Sunday, October 30, 2005

Should You Trade That Stock?

Traders have personalities of all sorts. Some are hyper-active and impatient, darting in and out of trades at a moment’s notice. Others are patient and willing to let a bigger move develop. Some take small risks, while others go for broke. Some watch the tape, while others make decisions based on chart patterns or indicators. You name the personality, it can be found on a trading floor.

Stocks are the same way!

Grandma’s slow but she’s old. Some stocks are both old and slow. Others make real-time quotes seem slow with the speed at which bids and offers change. Some stocks trend nicely, while others change directions every other day. Deciding which trades you should take is largely a matter of matching your personality with that of the stock in question.

The next time you’re stalking a trade, take a look at the history of the stock you’re watching. Does it frequently have big overnight gaps which might be costly? Does it move so much that it may stop you out too quickly? Or does it move so slowly that it’s likely to bore you out of it? Consider your personality and determine whether your stock matches it. Patient traders willing to wait for profits may be better served to trade the slow but steady stocks. Scalpers will likely do better in the high-volume momentum stocks which are in play for the day, providing them a number of chances to make incremental profits over the course of the day.

Whatever your personality, be sure to find stocks that are a good fit to trade. Seek out stocks with the right personality for your trading style. Whether you’re day trading or swing trading, you’ll be miles ahead of most traders who never take this into consideration.

Jeff White
President, The Stock Bandit, Inc.


Blogger Scott said...

I like your blog. I'm not into swing trading myself, but I do admit, it's more exciting than the buy-and-hold approach.
Have you had any experiences where you couldn't get out of a trade soon enough to avoid a heavy loss? Did that make you think about long-term investing? Just curious...

10:26 AM  
Blogger The Stock Bandit said...

Hello Scott,

Yes, holding any positions overnight opens up the risk of an overnight loss due to headlines or world events. I have had gaps of both kinds, good and bad happen to me. If you are a long-term investor, the risk is the same. I choose to trade frequently to "hit singles" because my overall return can far outpace a "buy-and-hold" strategy where I am hoping for a home-run. Trading short-term allows me to move on to the next opportunity if the stock is no longer working, whereas a long term approach would often have me in a dead stock which is stagnating and not the best place for my cash. Hope this helps!

10:32 AM  

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