Positions can be confusing when it comes to trading strategies.
A position is the amount of stock you buy or short. In other words, it’s the number that represents your investment in the security.
For example: Let’s say that you buy 1,000 shares of a stock at $5 per share. Your total investment is $5,000, but your position is 1,000 shares. You can change your position if it makes sense for your stock trading strategy.
Here, I’ll share my own trading strategies for adding to, lessening, and exiting positions.
You don’t have to mirror my techniques — instead, develop your own. Base your decisions on your risk tolerance and comfort level.
What Are Trading Strategies?
Trading strategies are your own personal rules and protocols. They dictate when you enter, exit, or change a position.
For instance, one of my day-trading strategies is to cut my losses as quickly as possible. If a stock turns against me, I exit right away to stop the hemorrhaging. Some people will keep hope alive that the stock will rally — and sometimes it does. I’m not willing to bet my money on it, though, unless I have a very good reason.
Trading strategies can also be based on chart patterns. For instance, if I’ve seen a stock go full supernova after a specific catalyst, such as a regulatory approval, I’ll watch for the same catalyst to occur again. When it does, I’m ready to buy because I expect another spike.
There are also specific trading strategies, which I’ll discuss more below, that help describe your trading style. I know lots of traders, for instance, who never hold a position overnight. They just don’t. Others refuse to buy into a position premarket or aftermarket.
This doesn’t mean those trading strategies are right. They’re just right for the individual trader.
Types of Trading Strategies That Work
If you’ve read this blog before, you probably know that I’m primarily a pennystocker. I buy large positions in microcap stocks and snag my profits fast.** That’s how a lot of my students trade, too.**
When I’m teaching or mentoring new traders, though, I want them to know all the possibilities. Some people don’t like day trading or penny stocks. They prefer other trading strategies, and that’s fine.
Let’s look at some of the most common trading strategies and how they work.
1. Day Trading
Day trading is just what it sounds like: trading stocks between market open and market close. Day traders don’t hold their positions overnight — at least, not often — preferring instead to close out their positions before the market closes.
I’m a day trader. It’s a fast-paced way to take advantage of small or quick price movements. I also hold longer-term investments, but I focus on teaching people how to read stock charts, recognize patterns, learn from catalysts, and grow their wealth day by day.
The great thing about day trading is that it can work around any schedule. I might hold a position for just a few minutes or a couple hours. After I exit the position, I can either look for new plays or find another way to occupy my time.
Day trading strategies can also help mitigate risk. If I’m paying close attention to every play, I’m able to exit quickly if the price moves against me.
2. Swing Trading
Swing trading is similar to day trading except that the investor holds the position for longer periods of time. It could be two days or two weeks, depending on the situation.
There’s a little more risk with swing trading because a lot can happen overnight. What you thought was a sure thing can move against you because of an announcement that occurred halfway around the world while you were sleeping.
The goal with swing trading strategies is to pay careful attention to repetitive patterns. The more often a pattern repeats itself, the more likely it becomes to recur.
3. Position Trading
Position trading is one of the trading strategies that works quite well in a bull market, but often fails in a bear market.
It’s a step below long-term investing, which I’ll get into below, in terms of how long you hold your position.
A position trader might hang onto a stock for several weeks or months to let it mature. The goal is to profit off a long-term trend. Instead of looking at a few days’ worth of price movements, for instance, a position trader might analyze 200-day moving averages.
No, we’re not talking about concert tickets here …
Scalping is one of the less-popular trading strategies because it requires intense concentration and stamina.
Scalpers take tiny profits off small price movements over and over again. Each play only exposes the investor to the market for brief periods of time, which can mitigate risk.
Think of scalping as day trading in micro-moments. You can’t lose much money if you’re moving in and out of the market constantly, but you can lose money over time if you’re consistently wrong about the price action.
5. Long Term Investments
You’ve probably heard of buy-and-hold strategies. They involve buying shares in a relatively stable stock — your Apples and G.E.s and IBMs of the world — with the goal of profiting modestly over a long period of time.
Long-term investments might remain in your portfolio for years or even decades.
There’s nothing wrong with long-term investments, but they’re not why I trade. I want every play to result in exponential profits. I’m not interested in profiting 10 percent. I want to profit 20 percent, 50 percent, or even 100 percent.
Stock Market Strategies: What You Need To Analyze
Now that you’re a little bit more comfortable with trading strategies, what do you need to analyze?
No matter what trading strategy you espouse, you need solid analysis under your belt. Otherwise, you’re destined to lose money.
I emphasize to my students all the time that education is everything. If you don’t know anything about a given stock, how can you possibly predict the price action, whether it’s over a few seconds or several years?
Let’s look at some of the factors that should play into your trading decisions. Each one deserves careful consideration as you move in and out of positions.
Illiquid companies don’t interest me. There’s not enough money to go around, so they’re inherently dangerous. When I’m choosing penny stocks, I look for maximum liquidity so I can exit my trade quickly when necessary.
Essentially, liquidity refers to the ease with which you can enter or exit a trade. When there aren’t any shares to buy, for instance, you can enter the trade. And if nobody’s willing to buy shares, you can’t exit.
High liquidity equates to high stability. Most penny stocks are unstable by default. They’re small companies with very little money and few assets. Lots of them will inevitably fail.
That’s why you have to constantly look for better opportunities. When a penny stock — or any security, for that matter — offers high liquidity, you can feel more confident in the play.
A highly volatile stock experiences radical price action. There might be a general trend up or down, but you see spikes in both directions.
High volatility tells you that people are actively trading that stock. It’s a positive sign when it comes to setting up the right position.
If a liquid stock has high volatility, I know I can get in and out of the position with no trouble and that I can take advantage of the price action to profit.
You can visually point out a volatile stock on a chart because you see movement over time, whether it’s five days or 200 days.
You need to understand trading volume, no matter which of the trading strategies appeals to you most.
Volume tells you how many shares of a security have been traded over a specific span of time, such as between market open and close on a certain day.
High volume indicates lots of trading activity in large positions.
Lots of different stock charts exist, but I prefer candlesticks. They’re packed with information you can digest quickly, which makes them ideal for sussing out your next play.
Keep in mind, though, that even charts can deceive you. I’ve seen patterns play out over and over again, and then suddenly stop.
When you buy into a position based on patterns you see on a candlestick chart, don’t let your attention waver. If the price action moves against you, get out.
Candlestick chart patterns are part of technical analysis, which is just a fancy way of saying that you read charts.
Technicals can also involve creating spreadsheets, analyzing overlapping patterns, and comparing moving averages over different periods of time.
To be honest, fundamental analysis doesn’t matter much when it comes to penny stocks.
You won’t be reading financial reports because they aren’t available. The SEC doesn’t regulate penny stocks like it does larger stocks.
The fundamentals that do matter mostly revolve around news. If you hear new information about a penny stock company that could impact its price action, pay attention. Dig into the stock’s history to determine whether a similar event has occurred before.
I also pay attention to promoters — not because I think they have good stock picks, but because I like to short them on the downside.
Trading strategies can also involve buying earnings winners. These stocks experience big percent gains based on news. You don’t want to ride the entire upswing, but take your small profits as they come.
ECN/Level 2 Quotes
Having access to a trading platform with Level II quotes, such as StocksToTrade, can prove enormously helpful. It’s essentially the guidepost for the Nasdaq and can make your plays far more precise.
Essentially, you get real-time access to information about the stock’s price action, previous activity, breaking news, and more. It all comes via electronic communication networks, which anyone can use. You’ll see orders placed in real time as well as options trading.
Key Tips on Trading Strategies for Beginners
You’re primed and ready to execute based on these trading strategies, right? Well, don’t fire up your trading account just yet. I want to share a few key tips that can help you become a better trader from the very beginning.
Properly Identify Entry Points
Your entry point matters more than you think.
If you get in too late, you limit your profits, and if you enter too soon, you could accidentally influence the price action or fail to see a catalyst that might move the price against you.
Your entry point should maximize your opportunity to profit. The best trading strategies use historical data to make decisions about present-time stock trends. When you identify a trend, you can ride it as far as you’re comfortable, then exit the trade with your profits.
You can also pre-decide entry points based on your predictions. Maybe you like a stock, and you think it’ll go up in price at some point, but you’re not willing to pay the current ask price. Consequently, you decide the point at which you’ll place an order, such as when the ask price drops to a specific number.
Patience matters here. If you jump the gun, you could lose out on potential profits or, worse, lose money.
Limit Losses When Day Trading
Penny stocks are highly volatile and subject to extreme changes. If the price action starts moving against me, I get out right away.
That’s why liquidity matters so much to my trading strategies. If a company is too illiquid, I can’t exit a losing position. It’s extremely difficult to watch a stock price plummet while you’re holding shares and have no way to dump the stock.
Based on my trading strategies, I never make assumptions. If a stock’s price begins to fall, I assume it’ll keep falling. Maybe I’m wrong, but at least I don’t subject myself to even further losses.
Master Your Skills With Professional Assistance
When I got started in the stock market, we lived in a different world. There was no premarket trading, for instance, and the internet didn’t abound with information on pennystocking, day trading, or other investment strategies.
I had to learn the hard way — sometimes paying for mistakes with lots of money.
You don’t have to take that route. There’s tons of information out there to help you navigate the stock market and develop your own trading strategies. In some ways, I envy you. I’ve become a teacher and mentor so I can help the next generation of traders profit more reliably.
While there’s lots of information available, not all of it is trustworthy. I call out the scam artists and fakers all the time here on the blog because I don’t want you to fall prey to misinformation.
If you’re interested in learning from people — me as well as my top students — consider joining my Trading Challenge. It’s the ultimate way to communicate with other investors, get tips, share your plays, and learn from others’ successes and failures.
You’ll get access to tons of resources, including my every trade, so you can learn how to make trades for yourself. It’s also a great way to hold yourself accountable to your goals and to keep your ego in check.
When you go it alone, you risk making small but critical mistakes that deplete your profits.
Join us today and start learning from the experts. You won’t find promoters or other scam artists. It’s just a community of people who want to change their lives with the stock market.
The Bottom Line
Trading strategies tell you when you should add to, lessen, or exit positions. You have to rely on your knowledge and research as well as your risk tolerance to decide how to handle a trade.
You might notice that a stock is picking up speed in a supernova and decide to add to your position. That way, when you sell, your profits increase. Alternatively, you might lessen your position by selling stock at a modest profit, then wait to see if you can profit even more from the remaining shares you’re holding.
Exiting a trade means selling all your shares. You might do that if the price action begins to move against you, if you’ve ridden an upswing as far as you’re comfortable, or you hear negative news about the stock.
What trading strategies do you follow when it comes to changing your position in a stock? Share your comments below!