Successful Trading Styles - A Subjective Exercise

Submitted by Craig Strzelecki on 18 January, 2006 - 18:41

When you first start off share trading or share investment you probably aren't aware of the distinct differences between the two styles/branches of owning share equities. Investment in shares encompasses holding the stocks for extended periods of time. Trading encompasses holding the securities for short to medium periods of time. But that's is not the definitive differences between the two which is that share trading is a BUSINESS while share investing is not.

Once you've got that thought digested there is further differences in the branch of share trading or any other form of trading for that matter - be it the forex markets, commodities, derivatives and so on. The way I see it there are quite a few different styles of trading that traders on the market are operating.

There is the amateur trading style: amateurs that gamble their wealth away into oblivion. They are high rollers seeking high thrills in the market and instead of seeing high gains from their trades they see big fat red losses.

Then there are a whole hybrid of 'professional traders'. There are people that follow gurus and their teachings. Could work sometimes and other times not. Depends on how the market sentiment is. Other people follow tip services. There has been a boom in tipping services in the Australian environment in the past few years - there's the Intelligent Investor (One of my early trades used their tips - result was mediocre but positive), then there's Fat Prophets, Huntley's, Australian Stock Report and then the Rivkin Report. There's probably more, but I don't care. I don't follow them. That's not my style - but it may work for other people. For me, I don't use them as I can pick out my own stocks using my own methods (to find out my methods you just have to keep reading this blog regularly). And I'm not being high and mighty, arrogant or proud. It works for me. I have a very high track record to prove it. I won't divulge it but if you guess a number between 60-100% - that WAS my return in my first year of trading.

So you've got the gamblers, the tip takers and the guru followers. I'm a hybrid trader. I use a combination of some guru teachers as well as tip taking (I use the tips to look at charts and make my own decision - but I must confess that I don't subscribe to any - these services drop the odd free tip or two and I take those), but mostly I use charting. I used to use news to trade - but it was too daunting to keep up to date with everything that was happening.

Finally there is another trading style that is growing. The machine traders. The term may sound derogatory but it isn't. This style of trading has its advantages. I will blog about them in the coming weeks... but in short these people are the ones that formulate business plans and hence trading plans that are bulletproof. They look for triggers and gates to activate their trades and have a known exit plan. And I'm moving towards this model... I have elements in place but not the whole concept. For those traders that don't have exit plans when they enter in a trade - I'm suggesting you should start having exit plans. It may save you from having large losses.