September 24, 2022

Finance & Economy

Let's Talk About Investment

trading strategies: Trading has to be an expression of your own identity

Table of Contents

Equity trading can be a profit-making exercise if the same is backed by professional training, approach, and strict stop losses. We keep hearing about new entrants in the market incurring huge losses.

These are cases where the small investors with limited to no understanding take a plunge with no serious thoughts to prevent the losses in case of a non-favourable swing in the market. Let’s take a crash course on the equity market for beginners.

What are the trading styles?

Let’s understand it through a cricketing analogy. Cricket, in a broader sense, is all about – a batsman scoring runs, a bowler taking wickets and the fielders trying to protect the runs.

But there are various forms of cricket matches like the quick-fire T20, one day, and the long format 5-day test match. It requires different tactics and temperaments in each format. For example, aggression needs to be at its peak in T20, while patience needs to be at its peak in a test match.

The same applies to trading, it is all about buying and selling, but it has different formats like intraday trading, swing trading, and positional trading.

The key differentiating criteria between trading styles is Time Factor. Intraday trading is about buying and selling within the trading day. The aggressive swing trade cycle is about a couple of days to a week. Defensive swing is about a week to a month and positional trading is holding trade from month to year.

What is your trading style?

Actually, it is very difficult to answer in the initial stage. We normally chose a trading style in a very casual manner due to external factors like capital requirement, hype, earning requirement, etc and exclude the internal factor like the personality of being defensive or aggressive, own assessment of risk appetite, temperament, knowledge and skill, the time factor, etc. Normally, it takes some time for one to reach the right answer.

Have you ever faced trading style drifts?

It is very obvious and natural to happen as we choose a trading style on shaky ground. Sometimes we feel for doing intraday trading, and then, we change our mind to do swing trading. At some times, we do F&O and at other times, we think of doing investments etc. It can happen in any order. Have you gone through this? If yes, then it is nothing but trading style drift.

Is there any remedy to trading style drifts for traders?

We cannot iron it out completely, but we should manage it with a conscious approach.

Among the different formats, positional trading is about buying and holding for months to years. It is a good format, but it will give less exposure to traders as they will be having very fewer trades. Intraday trading, on the other hand, will give too many trades. So, it will be the right approach to strike a balance between extremes.

An answer lies in swing trading. As it is not over engaging and less engaging. It maintains a good balance between homework (analysis) and trade execution. In swing trading, it does not have very tight or loose stop losses. So it is ideal to start with swing trading, where the trade holding period is a couple of weeks to a month.

The best way to select is via elimination

Once we start practising swing trading, we need to try other trading formats, but the end objective is to find comfort with a trading style that suits our personality and continue with it. One can have combinations of trading styles. Let’s say, for example, 70% exposure to positional trading and 30% exposure to swing trading.

To end it, I can only say one thing your trading style need to reflect your own identity.

(Kapil Shah is a Technical Analyst at Emkay Global Financial Services Ltd & Trainer at Finlearn Academy)