By Cliff Clark
As a new trader or even somebody who has been around awhile how should do you decide the type of trades you should be taking. We are speaking of day trades, swing trades or core trades. In the trading room we are primarily focused on day trading. But can you make a living on just day trading? Sadly I'll have to tell you no. You can generate enough income from day trading to pay your bills with possibly a little left over, but at the end of the day most of us aren't going to be able to generate enough income just from day trading to live the life style we want or to perhaps retire early if we still have a 9-5. You'll likely want to expand out into both swing and core trading to get to the level of income that will make you financially free.
Swing trades are trades that will typically last 2-12 days, they are usually taken from the daily or hourly timeframes. Core trades can last anywhere from when they are taken (if you make a bad choice) to infinity. I say now because I have had a case where I entered a beautiful core trade to only have it gap against me the next morning. On the other hand I still have several core trades that I purchased back in 2010 and I am happy to let them keep working for me, not only have they moved higher but I have collected dividends that have been reinvested along the way.
Here is an approach I would recommend you should take when deciding which trade type to trade.
Under funded trader – If you are an under funded trader meaning you have less than $25,000 and can't qualify for a margin trading account (usually requires $25-30K) I would recommend you start out with swing trading. Why? Because you will only be able to make about three trades per week. If you try day trading I think you are more likely run into issues with accidentally taking too many trades and getting yourself restricted for a time. Stick to swing trading at this point in your development. I recommended this to a trader recently and he got really upset with me. He said he wanted to be in the trading room making money. Friend, you can still be in the trading room. You can still write a trading plan to day trader, but do your day trades in the simulator. If you try day trading real money you are invariably going to get yourself restricted up to 90 days. Then you'll be making zero money and three months behind in your progress. Do the right thing and stick to the trading that your funding allows.
Minimally Funded Trader – Once you have increased your account to the $25-30,000 range and qualify for a proper trading account you can then switch to day trading. Start out slow at first, you don't want to blow it and have a couple of big losses the first week or two and lose your margin privileges. Start out with very small risk. I would say $10 but certainly no more than $25. You can increase this slowly over time.
Comfortably Funder Trader – Once your account has reached a level where you can take the number of day trades that your trading plan allows with cash still left over you can add swing trades into the mix. The amount will vary with each trader depending on what their plan allows. I'd say an average might be in the $100-150K range.
Well Funded Trader – Once your account has reached a level where you can take the number of day trades and swing trades that your trading plan allows with cash still left over you can add core trades into the mix. I would recommend doing your core trades in a separate account. I have what I call my magic number. At the end of each month I move the amount of cash over my magic number from my trading account to my core account. Once my core account reaches the level I need to add a new position I add it. The types of stocks you purchase for your core account will probably depend on your stage of life. When I got to the point where I was funding my core account I purchased mostly dividend stocks because I was in my early 50's and planned to retire in 3-5 years. The dividends would be a source of income for me at that stage. Somebody in their 20's or 30's would probably want to be more aggressive.
So there you have it, a plan for trader's at all stages of life.
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
