trading strategies: trading should be an expression of your own identity
These are instances where small investors with little or no understanding plunge without serious thought to avoid losses in the event of adverse market developments. Let’s take a crash course in the stock market for beginners.
What are trading styles?
Let’s understand it through an analogy with cricket. Cricket, in a broader sense, is all about – a batsman scoring runs, a bowler taking wickets, and defenders trying to protect the runs.
But there are different forms of cricket matches like the one-day rapid-fire T20 and the 5-day long format test match. This requires different tactics and temperaments in each format. For example, Aggressiveness should be at its peak in T20, while Patience should be at its peak in a Test match.
The same goes for trading, it is about buying and selling, but it has different formats like intraday trading, swing trading and positional trading.
The main criterion for differentiating between trading styles is the time factor. Intraday trading involves buying and selling during the trading day. The aggressive swing trading cycle lasts about a few days to a week. The defensive swing is about a week to a month and the positional trading maintains the trade month to month.
What is your trading style?
In fact, it is very difficult to answer at the initial stage. We normally choose a very casual trading style due to external factors such as capital requirement, hype, income requirement, etc. , the time factor, etc. Normally, it takes some time to find the correct answer.
Have you ever been confronted with trading style drifts?
It is very obvious and natural for us to choose a trading style on shaky ground. Sometimes we feel like doing intraday trading, then we change our minds to swing trading. At times we do F&O and at other times we think about making investments and so on. It can happen in any order. Have you been through this? If yes, then it is nothing but a trading style drift.
Is there a cure for trading style drifts for traders?
We cannot smooth it out completely, but we have to manage it with a conscious approach.
Among the different formats, positional trading involves buying and holding for months or even years. This is a good format, but it will give traders less exposure as they will have very few trades. Intraday trading, on the other hand, will yield too many trades. This will therefore be the right approach to find a balance between the extremes.
One answer lies in swing trading. As it is not too engaging and less engaging. He maintains a good balance between homework (analysis) and trade execution. In swing trading, there are no very tight or loose stop losses. It is therefore ideal to start with swing trading, where the holding period of the exchanges is from a few weeks to a month.
Best way to select is by elimination
Once we start practicing swing trading, we need to try other trading formats, but the end goal is to feel comfortable with a trading style that suits our personality and move on. You can have combinations of trading styles. Say, for example, 70% exposure to positional trading and 30% exposure to swing trading.
In closing, I can only say one thing that your trading style needs to reflect your own identity.
(Kapil Shah is a technical analyst at Emkay Global Financial Services Ltd and a trainer at Finlearn Academy)