NOTE: I'm planning on doing a market video tonight. It should be up at about 6:30 PST or so. – Tim
I want to continue on the article I published last week on Eliminating "Hope" from your trading. One way to do that is by identifying the key market stressors in your trading style and how they affect you personally in how you approach the market. Because Hope, as great and wonderful that word sounds, is detrimental to your trading, because Hope has a personality complex with Frustration. When Hope meets reality, you end up with a Dr.Jekyll and Mr. Hyde scenario, and for trading such a mindset leads to destruction of your capital.
I've put together a chart below that shows three different trading styles (can't include them all), and the stressors that are associated with each of them. I, for one, am a horrible long-term investor, and much of that has to do with my patience level, of waiting over a long period of time for a stock to do what it should do. Also, I have a hard time holding stocks through earnings, and "believing in a company" with out having access to the company outside of their published documents that they provide to everyone. As a result I am a hybrid of a day-trader and swing-trader which I will discuss more below:
Now its plain obvious that day-trading, based on the chart above, has the fewest amounts of market stressors (I'm sure I didn't include them all) but with day-trading too, the profits are typically smaller, and the commissions are more. While Long-term Investing has more market stressors, but far greater profits as well, and fewer decisions on a day-to-day basis that must be made.
Swing-Trading you'll see doesn't have anything unique in and of itself, but tends to incorporate trading philosophies from both day-traders and swing-traders, and thus has the most stressors.
I've always considered myself to be a swing-trader, but over the years, I have found my time frame in which I trade in, becoming less and less. Whereas five years ago, you'd never see me day-trading, but today, it is not uncommon for me to make four or five day-trades in a single day. But I haven't abandoned swing-trading either, but I tend to do the swing-trading when the market stressors are more managable.
For instance, the overnight trading and large gaps up and down tend to create higher levels of stress for me in volatile markets, which means then I have to condense my time frame and looks for quicker gains. So I have to be cognizant of the periods of elevated stress in my trading and make the necessary adjustments to the style that I embrace at that given time.
As should you. If you dread the weekly Jobless Claims report, and find yourself consistently making bad decisions often times in response to economic news, you may want to shorten your time frame for trading. And vice-versa, if you are overtrading the markets as a day-trader, and constantly chasing gaps, then you need to adjust, expand your time frame, and make the move towards swing-trading.
So, all in all, you have to know what trading style is going to suit you the best – the table above does a good job helping to narrow that down some. But failure to recognize the stresses that you struggle in dealing with, and making the appropriate changes as well, will result in your ultimate demise as a trader.