How I Trade - Part I

There is not much to write about today since not much has changed in the overall market outlook. So, since I have been getting a lot of questions regarding my personal trading method I thought I would share some things that I look when trade.

First, the most important thing to know is what trading method fits your personality. In other words, do you like to day trade (close by end of the day), swing trade (1-5 days), position trade (1-3 months), or are you a long-term investor (>1 year)? Once you know that, then that determines what time frames you should look at for your analysis.

So, since I am a swing trader, I like to look at the following time charts: daily, hourly, and the 5 minutes. I use the daily charts just to get an overview of the major trend. Then, I zoom in to the 60 minute charts to determine my most important trend (intermediate trend) and I always trade in the direction of this trend. I time my entries in and out based on the shorter 5 minute charts.

So, what determines the trend for the individual time frames? That is basic technical analysis: an uptrend is a series of higher highs and higher lows, while a downtrend is a series of lower highs and lower lows. Although that sounds quite simple, in real-life when looking at a chart it is not always black and white. Thus, there is an art to technical analysis that can only be learned by experience and time.

When you start trading, keep a little diary or a log of all of your trades. Write down what your methodology was prior to the trade, how the trade worked out, and if you lose money make sure you learn from that mistake. Always analyze your trades afterward and see what went wrong. Again, this sounds very basic, but I cannot tell you how much I have learned from my crappy trades over the years.

Tomorrow, I will show you an example of a trade that I recently made based on the different time frames. I will share links of charts and give you a better idea of my trading method. See you tomorrow night.