Trading Strategy – small steps

Recently quite a lot of new traders joined my proprietary trading group RemoteDayTraderGroup.com. Very often the same mistake is repeated, or rather is an outline of action. They want too quickly and too much 🙂 The goal in each of them is the same, to earn as soon as possible. Of course, these are good assumptions. After all, on the stock-market we want to earn 🙂 However, the method of action – is not entirely correct. There is no trading strategy. That’s why potential traders are starting to jump around from flower to flower. Here is a company at 1$ and here suddenly at 120$, and with volatility in session of 50 cents and suddenly 12. After all, some plan and assumptions would be useful.

Today in my entry I will present my suggestion, how to start to give a bit more chances for success. These are simple rules, but allow us to proceed with certain stages to create and develop own strategy.

Trading Strategy – small steps preparation

Some of you probably moved from another market. Others are starting from zero. In this case, you should get to know the market. Understand how the session proceeds. What is repeatable during the session, at least from the statistical part:

• How the volatility is changing in individual trading hours

• How the volume is changing on companies in individual trading hours

Do not trade only because you have some time in the given moment. Trade setups, repeatable setups! How to find them? Well, exactly thanks to observation, notes. You will notice that on many companies you have similar movements, e.g. strong breaking after consolidation. You should print these graphs, mark levels in which you were interested to entry. Check what time it was. Check how the volume changed before breaking (on 1, 2, 3, 5 minute’s intervals). This really provides a lot of information, which should be well used.

Do not try to trade at once, 5 minutes after launching the platform, because you see something. Yes, you can earn on it. But it will be only a chance, which quickly can disappear.

If you use trading rooms, OK. Certainly you will find experienced traders there. But don’t try to imitate them immediately. Get to know what they are trading. Find out what risk they face. Whether you are able (and in fact your head and finances) to expose on the same? I have traders with small accounts, who cannot afford backs of 1-2$ on the company. In spite of the fact that potential is on movement of 5-10$. Simply level of this risk even with 100 shares is inappropriate for held deposits. This should give you some thoughts, but more on that in the following points. I’m a supporter of starting as possible on real accounts. Then you really trade and your emotions are visible. You won’t experience it on demo account. However, on real account you should trade when you have assumptions to trading. Not suggestions of others.

The stocks’ price and its variability

Personally I dive companies on:

1. Up to 5 dollars

2. Up to 30 dollars

3. 30-50 dollars

4. Above 50 dollars

Depending on the price, I trade with different sizes of position. Why? Because I know that I expose myself to different risk. Review the daily volatility on companies below 5 dollars and e.g. on the company worth 100$. On the cheap company, a movement of 1-2$ is possible, but on determined price levels far more orders are found where is a possibility of closing the position. On more expensive companies, you may even not notice when suddenly the movement increases a few dollars. A few dollars too much as for the beginner’s account.

Are you starting on the stock-market? You should focus on companies up to 30$. Along with your skills and increase in deposit – proceed to higher price. Then playing the same strategies, you will be able to expose to the greater risk – because your capital, which in combination with experience, will let you simply to earn more.

I definitely wouldn’t advise more expensive companies than 50-100$ for the start. More quickly you will zero your account, than you will start to earn. It often results from thinking that “more expensive companies have greater volatility and I’m able more quickly to earn”. And the beginner tries to trade on them. This is true, but just as quickly you can lose. Beginners have the greatest problem with acceptance of the loss. This for the beginning in combination with work on strategy is the key to possible success on the market.

Let’s consider two examples – company below 5$ and above 100$. Look at the volatility and sudden movements in the first part of session. Let’s assume that you are holding capital 3000%. You trade 100 shares at the beginning. You trade on short on ZN. You risk 15 cents of movement – so it’s 15$. You want to carry out a downward movement at 30-50 cents that is 30-50$. It’s sensible assumption. There is no huge risk that the company suddenly will be 3$ higher.

On the other hand we have TSLA. The company at a price of more than 300; volatility in this day is 13$, in next similarly. Trading 100 shares, you can potentially lose more, especially in terms of your capital. Imagine a situation that you have a long from price 312$. Suddenly there is a strong decrease of a few dollars. As it took place on July 10. Unfortunately, you aren’t able too quickly react. In case of above ZN, even if you were on long, when ranged the decrease from 4.40-50$ to 4.10-15$ – you would risk far less. It is possible to say commensurate with held capital. Therefore, I recommend evaluating the risk, which you can afford with this volatility; to take unpredictable situations into account – i.e. sudden strong decline.

Daily range

Refer to above graphs. Analyzing the company, you should check what daily ranges on average they generate. This will enable to specify the risk for you. If you are starting and e.g. you are trading 100 shares. If the company has a daily range of 5$ – it is for you information that potentially up to 5$ x 100 shares you can lose on it. If the company has an average daily range of 30 cents, so with 100 shares – potentially you can lose 30$. Think how much it is in the scale of your deposit. What loss doesn’t cause sweating, upsetting, nestling into the chair and too large dose of emotion. If such reflexes appear, this means that it is too big loss to which you aren’t still ready or prepared.

Personally I recommend to new traders to start with companies of smaller daily range. And just with increase of their skills, knowledge and most importantly generated profits – to go higher. For the beginning, a daily range should be e.g. 30 cents. When on this level you will feel confident, then you can go higher to e.g. 50 cents, etc. What I meant saying “you will feel confident”. I don’t mean that you will carry out 2 transactions, which will be successful and already after a few hours you will jump higher. Let it be even a month or two.

Hourly volume

Take a look at the graphs below. What you notice at first glance?

Probably it’s the volume in the first part of session, and in the last hour. And how the volume is changing at 12:00-2:00? Let’s take a look how the volatility drops along with the volume in subsequent hours. Consider it, if in these hours you just return from the work and you would like to trade. In lunch time – there are movements, but far more rarely. In such case, it is better to focus on the last hour session, and on its base to build the strategy.

Plan

Personally I recommend to new traders to start with companies of smaller daily range. And just with increase of their skills, knowledge and most importantly generated profits – to go higher. For the beginning, a daily range should be e.g. 30 cents. When on this level you will feel confident, then you can go higher to e.g. 50 cents, etc. What I meant saying “you will feel confident”. I don’t mean that you will carry out 2 transactions, which will be successful and already after a few hours you will jump higher. Let it be even a month or two

Prepare a plan. The plan of how you will develop your trading. How you will change played companies in terms of: price, volume, daily range. How you will adapt the size of played position and held deposit. As mentioned above, it is supposed to be a certain outline.

In this way, you will know what you are trading and what path you are heading. Take notes of what you can see. Based on successful and unsuccessful transactions – you will draw really great conclusions.