Wednesday, June 24, 2015

6 Strategies To Help Every Type of Investor

This month I'm conducting a survey on different trading personas.  The responses have been pouring in over the past few days so I've decided to keep the survey open for one more week and I'll post the results next Wednesday.  If you haven't already, you can take the survey too, just sign up here!

This week, I've decided to put together a short list of 6 strategies to help every type of investor!

Strategies For Day Traders


In our examination of the sprinter we see that they tend to gravitate towards the day trader lifestyle so we'll look at 2 common strategies in that vein:

  • Momentum Day Trading
  • First Hour Trading

With momentum day trading, volume is the key.  Most momentum traders are in a position for only a few minutes or a couple of hours at most.  This type of trading doesn't require a ton of prep work but success means waking up early during the work week.  A wise momentum trader also has their finger on the pulse of big daily financial news.

First hour traders take advantage of market psychology.  On a normal day, the market is fairly boring and there aren't that many surprises.  The first few minutes of the day are basically pandemonium, though!  A well versed first hour trader can quickly analyze the first 5-10 minutes of the trading day and then takes advantage of the spikes and dips!

Strategies For Long Term Investors


Now let's consider the marathoner.  The long term investor has different motivations and, as a result, uses different strategies than a day trader might:

  • Dollar Cost Averaging
  • Dividends

Also known as the constant dollar plan, the DCA approach keeps an investor purchasing shares of a target stock on a regular schedule.  The purchases are made regardless of the actual share price but buying most of the shares on price dips is a great way to mitigate the risk of investing a large amount of money.  Dollar cost averaging is the quintessential use of the "buy low, sell high" approach.  

Dividends can be a great way to earn supplemental income on a long term investment.  This holds true even for mutual fund holders.  The other benefit of dividends is that typically they are only issued from well established companies so there is a sense of security that comes with them.  Startups and tech companies (higher risk/reward investments) rarely offer dividends because they prefer to re-invest their cash into growth or key talent and IP acquisitions.


Strategies For Growth Stock Investors


Finally, we'll look at the relay racer who prefers to get involved at a specific stage of the race.  Growth stocks have a smaller window of opportunity and the only way to find real success is to use a strategy that gets you involved during breakouts:

  • CAN SLIM
  • GARP

CAN SLIM is a rules based strategy designed by William O'Neil to help identify stocks when they are most likely to breakout. The best description of the method can be found here.  CAN SLIM is at the core of how I trade personally so I reference elements of it fairly often on my blog.  

Growth at a reasonable price (or GARP) is a less rigid approach to growth stock selection.  Created by the famed Peter Lynch, GARP keys off of the Price/Earnings growth metric to help locate companies that show earnings above the broader market but it excludes stocks that carry a high price tag.  

There are still a few days left to contribute.  If you'd like to take the survey too, just sign up here!

Happy Trading!

DISCLAIMER



Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.


The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.


YOU SHOULD NOT MAKE ANY DECISION, FINANCIAL, INVESTMENTS, TRADING OR OTHERWISE, BASED ON ANY OF THE INFORMATION PRESENTED WITHOUT UNDERTAKING INDEPENDENT DUE DILIGENCE AND CONSULTATION WITH A LICENSED PROFESSIONAL. You understand that you are using this Information AT YOUR OWN RISK.