The Klarenbach Report, Aug 16
How do I begin trading?
I was asked this question by a grower interested in managing his investments and using futures as a risk management strategy.
The first step is to choose a brokerage account, complete their KYC (Know-Your-Customer) requirements, and fund your account.
The next step is to understand what type of trader you are and the timeframe best suited for this type.
Are you able to follow the market each day?
Do you work at a job or run your business during the day?
Are you retired and have free time during the day?
Perhaps you only want to look at your investments weekly or monthly?
There is a style and timeframe for everyone.
Let’s look at the various types of traders and their respective timeframes.
1. Day Trader
Day traders are active traders who execute intraday strategies to profit from price changes for a given asset.
Day traders target stocks that are ”in-play,” meaning they experienced a violent move in the after-hours or pre-market trading.
These are often low market cap penny stocks (< $5/share).
It is essential to highlight that day traders do not hold positions overnight.
Often trade on timeframes ranging from 30-minute to 1-minute or shorter.
Great precision on entry and exits is necessary to execute in this short timeframe, and the mental capital requirements are significant.
2. Swing Trader
Swing trading involves taking trades that last a couple of days up to several months to profit from an anticipated price move.
My preferred timeframe allows me to step away from the screens and participate in daily activities.
3. Position Trader or Investor
Position trader refers to an individual who holds an investment for weeks to months with the expectation that it will appreciate.
These are long-term investments that are typically associated with a buy-and-hold strategy.
I suggest that every new trader gains their knowledge and trading experience in a more extended timeframe before attempting the shorter timeframes. Trading in a short timeframe requires greater precision and additional skill and expertise.
Consider these points before trading or investing:
The trend is your friend. Learn how to identify trends for your timeframe and follow them. Trend following should be the foundation of your trading.
There is no Holy Grail system of trading. No magic indicator or combination of indicators is effective every time.
Developing a strategy that you believe in will take more time and effort than you think it should.
Position-sizing and when you sell are more important than what you buy and when you buy it.
Every idea has a stop-loss. Always decide when you are getting out if you are wrong before you enter the trade. Expect to be wrong more than 50% of the time.
Let your winners and cut your losers short.
Losers average losers. Do not average down.
Keep It Simple, Don’t overthink or overcomplicate your process. Your intuition is often the most effective indicator.
Do not let your charts look like this one.
Trent Klarenbach, BSA AgEc, publishes the Klarenbach Grain Report and the Klarenbach Special Crops Report, which can be read at https://www.klarenbach.ca/