NOVICE TRADER
Finding Your Niche
What Time Frame Is Right For You?
by Thomas Bulkowski
Finding the right time frame for your trading may make life easier for you --and your trading successes more sustainable.A trader I'll call Jennifer made big bucks at her sales job, and her lifestyle matched her income. She drove a fancy car and lived in a big house. Between sales calls and in her off-hours, she developed a foolproof trading system. So she quit her job and started trading bonds and currencies full time.
I read a recent study that looked at income from traders. Just 4% of those surveyed made more than $50,000 annually. In her first year of trading, Jennifer made twice that, but she wasn't satisfied. She disliked sitting in front of a computer screen all day. She wanted the freedom to play on Cape Cod, go whale sighting off California, and splash her toes in the waters of the Caribbean. "I want to do what you do," she said to me.
By that, she meant making fewer trades each year while having the time to till the garden, tend the tomatoes, and still make big bucks. I call it position trading. To get a feel for the different time frames and styles of trading, I asked nearly 70 traders for information on their trading style. Here's what 20 of them had to say.
THE SCALPER
Pete is a scalper. He doesn't stand outside concerts hawking hot tickets, but rather he profits from market inefficiencies, holding positions for just minutes. He's an in-and-out trader who makes money on small price changes. His computer systems and software are custom-designed for his trading style. With the push of a button, he can be in and out of a trade in seconds. That's vital in today's fast-paced markets. He will make several trades each hour, but his time trading (not time holding) is relatively short--about two hours each day. The remainder of his day he uses for research and following market developments.
Another scalper I spoke with holds each trade for an average of 10 to 15 minutes at a time, trades for about four hours each day, and follows that with another three hours of research.
Scalpers are your hard-core traders. They repeatedly buy and sell securities, usually in large volume, but with small profit margins. They are willing to take many nibbles of profit each day in the hope that over time, the results will be impressive. With the advent of decimalization in the trading markets, the tightening spread between bid and asked prices has changed the nature of the business, making it harder for scalpers to find a profitable niche.
If you love to trade and are willing to do the research to find markets and methods you can exploit, then the scalper trading style may be right for you. Scalpers are also daytraders.
...Continued in the August issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the August 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2006, Technical Analysis, Inc.
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