There are really only a few ways one can really trade. These have been defined in a number of ways but here at Tackle we tend to refer to them as swing trading, position trading and day trading or some might call it scalping. These ways are really to do with time frames of looking at the trades. Some are extremely short term and others can be vary from weeks to several years and beyond. Our view of trading needs to update as our focus on time in trade changes. If we are in a trade for a very short period of time then we are only looking for certain criteria and then if we expand the time period we must add more criteria to the formula as the parameters and the risks in the trade expand as well. This weeks blog is going to focus on what criteria is needed for each type of trading timeframe.

Let’s start from the shortest period to longest period as you will see the criteria increases in each instance.

Day Trading – this can be quite simple or complex depending on your preferences. As anyone who knows me, knows that I like to keep things pretty simple and since this is the rookie blog we will keep things pretty basic. In day trading one is essentially looking for a technical pattern, an entry and exit point and a volume pattern most of the time. If you can build or execute a system around these parameters then you have a shot at being successful in this type trading.

Swing Trading – the expanded timeframe may require a few more parameters to be in place for this type of trade. The basics are still the same, we need a trend, a pattern, an entry, an exit, a volume pattern and perhaps indicators to determine momentum in the pattern. This momentum pattern is important for the swing trade as this is a directional trade that may take some time to reach its destination and momentum is what makes this trade work out well.

Position Trading – in this type of trading we need to add even more as the length of time we hold this position requires more solid criteria for the equity we choose to use. The basics still remain the same, a trend, a pattern, an entry, an exit, a volume pattern, and perhaps indicators to determine momentum. What makes our position trades different is we need to make sure that these equities that we use are going to be in business and prosperous throughout the holding period of the trade. This requires analysis of the company to ensure that it is on solid footing from a financial standpoint. This is where we dive into fundamental analysis to make sure that the company is rock solid as opposed to being a house of cards that could fold during our holding period. Fundamental analysis is a wide-ranging topic and there are many facets to look at but for this blog post, we will simplify this as we have the others.

Fundamentals – the way to think about the fundamental strength of a company is the same one would think about the fundamental strength of any household. If a household has a solid steady recurring income and low debt with plenty of assets then chances are they are on a rock-solid footing and can usually weather any financial storms that may come along. This is true for companies as well. If a company has good strong recurring income and more assets than liabilities and/or debt then that company is usually on solid ground. In addition to the above criteria, it is also good to have lots of cash on hand to weather any of those financial storms or challenges that may present themselves during the holding period of the trade.

So depending on the timeframe of your trade you need to be aware of what criteria is important and strive to ensure that all these criteria are met when picking a trade. This will make sure your trades are rock solid instead of a flimsy house of cards that could come crashing down during the trading period.

Rock Solid is always better.

Trade Well,

Coach “Old Money” Holmes