- It is hard to stick to one timeframe. Some traders describe themselves as ’15 minute chart’ traders or ‘end of day’ but in truth a mixture of techniques will generally work better. If anything timeframes become relevant as a trading style more than anything else. For instance, a scalper may make 200 trades per day while a weekly swing trader might only make 12 trades a year.
- Other traders think of themselves more as longer term CFD holders, but in truth these aren’t really traders but investors. ‘Buy and hold’ is the adage adopted by most of these investors (sometimes referred to as ‘buy and hope’ by the shorter term CFD traders). It is interesting that two of the greatest long-term investors were WD Gann who said that there is ‘more money in the long pull’ and Warren Buffet who advises not to buy a share if they’re worried about its price declining 50%.
- The optimal timeframe is a personal choice and what works for someone may be a wrong choice for another investor. No single timeframe is right or wrong. Just go along with what works for you.
Medium Term Trading
What follows is for medium term traders or investors. My understanding of medium term trading is holding a stock from a few days to a few weeks. Again I will concentrate on teaching my own way of trading. Doubtless there are numerous different ways traders can and will use to trade these kind of stocks.
For medium term trading, I believe you have to look where not many other traders are looking.
Let me put this plainly – you can’t achieve anything even remotely close to 30% annual long-term returns by investing in large-cap stocks. Sure, you can beat the market in the long run with that approach (and doing so to beat it by just a couple of percentage points annually would exceptional), but you won’t get to 30% annually. I believe your best chance is by going small.
Why’s that? First, small caps, because of their size, have more upside potential than large caps. But I must warn you, they also have more downside potential, therefore a strict stop loss rule is essential.
Second, because the big players (fund managers, etc) are often constrained to only looking at large and mid-cap companies, thus with small cap stocks you can take advantage of pricing inefficiencies.
Don’t get me wrong. I have success with my larger-cap stocks, mainly because of dividends and franking credits. But that is an area which I will discuss in my long term trading pages.
So what trading plan am I using for this type of trading?
First of all, I must point out that here, as with all types of trading, a sound money management plan, coupled with risk management, is a must. Don’t ever neglect that.
At the stage where our market is at the moment, to include all the small caps will give you a lot of selections, a few good winners, but also a lot of trades where you get stopped out. Our market is very volatile, therefore you have to be selective when investing. Watch your risk and money management.
Please do not take these examples as financial advice, I am not a financial advisor. You must do your own research.
My plan is as follows:
I do a daily End of Day scan of all ASX stocks with the following criteria:
EMA 20 and EMA 150 bullish cross over and volume spike exceeding 2 times 50 day volume EMA.
This is the only scan criteria I use.
I plan to buy every stock the next day if it is at least 1 tick above last night’s closing price. If the stock retraces from last night’s closing price, I look at the closing price the next day and again mark it as a buy the next day with one tick above last nights closing price.
I buy on every signal until my portfolio is filled, in other words, until I am fully invested.
As I said above, sound money management is essential, however I don’t think it is wise to open a position with less than $3000, as brokerage will eat into your profits.
Please set your stop loss according to your own risk tolerance.