I’ve discovered that for my patience and budget level, I really only have two kinds of trading options available to me that seem to be consistently successful:
#1 – Long-term investments … I can’t even be positive of this, as I’ve not really had positions in for longer than 18 months or so now outside of mutual funds. But trying to follow some sound investing strategies – especially when the economy is in such a funk and good deals abound – seems to work pretty well. I really like this strategy. I’ve got money in companies that I feel good about, and I bought them for what seemed to be a very good deal. I have had to bail a couple of times in the case of stocks that just didn’t pan out, but for the most part I don’t worry about the day-to-day fluctuations, and I’ve done as well as doubling my money in mere months.
#2 – The exact opposite of #1 – Very short-term swing trades that only last anywhere from one day to about a week (less than a day – “day-trading” – I can’t do except in an emergency due to SEC restrictions for small traders). I fortunately work at a place where I can usually check the market once in a while, and I don’t have to go in until an hour after market open. I identify the stocks to watch at night and on the weekend, wait for them to hit the technical criteria I’m looking for*, and then get in. Then I set up my exits / stops** to automatically exit the trade again when my exit criteria are met. I am often not even at my computer (or at least not paying attention) when I sell out of a position. The key seems to be taking small bites.
What hasn’t worked for me in the past has been trying to anticipate the reversals for the Big Bucks, or playing more medium-length (multi-week) trades where the longer term and further target encourages me to be more loose on my acceptance of loss.
So far, this year has been AWESOME for my principle trading account, and not at all shabby for my self-maintained IRA, either (which is mostly in longer-term positions). This is a far cry from last year, when my professionally-maintained Roth IRA and 401K in mutual funds did wonderfully well, and I personally struggled.
I hope that that it’s more of a case of me FINALLY figuring this stuff out, rather than it simply being a case of a lucky streak.
* – Um, usually. I wish I could say I was super-disciplined and calculating enough to make a play only when it hits the exact penny of my target, but my logic is a lot more fuzzy than that.
** – Usually the evening after I open the position, as due to day-trading restrictions I only exit positions the same day I opened them in extreme situations. If things are going really ugly (or so very well that I expect a major counter-reaction at market open the next day), I may exit the same day. Another thing I will do sometimes is buy an offsetting position, turning it into a straddle or strangle. That way I can neutralize losses, and exit the losing leg – or both legs – once things become clear what’s happening and whether or not I was truly wrong.