5 Smart Tips For Trading Part-Time

My name is Paul Singh and I am a part-time swing trader with a day job. I have been trading and researching market strategies for over a decade. The following five tips helped turbo charge my portfolio and reach my trading goals. My hope is that they will do the same for you.

1. Swing trade your way to profits - Swing traders hold stocks anywhere from a few days to a few months, depending on trading strategies and market conditions. While there are many different trading strategies, most seek to identify and capture a trending stock's "sweet spot" or the bulk of the trend. This type of trading is conducive to the part-time trader, since precise entry and exit is not the goal, and you don't have to watch the ticker around the clock.

2. Develop bread and butter trading strategies - Every successful athlete needs a "go to" move, and traders are no different. Successful traders rely on bread and butter strategies to maximize their profit potential. My toolbox of strategies include break out-pullback, trend pullback and post earnings trades, to name a few. My quest to become an expert in these strategies has lead me to know the details of these trades better than I know the back of my own hand.

3. Build a strong watchlist - Watchlist development is the key to successfully trading part-time. Every evening, I identify 10-20 "primary watchlist" stocks that will receive most of my attention the coming trading day. These stocks are culled from my master "focus list", which is developed over time by an organic process that looks for stocks based on my bread and butter strategies.

4. Identify entry and exit points for primary watchlist stocks - When picking stocks for the primary watchlist, write down the price that would get you to enter the stock, and the expected target and stop-out prices. Base these prices on your bread and butter strategies. For example, if a breakout strategy identifies $25 as the level that will propel the stock higher, mark this level as your entry point. If $30 is the level you would take profits, mark this as your target. Most important, figure out how much you are willing to lose and mark this as your stop-out level. Most traders want the stop out level to at the least match their target level, while risking no more than 1-5% of their portfolio. In this case, your stop-loss would be no lower than $25.

5. Let your target and stop levels do the work - Once you have entered a trade, there is an overwhelming temptation to continually eyeball your positions. This can lead to over trading, which can be detrimental to the swing trader trying to hit that sweet spot. For this reason, my advice to the part-time trader is to turn off the quote feed once the trade is made. You've already researched your positions and set target and stop levels. It's now time to let your analysis work itself out. With risk analysis and a stop loss order in place, the probability of a disastrous loss to your portfolio is minimal. So sit back and relax. Or better yet, focus on your day job!

Following these 5 smart trading tips will do wonders for your portfolio, evolution as a trader, and ability to manage time and stress levels. In future posts I will dig deeper into the intricacies of trading with these tips and detail what it takes to be a successful swing trader.

Comments

  1. Posted by Jorge on November 6, 2007 at 11:55 am

    Having access to Level II quotes hurts as a part time short term trader. Emotions tend to run high if you have those up. Great advice turning your quotes off. Sure, you run the risk of having your position stopped early but rather to follow your plan without emotion than to adjust due to emotion.

  2. Posted by Leon on November 6, 2007 at 1:49 pm

    Poul, you are my mentor. Very inspiring article. Waiting for a continuation how to produce watchlist and which factors to consider. Thanks, Leon

  3. Posted by Paul Singh on November 6, 2007 at 1:53 pm

    I agree with you Jorge. It has been years since I used level two quotes. I also rarely look at anything less than 60 minute bars, and usually stick with dailies.

  4. Posted by Jorge on November 6, 2007 at 2:30 pm

    Agreed. I'm almost forced to keep track on Level II only because I deal with mainly with options. Leverage hurts quite a bit when I'm not paying attention. For the average equities trader, you're dead on. Too much stress looking at each individual tick.

  5. Posted by k on November 6, 2007 at 2:48 pm

    what is your day job?

  6. Posted by Bubs on November 6, 2007 at 4:19 pm

    Nice post just had a quick question on your stops. Wouldn't you want your stop to be much less then your target? I figure you would want at least a 3:1 ratio Buying a breakout at 25 and setting a target at 30 and stop at 20 just doesn't sound right.

  7. Posted by The Financial Blogger on November 6, 2007 at 9:28 pm

    Paul, I would be curious to know what is your average profit with this method :-)

  8. Posted by Jorge on November 6, 2007 at 9:35 pm

    I would think the stops and profit taking would be reflective of the risk of the part time trader. I normally let my options run about +/- 50% before taking a profit or loss. Going from 25 to 30 in his example is a 20% equity gain which isn't too shabby even by hedge fund standards I think.

  9. Posted by Paul Singh on November 6, 2007 at 10:28 pm

    I generally use at least a 2:1 ratio, though I sometimes will go 1:1 if it is a setup that has a high probability of success.

  10. Posted by Paul Singh on November 6, 2007 at 10:32 pm

    This year, most winning trades have been between 4 and 10 percent, while most losses have been under 4 percent. Trades have been posted online.

  11. Posted by Paul Singh on November 6, 2007 at 10:34 pm

    Thanks Leon. Great suggestions for future posts.

  12. Posted by Aaron on November 6, 2007 at 10:55 pm

    I think the watchlist is absolutely essential to any investor. The idea that one could just keep track of hundreds of stocks is ludicruous, a watchlist like you said of maybe a dozen stocks is extremely helpful.

  13. Posted by Jorge on November 7, 2007 at 3:17 pm

    I like Cramer's method. Take your short list of stocks you want and own. Rank them from 1 to 4 with 1 being a strong buy and 4 being a stock you'll give up fighting for. It works on days like today I think.

  14. Posted by Invest with Dax on November 15, 2007 at 8:21 pm

    Great tips, especially regarding stops

  15. Posted by nm on January 7, 2008 at 11:12 am

    I would also check what others are thinking. http://www.socialpicks.com , http://caps.fool.com communities and http://www.gstock.com stock alerts supercomputer. These tools help me figure out if the stock pick I got is fresh.