and locking in profits.
The stock then traded down to 20 again and I was in perfect position to start building again if the support was confirmed.
I have now made thousands and thousands of dollars in this stock and I attribute it to one word: Patience.
When I entered the trade I didn’t think it would go up huge right away, so I started with what was a small position for me.
When it tanked I took a deep breath and reminded myself that at its core, this stock was stable.
That said, I sat on my hands until I saw buyers coming in at 18.
At that point, because it was one of the only stocks I was trading, I was able to really benefit from its surge to 22.
Now… in rhythm with the stock, I braced for a retest of 20 by reducing exposure.
I reached what I would call the perfect point in trading – the point where you literally don’t care if the stock goes up or down.
If it went up I would continue to make money on my core position.
If it went down, I was very well positioned to buy on a bounce off of support and trade the levels.
By being patient and never assuming that every move is “the move”, I managed to take a stock that has gone nowhere (down a little) and made it the number one stock I have traded this year.
With lessons just like this, you will be on your way to the next level of trading and take it from me – you are going to like it there!
All the best,
P.S. I’m looking to coach 10 hungry individuals who want to become financially free trading the markets. If you qualify to work with me, I’ll take you step by step and show you the exact steps I took to become a stock market millionaire. Apply here to be one of them now.
Adam Mesh is CEO and Founder of The Adam Mesh Trading Group. For the past 18 years he has coached thousands of students to all levels of success in trading. He is also creator of the revolutionary Full Contact Trading System