Trade Financial Instruments and Strategies That You Are Comfortable With...

Trading Time Frame/Holding Period:

One thing that I learned after several years of trading is that you need to stick to trading what you fully understand. When markets fail and we encounter bearish periods, we often try to change up what we trade and how we trade it. This is an emotional issue that we come across. While I do encourage traders to try out different strategies and different trading mediums, you have to realize that you will have to pay your tuition in those mediums and strategies before you master them. Take for example someone who daytrades successfully and wants to be a swing trader or a longer term pattern trader. At first, it will be difficult for the trader to adjust to the new trading style. More often than not, the trader will face frustration from losses and mistakes when trying out the new strategy. The trader needs to come up with a game plan and learn to switch out of intra day day charts that only display the action in hours, min, secs, etc., and begin to observe the action on a daily chart that may be sprawled out for several months to a year (depending on the traders strategies optimal time frame). If the trader wants, he or she can adapt to the new strategy. On the flipside, the trader may realize that his or her previous strategy was superior and led to better results but was simply lagging just because of the current market conditions, volatility, etc. I had a similar experience during the nasty 2007-early 2009 bear market.

Taking Volatility Into Consideration:

There are instances where day trading is a better strategy. For example, earlier in the year, when the VIX was in a high position, it made more sense to day trade positions versus holding them for several days and so on. The constant volatility erased gains as quickly as they were acquired, so a nimble day trading strategy was key at that time. Once the VIX began to settle down, individual stocks were able to begin sustainable, longer term moves that required longer holding periods, in order to make the most out of your positions and its possible gains.
While I tried day trading, I truly never got into it. Occasionally, I sometimes put in a day trade or two, but I prefer to hold my positions for longer periods of time. Still, if the VIX ever goes parabolic and breaks out, you can bet that I will abandon the longer term trading and tailor it to a shorter term holding period.


Investing/Trading Medium:

Another mistake that we traders are prone to is not sticking with trading instruments that we are familiar and knowledgable on. Again, just like the trading style/time frame issue, its okay to try out new trading mediums. I've traded just about everything from stocks, options, FOREX, futures, and commodity futures. Each trading medium is a different beast that requires time to understand. I still occasionally trade FOREX, market futures, and commodities, but I have abandoned options for now. I trade these other mediums because I understand them and can tailor a strategy around them.

Concentrating on a Working Strategy:

So you are comfortable with a time frame and trading medium. Now you have to concentrate on what strategies work for you. One tip is to limit how many strategies you utilize and stick to just a few or simply, just one. Also, don't go crazy with the indicators. I just just a few simple indicators and that is it. I know some traders who have an information overload everytime they load up a chart. I take one look at it and I get a headache. Pick a catalyst and stick to it. Whether it is news driven events, volume surges, 52wk highs, breakouts/breakdowns, earnings induced behavior, etc. Stick to one or a few of these or combine a few catalysts and follow them.