Trading style. It’s at the core of every trader.
And it’s a personal thing.
There’s no single best style. A perfect fit for one person may be unworkable for another. It’s something you develop over time.
Your style is a mix of factors. It includes things like your personality, tolerance for risk, and how much time you have for trading.
Take a spot foreign exchange trader for instance. This is one of the most intensive ways to trade. It’s also a full time job. You can’t trade like this on the side.
Currency dealers fit a special mould. They are typically assertive men with nerves of steel.
I remember one of my colleagues from the early 1990s. He was a brilliant trader — one of the bank’s best. His style was fast and furious. Some of his trades would only last seconds.
FX trading is a high stakes game. The pressure is enormous. You need to be aggressive and think quickly. Only a rare few are cut out for this type of role.
Don’t worry if this doesn’t sound like you. It’s not me either.
My trading style is much less intense. I look for trades that could last for months, not minutes. This helps keep my stress levels low.
I also resist the temptation to take a quick profit. A big part of my strategy is to let winning trades run. I want to stay with the trend for as long as I can. This is how I maximise profits.
You may be thinking this all sounds like Quant Trader. And you’d be right. You see, Quant Trader is built around my own trading style. It’s what I do myself.
This week, I want to give you an insight into how I trade. You’ll see a stock from my portfolio. It will help you understand the thinking behind Quant Trader.
I also want you to consider your own trading style. It’s important this suits your goals and personality. That’s the best way to ensure you stick to your trading rules.
A trade of my own
Have a look at this chart…
[Click to enlarge]
There’s a good chance you haven’t heard of this company. It’s a salary packaging business called Smartgroup Corp [ASX:SIQ]. The company listed on the ASX in July 2014.
Now, this is an interesting trade setup. SIQ came to my attention in April 2015. The shares were up about 50% in four months. They were also at a record high.
Many people hesitate to buy after a strong advance. They reason that a stock must be nearing the end of its run. Their overriding concern is to avoid buying at the top.
But this is often a mistake. You see, strength is a positive. It’s a good indicator that a trend will continue…and some trends continue for a very long time.
I bought a stake in SIQ on 1 May 2015. My entry price was $1.87. At the time, this was the highest price the company’s stock had changed hands.
Here’s the next chart…
[Click to enlarge]
Buying into strength proved to be a good call. SIQ continued its record-making run. My shares were up 45% in just 16 weeks.
This is where a lot of traders struggle. They know they should hold. But it can be hard to resist banking a quick profit. Fears of a big correction only intensify their urge to sell.
What would you do…cash in your chips, or let it ride?
Well, you know what Quant Trader would do. So it probably comes as no surprise that I did the same thing. I let the position run.
Now, here’s the thing. Markets rarely move in a straight line. It’s often a case of two steps forward and one step back.
At some point, the step back becomes a stumble. But you’ll only know this in hindsight.
Letting a position run involves taking a risk. It means you have to accept the possibility that an early gain vanishes. In some cases, it may even become a loss.
There’s no way around this. You have to take this risk if you want to catch big trends. The 100%-plus winners are the reward for accepting that risk.
This is what happened next…
[Click to enlarge]
SIQ plunged 21% in three days. Much of my paper profit evaporated. At one point, I was only ahead by 14%. Just a couple more days of selling and I’d be showing a loss.
Did I make a mistake not taking profits earlier?
No. Holding was the correct call for my trading style. It was the right decision, even if the trade was a washout. That’s the only way I can be a medium term trend follower.
My stop-loss on SIQ was $1.90 — just above my entry point (the initial level was $1.40). I was ready to give back a respectable gain for the chance of a much bigger one.
You see, much of my trading profit comes from the stocks that run a long way. Banking a profit early caps this potential. That’s why my trading style is to let winners run.
It turns out the fall in SIQ was just a correction.
To infinity and beyond
Here’s the final chart in the series…
[Click to enlarge]
SIQ has enjoyed a steady — although not uninterrupted — move higher.
I couldn’t have ridden this trend if I’d sold out before, or just after, the sharp selloff.
Everything seems so obvious in hindsight. But uncertainty makes it much more difficult in real time. You simply don’t know if you’re watching good money disappear.
I find it helps not to watch each stock too closely. Riding every movement can be emotionally draining. It can pay to take a step back from the coalface.
For example, I didn’t realise SIQ was up over 200%. I only noticed this when I was reviewing the Overflow Signals for last week’s report.
You see, SIQ is in the uncapped portfolio (Quant Trader also got the trend). This prompted me to look closer at my own holding. I knew the stock was doing well — I just didn’t realise how well.
Don’t get me wrong — I’m not slack when it comes to managing my portfolio. I just don’t fixate on individual stocks until they reach their exit point.
Not having SIQ at top-of-mind made it easy. I was able to sit through the corrections without worrying. My trailing stop was in place. I just let the market do its thing.
SIQ hit a record high of $6.40 this week. That’s a gain of 242%.
Was $6.40 the top?
I don’t know. Either way, I’m not giving it a second thought. If that’s the high, my trailing stop will get me out, and I’ll bank a triple-digit profit.
But maybe it’s not the top. The shares could go a LOT higher. Only time will tell. I know one thing for sure — I’ll stay on the trend until the market says it’s over.
My trading style is to go after the big moves. I don’t take small profits — it’s all about letting winning trades run. That’s how I maximise my profits.
I also spread risk and don’t overly focus on individual stocks. This helps keep my stress levels low. It also makes staying with the trend easier. Quant Trader could help you do this yourself.
Until next week,
Editor, Quant Trader
Editor’s note: Each day the markets are open, Quant Trader scans practically every ASX stock for opportunities. There’s a good chance you haven’t heard of some of these ‘hidden’ stocks. And that’s understandable — the ASX has over 2,000 listings.
I’ll give you an example. Have you ever heard of Catapult Group [ASX:CAT]? It’s an athlete analytics company that makes wearable technology for elite sportspeople. Quant Trader gave a buy signal in February. The stock is already up 56%.
Anyone can get gains like these. It’s all about having the right strategies. You can learn more about these here.