Trading is generally defined as the buy and sale of a stock within a very short time period. You find a good stock, buy it here, and then sell it when you have a profit or take your loss if it doesn't work. There is much written about stock selection and trading methodology that is quite valuable, but most approaches are passive and encourage great patience.
There is no substitute for patience. The best and most profitable trades are produced when a trader stays with a powerful tend and lets profits run. However, a more active approach to building a position can help you to optimize your profits. The goal of trading is not just to be right about a stock but to make as much money as possible when you are right and to keep losses contained when you are wrong.
The biggest obstacle to being patient and staying with an aggressive trade is withstanding volatility while waiting for the correct timing to kick in. Patience with a trade becomes extremely difficult as volatility increases and even more so when you are holding a sizable position.
I have found that the best way for me to deal with this problem is to actively trade the minor volatility that surrounds a stock. Rather than just buy and then hope the trade works. I will make numerous buys and sales as a stock drifts around. The primary goal isn't to make money on all these little trades but to adjust my position size so that the volatility is not as painful and does not cause dumb emotional responses.
When a stock that I favor is drifting down for no real reason, I will cut some simply to reduce my exposure. I will then rebuy it when I think market conditions or price action is better. Whether I pay a higher price or a lower price isn't very important. The goal is to reduce my position when I feel conditions are poor and to have the biggest position I can when I feel that the conditions are most favorable. I will always maintain a position as long as there is no major change in the situation, but the size of that trade will vary wildly.
Some of the selling and buying that I do while watching a position may seem almost random, but it is a reflection of my changing confidence levels. When you watch a stock closely for an extended time, you learn its personality, and of course, other issues like overall market conditions or news flow will also impact whether you want to have a large position right now or later.
A current example of a trade that I am 'working' is Xeris Pharmaceuticals (XERS) . The stock recently popped over $7.75 on news of European Union approval of one of its drugs but has drifted back down to support in the $5.50-5.75 area.
I am quite confident that XERS will ultimately be a winner as it eventually introduces new products or establishes joint ventures, but there simply is no way to know when or from what level that will occur. The stock is moving around in a random (or manipulated manner, depending on who you listen to), and there really is no way to guess when it will make a sustained move.
The traditional approach to trading is to take a position, set some stops, and then be patient. Patience is stressed, and the conventional wisdom is to never average down once you have a 'full' position. The goal is to simply wait for the trade to work and to make sure you limit losses in case it does not work.
My goal with the XERS trade is to have a very large position when it begins to make a sustained move. I could just buy it all right now and then sit back and wait, but I know I would grow impatient with volatility and would likely just dump it on pullbacks and then miss the trade.
What I do is trade the stock on an almost daily basis. Since there are no commissions, it costs nothing, but I can constantly adjust my position size depending on a variety of factors. I recently reduced XERS into the spike on positive news, and now I'm adding it back as it finds support around its 50-day simple moving average. If it slips from here, then I'll probably reduce my position and then look to buy it back again once conditions look better.
If you have simply been holding a position in this stock, it has likely been frustrating, but it consistently offers some tradable volatility that allows you to adjust your position size. Your view of this stock and its prospects will change dramatically if you in a position to add to it when it is weak and can take some profits when it is strong.
The important point here is that you are in control. You can adjust your level of exposure to a stock at any time for any reason. The volatility that is so annoying when you are patient can actually be a very powerful tool that allows you to optimize your results.
Don't think of trade as a passive activity that you can't control. You have the power to keep working to adjust your position size so that when the trade does work as hoped, you can maximize your gains.
