Stock Trading Strategies Are Not Always One Size Fits All

Be sure to realize that stock trading strategies are not always one size fits all, so-to-speak, when you come up with what you feel is a great trading plan.

The only ways to find this out are by either actually testing under different scenarios yourself, or reading about the results other people have had who have already tested themselves.

Backing up a bit, if you develop a set of trading rules/guidelines as part of a stock trading strategy that you have found to work well, don't become over-confident in thinking that it's the "perfect" strategy and will work 100% of the time, because it probably won't.

As a basic example, a couple of years ago I noticed that Chesapeake Energy (CHK) was trading up and down in a channel, and this pattern repeated for over a year. I think the CEO or large institutional traders were buying at a pre-determined low and selling at a pre-determined high continously. Read here to find out more about channeling stocks with some additional chart examples.

This pattern allowed for a stock trading strategy to be implemented by buying when prices of CHK reached $29 a share (or better yet, as prices moved up through $29.00 a share from below) and selling at a target of $33.00.

This would have produced 5 different trading opportunities over a year and a half with 13+% profits each time. Additionally, since this was a channel, the same trading rules could have been reversed to go short each time producing additional trading opportunities. Since this was indeed a trading channel, the opportunities were tremendous.

Stock Trading Strategies Are Not Always One Size Fits All

(Note: I realize in the example above that it may have taken a while to see the channel pattern forming which would have meant less than 5 ideal trading opportunites based on recognizing a channel. In my case, I was already following CHK very closely and caught on early.)

Just because a channel was recognized in CHK above, doesn't mean that all stocks were in a channel as well. Going a bit further, just because CHK was trading in a channel, doesn't mean that one of it's competitors in the same industry, APC (Anadarko Petroleum) could have been traded using the same rules and timing.

Look at the chart below and you'll see the much wider price range which would have required wider stop losses as compared to CHK above, which was ideal.

Stock Trading Strategies

Another example of how some stock trading strategies are not always one size fits all is with Elliott Wave technical analysis. Elliott Wave works much better on stocks or even more so, indices, because it is largely based on "crowd" psychology. The more people in on a particular trade, the bigger the "crowd", the greater the ability to forecast.

In contrast, if you take a stock like OTIV (On Track Innovations) which has a 3 month average daily trading volume of only 119,000 shares, Elliott Wave analysis would not work as well, if at all.

To get the most out of what I've mentioned above and understanding that stock trading strategies are not always one size fits all, I've found that it's best to keep an open mind and test, test, test, before actually putting particular strategies in place. An example would be the articles I have written using a simple strategy with DELL. I didn't just write one article with one time results Dell Trading Simulation using Market Club, I followed up with an additional article to show repeated, continuing results: Trading Simulation using Market Club Trade Triangles follow up.




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