If someone asked me to describe my style of trading by drawing an analogy to a popular trader, I would have to tell them Dan Zanger. Dan Zanger is easily my favorite of the "great" traders and ever since I first discovered him and his approach to trading I saw the similarities between my nascent trading strategies and his own right away.
If you have been following my blog you will notice I will attempt to hold onto a stock longer if I am getting in near a market bottom but will be much quicker to exit after the markets have already been advancing for some time ( 4 - 6 weeks+ ).
Take a look at this excerpt from an interview with Dan Zanger. He says the same thing in different words after being asked how long he is usually in a position:
"It depends on the market and the stock. If it is breaking out of a high level pattern I will be in it for a much shorter period of time. Usually 3 -5 days up to 2 weeks. If the stock has had a long base for example 6 - 8 to 10 weeks and the market is coming off a nice correction, I might be in the stock for 10 - 15 weeks. These are things that take experience and time before you get the hang of it"
Mark Minervini is another trader whose trading style my own closely resembles. Just like Dan Zanger he looks for a catalyst that will move the stock; earnings! Dan likes to time his entries on or just after earnings surprises just like Minervini and just like I do too.
They both place heavy emphasis on keeping losses small and looking to take or lock in profits once you are profitable by 3 times the amount you risked on the trade initially.
Where I differ in my approach is where it concerns partial buys. Although I will make follow-on buys in stocks I will treat them as if they were a seperate trade in a different stock. I do not believe in buying only a partial position of the maximum position I can take on based on entry level and stop loss level.
There are two reasons for this. The first is that I believe your earliest buying opportunities coming out of a correction are not only the lowest risk opportunites but they offer the best risk/reward by far. In other words these set ups have the best expectancy. So when they do come around you want to be fully loaded at the earliest possible moment. Only taking a partial position and then adding on later at prices higher than the optimum buy point offered by the set up will reduce your expectancy in my opinion. So you want to be loaded up as much as possible very close to your stop loss. So that even if you are wrong a few times in a row when one finally pays off your going to be making many multiples of R.
The second reason has to do with commissions. Especially with smaller accounts like I have, taking partial positions instead of one full position can increase commissions expense as a percent of entire account value dramatically. If you are trading a few million dollars then an extract $30 - 50$ in commission per trade will not matter so much. However, when your account is only $5,000 - $10,000 this added commission can really eat into your profits.
Another aspect in which I differ has to do with my willingness to go short. It really does not matter whether I am long or short. I do not think it is any harder to make money shorting than buying. I just want to make the most money in the shortest space of time that can be made given the market conditions and the set ups that I am seeing in individual stocks. So if the markets dictate going short now I will but if it says the opposite a few hours later I am willing to switch in the blink of an eye. I have no allegiences. I try to be as objective as possible and hold onto to facts and logical conclusions instead of blind opinions.
Holding firmly to opinions can and will cost you money!