7 Categories of Stock Traders Based on Buying Power

Categories of stock traders based on buying power

• Starter Trader
• Intermediate Trader
• Advanced Trader
• Professional Trader
• Institutional Trader
• High Net Worth Trader
• Quantitative Trader

As we strive to become profitable traders, it can be helpful to understand the categories of stock traders based on their buying power. This can allow us to evaluate our progress as we advance on our journey toward becoming profitable. While there is no definitive reference material available, we have devised our own categories, acknowledging that they may not be the exact classification. Nonetheless, we propose the following categories:

• Starter: Up to Php10,000 - These traders may be considered "starter" traders who are just beginning to learn about the stock market and have a limited budget for trading. They may start by buying stocks from blue-chip companies or those with a proven track record. 

• Intermediate: Up to Php50,000 - These traders may be considered "intermediate" traders who have a bit more experience in the stock market and may have a better understanding of technical and fundamental analysis. They may be more willing to take on higher-risk investments and may start to diversify their portfolio.

• Advanced: Up to Php100,000 - These traders may be considered "advanced" traders who have significant experience in the stock market and may have a more thorough understanding of both technical and fundamental analysis. They may have a more diversified portfolio and may be involved in day trading or swing trading.

• Professional: Php500,000 - These traders may be considered "professional" traders who have a significant amount of experience and capital and may be trading on a full-time basis. They may have access to advanced trading tools and platforms, as well as a team of analysts and researchers to assist with investment decisions.

• Institutional: Php1,000,000 - These traders may be considered "institutional" traders who have a significant amount of trading funds and may be trading on behalf of a company or organization. They may have access to advanced trading tools and platforms, as well as a team of analysts and researchers to assist with investment decisions.

• High Net Worth: Php5,000,000 - These traders may be considered "high net worth" traders who have a significant amount of capital and maybe trade as a form of alternative investment. They may have a diversified portfolio and may be involved in a range of trading activities, including stocks, options, and futures.

• Quantitative Trader: Php10,000,000 or more - These traders may be considered "quantitative traders" who use algorithmic trading and quantitative analysis to identify trading opportunities and make trading decisions. They typically have advanced programming skills and may work for hedge funds or investment banks. 
  
  

Keep in mind that these categories are just suggestions, and different traders may have different definitions or ideas of what constitutes each level of buying power or capital.

The Intermediate Stock Trader

Our current investment portfolio is valued at precisely Php25,636.37, encompassing all of our modest savings. The portfolio is comprised of the following assets:

Banks:

• BDO UNIBANK, INC.(BDO)
• BANK OF THE PHILIPPINE ISLANDS (BPI)

Commercial:

• ACEN CORPORATION (ACEN)

Conglomerates:

• ABOITIZ EQUITY VENTURES, INC. (AEV)
• SM INVESTMENTS CORPORATION (SM)

Consumer:

• JOLLIBEE FOODS CORPORATION (JFC)
• UNIVERSAL ROBINA CORPORATION (URC)

Property:

• AYALA LAND, INC.(ALI)

Searching for Online Stock Trading Strategies

As our entire portfolio is currently experiencing a downtrend, we have been afforded ample time to reflect and strategize for our next move. As novice traders, we recognize the value of seeking counsel from industry experts. 

We have explored numerous blogs, websites, YouTube tutorials, and other resources, and we have found one particular voice that stands out from the rest. This voice resonates with us on a deeper level, providing a unique perspective that aligns with our investment goals and values.

In his Commitment Statement, OLIVER VELEZ recounted his personal journey of entering the world of trading in 1981, and officially turning professional in 1986. He shared that the initial years were arduous and lacked any available resources or mentors to guide him. Despite the difficulties, he persevered and learned through trial and error. This pursuit for excellence demanded significant time, financial, and personal sacrifices. However, he achieved consistency and success, leading him to share his methods with other professional traders in 1994. This move broke the traditional rule of secrecy that previously shrouded the industry. His story serves as an inspiration for aspiring traders and highlights the value of perseverance and determination in achieving success.

While we do not claim that the expert's teachings are infallible, we also acknowledge that they cannot be entirely disregarded as nonsensical. Based on the extensive collection of tutorials and authored books we have reviewed thus far.

Stock Trading Tactics for Live Testing

We have compiled a list of ideas that we find compelling and intend to explore for ourselves. We have taken the liberty of interpreting these concepts based on our understanding of how they can be effectively applied to our trading goals.

We need four things to start to be profitable in trading:

• Php50,000 to Php100,000 online trading account
• Candlestick chart
• 20-Moving Average (simple)
• 200-Moving Average (simple)

Starter Level: Php50,000 to Php100,000

• It is a common saying that it takes money to make money in stock trading.

• Although some online trading accounts have no minimum deposit requirements, such as BPI Trade, or a minimum of Php1,000.00, like COL Financial, buying stocks for under Php1,000.00 to own 100 shares is not cost-effective.

• It is better to save and hold your cash until you reach a buying power of Php10,000.00 or the Starter Level Trader based on our suggested categories.

• Trading with a small amount of money is a guarantee for failure because it can lead to incorrect trading decisions.

• Based on our local interpretation, we recommend having a proper amount of Php50,000.00 to Php100,000.00 to play in the equity markets.

Candlesticks and Technical Indicators

• We shall be on the lookout for "The Bull 180 (+180) shown below:

• Here is the illustrated tactic for the "Bull 180 (+180) Near" in the screenshot:

Tips and Strategies for Application

• Take time to search and learn different trading tactics to help you find what works for you.

• Test your trading tactics before implementing them fully to determine their effectiveness.

• Move your account up in value responsibly by trading with skill, self-discipline, and self-control.

• Understand the delineation of responsibilities: the stock's responsibility is to go up in value, the market's responsibility is to make money, and the trader's responsibility is to stop trading when the market is not performing well.

• Analyze your losing trades to gain insights into your trading style and adjust accordingly.

• Follow the number one rule of trading: do not lose money. Set a maximum loss per day and stick to it.

• If you have to lose money, make sure it is within your set maximum loss per day to minimize your losses and maximize your chances of recovery.

• Aim to make your first Php3,000.00 from Php50,000.00 to become an Advanced Level Trader.

By following these guidelines, we hope to become successful traders with a responsible and disciplined approach to the market. Remember that trading requires patience, perseverance, and continuous learning. With dedication and a strategic mindset, you can achieve your financial goals and become a successful trader.

In conclusion, stock trading can be a lucrative investment opportunity, but it requires proper knowledge, skills, and capital to succeed. It is essential to learn from the experts and develop a sound trading strategy based on a thorough understanding of the market. While it may be tempting to start small, investing a small amount of money may not be cost-effective and could lead to failure. Therefore, it is advisable to save and hold your cash until you reach the appropriate buying power to play in the equity markets, which we suggest to be around Php50,000.00 to Php100,000.00. Remember that stock trading is a long-term investment that requires discipline, patience, and a sound financial plan to reap the rewards in the end.

Swing Trading Lesson: Develop a Solid Trading Plan and Stick to It

Swing Trading: 5 Tips and Techniques for Minimizing Risk and Maximizing Returns

• Develop a solid trading plan
• Use technical analysis tools
• Keep an eye on news events and economic data
• Focus on trading liquid stocks
• Maintain a disciplined approach to trading

We previously discussed position trading in one of our blog posts since it aligns with our current trading strategy. Additionally, in a previous post, we mentioned that we tested the tips and strategies on online trading we shared by executing two buy orders of 10 shares each for Aboitiz Equity Ventures, Inc. (AEV). However, we realized that we could try some swing trading on the side to expand our trading skills.

1. Develop a solid trading plan

Develop a solid trading plan that includes clear entry and exit strategies, risk management techniques, and position sizing. 

The article by Alan Farly reviewed by Gordon Scott and fact-checked by Timothy Li in Investopedia.com highlights the importance of choosing a holding period that aligns with your trading strategy. It explains that the holding period depends on the type of trading strategy we choose:

• Day Trading: Minutes to Hours
• Swing Trading: Hours to Days
• Position Trading: Days to Weeks
• Investment Timing: Weeks to Months

The article also emphasized the importance of sticking to the parameters of your chosen strategy to avoid turning a trade into an investment or a momentum play into a scalp. The approach requires discipline, but taking your exit within the parameters builds confidence, profitability, and trading skill.

Additionally, before entering a trade, he also recommended establishing reward and risk targets. This can be done by identifying the next resistance level on the chart within your holding period as your reward target and determining the price at which you will exit the trade if proven wrong as your risk target. To ensure a profitable trade, aim for a reward/risk ratio of at least 2:1. If the ratio is less than that, it is advisable to skip the trade and look for better opportunities.

We tested this strategy in relation to our post about online trading tips and strategies -- although not so perfectly because our priority is to experience our first round trip -- with one of our trades this week. Here is the result:

Candlestick Pattern of Aboitiz Equity Ventures, Inc.  with Exponential Moving Average and MACD as Technical Indicators as of March 28, 2023

• Stock: Aboitiz Equity Ventures, Inc. (AEV)
• No. of shares: 320
• Resistance Level: Php62.00 assumed to be the Reward Target
• Support Level: Php47.50 assumed to be the Risk Target
• We consider 75% x (Reward Target less Risk Target) Value for our profit protection strategy.
• Entry on March 28, 2023, at Php51.20 per share
• Exit on March 30, 2023, at Php51.95 per share

• PROTECTED REWARD TARGET (58.40) - RISK TARGET (47.50) = 10.90
• REWARD = REWARD TARGET (58.40) - ENTRY (51.20) = 7.20
• RISK = ENTRY (51.20) - RISK TARGET (47.50) = 3.70
• PLANNED REWARD/RISK RATIO = 1.95
• ACTUAL REWARD/RISK RATIO = 0.20

We can also analyze our results from another point of view. We are going to use the data obtained from COL Financial Philippine Equity Research Technical Guide as of March 28, 2023, with the AEV recommendation of "sell into strength" initiated on March 21, 20023:

• 52-Week High: Php61.95 assumed to be the Reward Target
• 52-Week Low: Php44.85 assumed to be the Risk Target
• We consider 75% x (Reward Target less Risk Target) Value for our profit protection strategy.
• Entry on March 28, 2023, at Php51.20 per share
• Exit on March 30, 2023, at Php51.95 per share

• PROTECTED REWARD TARGET (57.70) - RISK TARGET (44.85) = 12.85
• REWARD = REWARD TARGET (57.70) - ENTRY (51.20) = 6.50
• RISK = ENTRY (51.20) - RISK TARGET (44.85) = 6.35
• PLANNED REWARD/RISK RATIO = 1.02
• ACTUAL REWARD/RISK RATIO = 0.12

Our exit point should have been in the range of Php57.70 to Php58.40, according to this strategy. And we could also improve the reward/risk ratio by increasing our risk target to Php47.60. Better if we entered the market at Php49.10.

Learnings: If you approach swing trading but then choose to exit at the price point of a day trader, you risk a situation where your position falls far below your reward target. Even if you have a profit protection stop in place, it won't do any good if you don't use it.

2. Use technical analysis tools

Use technical analysis tools to identify potential swing trading opportunities and set up price alerts to monitor the market.

3. Keep an eye on news events and economic data

Keep an eye on news events and economic data releases that could impact the market and your trades.

4. Focus on trading liquid stocks

Focus on trading liquid stocks with high trading volumes and narrow bid-ask spreads to minimize slippage and maximize efficiency.

5. Maintain a disciplined approach to trading

Maintain a disciplined approach to trading by avoiding emotional decision-making, sticking to your trading plan, and continuously reviewing and adjusting your strategies as needed.

Lessons Learned

Swing trading is a popular investment approach that involves buying and holding an asset for a brief period, typically a few days to a few weeks, with the aim of profiting from market swings. 

To identify trading opportunities, swing traders rely on technical analysis to detect patterns in trading activity and capitalize on momentum trends. They usually focus on large-cap stocks that are heavily traded. 

However, swing trading comes with various risks, including gap risk, which refers to price changes that occur while the market is closed. 

Successful swing traders must manage risk by choosing only liquid stocks and diversifying their positions across different sectors and capitalizations. 

We highly recommend an informative article on minimizing risks in swing trading authored by Rebecca Baldridge and edited by Jasmine Suarez for Business Insider. As beginners, we found the article to be particularly helpful in gaining a deeper understanding of swing trading. We acknowledge the author and editor for their insightful contribution and suggest that readers interested in learning more about swing trading should check out the article for additional details.

In addition, the website www.schwab.com published an article titled Swing Trading Strategies that compared swing trading with day trading and long-term position trading. The article describes swing trading as a strategy that lies between day trading and long-term position trading. It explains that position traders may hold a position for weeks to months, while swing traders are likely to trade on smaller swings within a shorter period.

The important lesson we can learn from this is that swing trading can be a profitable investment approach, but it comes with risks that must be managed through careful stock selection, diversification, and a focus on liquidity. It also requires reliance on technical analysis to identify trading opportunities and capitalize on momentum trends.

Watch out for more posts on swing trading!

Position Trading: 3 Expert Tips for Online Traders

3 Expert Tips for Online Traders

After conducting research on position trading strategies, we discovered some expert tips that align with our objectives:

• Position trading is ideally suited to a bull market
• Position trading indicators
• Risks with position trading

Position trading is ideally suited to a bull market

The Investopedia article by Akhilesh Gant delves into the details of position trading, including its definition, and strategies, as well as its pros and cons:

• Position traders buy and hold an investment for the long term, expecting it to appreciate in value. They are less concerned with short-term price fluctuations and news events. Position traders are trend followers and seek to exploit a trend's upwards movement. 

• They use technical and fundamental analysis and macroeconomic factors to select investments. Position trading doesn't require a lot of time, but it ties up money for a prolonged period, potentially causing opportunity costs. The main risk is that minor fluctuations can unexpectedly turn into trend reversals. 

• Position trading is ideally suited to a bull market with a strong trend, but not a bear market or a flat market. Traders must match their trading styles with their personal goals, and each style has its pros and cons.

Position trading indicators

• According to an article on Position Trading published by CMC Markets, some of the popular technical indicators that can be used for position trades on any financial market include the moving average over 50 days and support and resistance levels to make decisions on when to open or close a position on an asset. 

• Support levels may occur both in the short-term and historically, while resistance level refers to a price threshold that a security has historically been unable to overcome. Position traders use long-term resistance to decide when to close a position and historic support levels to buy if they believe a long-term upward trend will begin.

• It is a long-term strategy that can lead to big gains.

• A lot of capital is needed to keep positions opened for a long period of time, as trades can last for several months, meaning that the capital is locked.

• Trading positions with minimal funds is unfeasible.

Risks with Position Trading

The CFI Team of corporatefinanceinstitute.com listed the most common risks associated with position trading as follows:

• Trend reversal: An unexpected trend reversal in asset prices can result in substantial losses for the trader.

• Low liquidity: The capital of position traders is usually locked up for relatively long time periods.

In conclusion, position trading can be a viable strategy for online traders who prefer to hold their positions for longer periods and take advantage of significant price trends. By utilizing technical indicators, identifying long-term trends, and managing risk effectively, traders can potentially reap profits from position trading. However, as with any trading strategy, there are risks involved, and traders must carefully assess their goals and risk tolerance before deciding if position trading is right for them. By following these tips and continually educating themselves on market trends and news, online traders can make informed decisions and potentially achieve success with position trading.