In the battlefield, a sniper foregoes rapid firing volleys for a single well timed shot. What determines the success of the sniper lies in his patience to wait for the right opportunity and the awareness to pull the trigger ONLY when all conditions are met.
In stock trading, similar attributes can also be observed in any profitable trader. Much of the effort lies in patient analysis and monitoring. It is only when market conditions line up according to the trader's strategy that a trade can be executed.
In this post, we will discuss the tactical approach of trading that emulates the attributes of a well skilled Sniper.
What Defines a Sniper?
Discipline, patience, precision and timing, these are the defining traits of a sniper. When everyone is quick to rush in, a sniper opts to observe and wait. Impulsive actions lead to wasted effort. So, a sniper only pulls the trigger when a clean shot is in sight. A profitable trader is no different from this. Trades are executed only when a clear signal presents itself. The market provides the opportunity and the trader responds accordingly.
Here are the distinct qualities that all Market Snipers possess:
1. STRATEGIC PLANNING
Anything you do not plan for is gambling. When hard earned money is on the line, you want to plan ahead as much as you can. A market sniper is a trader that has the acumen to build and develop a comprehensive trade strategy that aligns to his investment horizon, risk preference and lifestyle.
The Trade Plan/Strategy is the roadmap of your trading journey. It will tell you the when, what, why, and how of trading. Whether the market goes with you or against you, the Trade Plan will tell you the appropriate responses to take so that you will not make any impulsive decisions.
Key Components of the Trade Plan
The BUY signal - Exact patterns that point to a specific entry level.
The CUTLOSS point - A pre-defined price level near your entry point that allows you to get out of the trade with minimal losses if the setup fails.
The STOPLOSS point - A dynamic price point (usually utilizing a Moving Average line) that allows you to protect your profit while riding the bulk of the rally.
The SELL signal - Exact price patterns that show you when to take profit.
For more information on building a trade plan, you may access our previous post here.
2. Market Awareness/pattern recognition
Market Awareness or Pattern Recognition is the ability to recognize bullish, bearish and consolidating chart patterns and how it aligns to your strategy.
Every trade strategy revolves around specific chart patterns. As a basic guide, these chart patterns can be classified to three major groups:
Any profitable trader must have the awareness to recognize these patterns as they form in the chart. This will dictate if a profitable trade can be made.
If you are seriously considering stock trading, it is mandatory that you understand these chart patterns and signals.
For more information on chart patterns, you may access our previous post here.
3. Patience
Patience is the skill to wait until the right market conditions align to your strategy.
There is a right time and a wrong time to be in the stock market. The common error of most traders is that they buy at random points in the market and expect a good return in a short amount of time. It does not work that way! If you want to increase your chances of generating sustainable profit through trading, there has to be a "timing" component in which you are able to buy at a cheap price and sell at strength when the price rallies up. If there are no strong bullish patterns in the meantime, a sniper will simply WAIT.
Waiting is one of the hardest things to do in stock trading. Most traders want to force a trade even if there are no strong setups at that time. This often leads to unintended losses and will cause traders to miss the best setups when they unexpectedly show up.
It is important to note that great trade opportunities do not appear often. Every seasoned trader knows this. So while waiting, you should be analyzing and monitoring the market in order to seize the opportunity when it comes. Until that opportunity comes, you should patiently wait.
4. DISCIPLINE
A disciplined trader has the self-control to stick to the trade plan over time.
Discipline is emotional restraint. It is the ability to forego impulsive entries and exits and stick to the strategy. The trigger is only pulled when all conditions align to the parameters of the trade strategy.
Whether you are executing a short term, medium term or long term trade strategy, you want to see the right technical conditions first before you enter a position. Our decision making as traders are governed by the parameters of our trade strategy. So, unless a buy signal shows, then we must simply have the discipline to wait.
Below is a sample decision flow that aligns to a market sniper approach:
Notice that each decision is based on technical patterns and signals in the chart. Unless there is a strong pattern or signal, a sniper will wait patiently and monitor the market.
You can make this decision flow as comprehensive as you want. You can include specific risk:reward ratio, fundamental parameters and other technical data to further filter the stocks you want to buy.
90% analysis + 10% execution
Most of the time, majority of the price action moves we see are nothing but noise. When there are no clear patterns or signals, then a trader is much better off waiting. It is indeed very tempting to constantly buy and sell everyday, but in reality, most of those trades will be losses. If there are no strong bullish technical patterns to support the trade, then just wait patiently until the right pattern forms.
The discipline to only respond to technical chart patterns and signals that align to your strategy is what differentiates a skilled sniper from a trigger happy newbie. Expect that 90% of your time in trading will be devoted to analysis and monitoring. That other 10% of your time is the actual execution of the trade when the right setup presents itself.
Remember that a sniper is ALWAYS prepared. When the opportunity comes, a sniper is fully prepared to seize it.
We hope you loved our posts! To learn more about trade and investment, access the Online Learning section of our website to enjoy our free Learning Module.
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