Develop Your Own Style of Trading
Develop and stick with your own style of trading (when we say trading we also mean investing). Do not try to copy the style of someone else. That would cause confusion and weaken your identity as a trader. Traders have different strengths and weaknesses. Develop your own style and continue to build on and refine it. If you have to make changes, do so. However, the style must be your own. Learn to trade your way and on your own ideas, not on another person’s ideas. You can do this and still be free to learn from others..
After trading awhile, you will notice that you are more comfortable focusing on a particular type of “setup.” You might be more successful trading breakouts, for example. There are different ways to trade breakouts and you may find an approach that works particularly well for you. Another person will prefer to buy after Bollinger bands have squeezed together before a band penetration (see our videos on setups). There is more than one way to play a breakaway gap, and so on. You might like to focus on head-and-shoulders formations, ascending triangles, pennants, cup-and-handles, Gann analysis, Elliot Wave theory, point-and-figure patterns, or trendline pullbacks. These are just a few examples. Of course you might do very well with more than one approach. That is fine. If you are equally comfortable with several, then build on those.
Also develop your own selling style. Most studies in the above list have variations that are useful in selling strategies. Some people consider any downside penetration of a trendline to be a reason to sell. Some will sell only if the stock is still below the trendline at the close of market. Others have insisted that the close be 3% or more below the trendline. There are those who prefer to wait for a moving average crossover before selling. There are a number of ways that moving average crossovers can be used. Still others will use volatility-based stop losses as the basis for their primary sell strategy.
The point being made here is that each trader must find what he is comfortable with and good at. The best way we know of for a person to find his strengths is to keep a trader’s diary. This author has discussed the creation of a trader’s diary elsewhere. Because the trader’s diary is a record of the buys and sells, the thoughts that preceded the buys and sells, and charts that show the buy and sell points and what happens after the sales, studying your trader’s diary is an excellent way to discover what you do well. Of course there will be nothing in the diary if you do not trade. Learning what you do well requires some doing. Start by making a few trades using techniques with which you are most comfortable. Keep a record of your thoughts and the details of your analyses and transactions.
Discover your own way of finding stocks. Stop depending on television’s talking heads to find out what to buy or sell. Even the best of them say little more than “it’s a buy.” The stocks discussed may be good candidates for your portfolio, but you need to study the stock for yourself to determine where your entry point will be and under what conditions you will “pull the trigger.” We have seen the stocks suggested by these “gurus.” They have been 5% or more above support and drifting down toward that support and they still get a “buy” recommendation. That is absurd. Our own traders at stockdisciplines.com have learned by experience that it is far better to wait for the stock to reach support before buying. Why would you want to ride the stock down that 5%? Doing so would mean that the first 5% on the way up would be needed just to break even.
Learn to trade your own way. Find your own investment ideas. Monitor your own watch list. Decide for yourself when it is time to buy or sell. The bottom line is that you should not depend on another person’s ideas. Doing so will deprive you of finding your own identity as a trader. Finding your strengths and weaknesses is accomplished best when the selection process, the reason for buying, and the reason for selling evolve from the thought processes of your own mind.