Zen and the Art of Trading Strategy

Zen and the Art of Trading Strategy

“Every battle is won [or lost] before it is ever fought.” —Sun Tzu

This article is my general trading strategy plan that encompasses more than one form of trading (i.e. day trading, position trading, etc) and seeks to overcome the obstacles of stock trading on a more wholistic level. And it is based on the primary question: “Why only practice one type of trading like day trading?”

The 2020 Construct

The 2020 Market Crash that brought The Dow from almost 30,000 down to just above 18,000 in a short period of time.

Looking at the chart above, we see the evidence that the Market Crash of 2020 was a devastating one. And with a negative GDP decline of -32%, the current administration would want you to forget this ever happened. But, not to get too political here, this is a fact that this devastating market crash happened on this particular president’s watch. And the current global pandemic and the administration response to it (or lack of) was crucial in the development of what happened in the above chart. Anyway enough about this, but it is very important in noting here.

Day Trading

The experts say only 5% of all day traders are successful, and day trading in general has been under much criticism. It’s risky. It’s like gambling.

The truth is: One can develop a simple strategy or plan, and stick to that day trading plan and become successful. By keeping your strategy simple you can just look for that pattern or scenario when the conditions are right to enter and exit a stock.

And day trading doesn’t have to be your only strategy. For instance, if a stock is still in the red by the closing bell, one has the option to swing trade the stock until it becomes profitable.

Swing and Position Trading

I think short term trades should be considered. Why?

There will be times when it’s necessary to short-term trade as opposed to day trading and long-term investing. But, you should have a ‘core’ of long-term stocks in your portfolio. While short-term trades will allow you to buy and sell stocks in a shorter time frame, making a profit and selling to provide more funds for buying long-term stocks AND day trading. I find swing and position trades to be the fulcrum in the balance between day trading and long-term investing. And you should have a good amount of cash to take advantage of momentum stocks, and in every portfolio cash is king because you can’t take advantage of developing scenarios if you don’t have the cash at that instant you need to buy new stocks. Day trading allows you to have you cash back plus profits, while Swing and position trading allows you to trade from several days to months while building up profits and selling to provide more liquidity to trade and invest in more stocks.

Long-term Investments

No portfolio should be without long-term investments. I consider this ‘the core’ of your investment portfolio, and while I am only dealing with common stocks and ETFs (exchange traded funds), I believe in identifying which are your core stocks to hold for the long-term. They can be any number of stocks, 5 to 10 perhaps, while other stocks are shorter term investments, and of course day trading stocks will only exist in the intraday.

To Summarize

So in essence, my portfolio strategy consists of a three-pronged attack: Day Trading, Swing and Position Trading and Long-term Investments. And from there we hope to build a successful stock portfolio that will withstand any market crashes or market corrections that may occur.

Historically speaking?

The stock market has ALWAYS trended upward in the long-term… Just remember that the stock market is prone to volatile price swings. Trade at your own risk. And make sure you have a detailed plan on what your goals are and what you want to do with your portfolio.

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Portfolio Manager & Musician

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