Mr. Ivanov is the Author of Amazon Kindle Bestseller The 5 Secrets To Highly Profitable Swing Trading (2014), “The StockTwits Edge – 40 Actionable Setups from Real Market Pros” (Wiley, 2011).
Mr. Ivanov developed the algorithm behind the SL50 list, which selects and ranks stocks in the early stages of their price growth cycle.
Ivanov’s work is regularly featured in WSJ, Bloomberg, Yahoo Finance, Reuters, CNN Money, UT San Diego, Traders Magazine, Business Insider, Abnormal Returns, Real Clear Markets, Reformed Broker.
He earned his MBA and MS Finance from Webster University in Saint Louis, Missouri.
HOW I THINK ABOUT THE STOCK MARKET
There are two major cornerstones to my market approach – simple is good and “the glass half full” attitude.
The most important thing to remember is that stock market is an opportunity machine. Times change, gas prices change, fashion changes, regulations change, but there are always companies that find a way to monetize on an undergoing social and business trend and make their investors rich. The only things that change on Wall Street are the names of the winning and losing stocks.
There is always a silver lining. One company’s rising costs are another company’s rising revenues and the market usually does a pretty good job in identifying the winners and the losers. Money never sleeps.
Albert Einstein liked to say that “Any fool can make things bigger, more complex, and more violent. It takes a touch of genius-and a lot of courage-to move in the opposite direction”. No truer words have ever been said when it comes to investing. You could make your investing life as complicated as you want it to be, but the degree of complexity is not positively correlated with market returns.
Most people put the odds against themselves as they fish for stocks in the wrong pond. Guess what? 1 out of 3 publicly traded stocks lose 75% of their IPO price. All of them come from the 52-week low list.
All major stock market winners come from the 52-week high list and better yet – the all-time high list; hence we focus our equity selection efforts there.
The stock market is a discounting mechanism that looks 6 to 12 months ahead into the future. This is why prices will often change before fundamentals change. By no means, I try to convey the message that the market is always flawless. It is not and there are short periods of time when it acts like a bipolar schizophrenic, but for the most part it is a leading indicator and I want to put the odds in my favor by paying attention to price action.
Prices don’t change when fundamentals change. Prices change when expectations and perceptions change and they could change for various reasons. From a trend follower’s perspective, the main indicator that signals change in expectations is price.
Anybody could buy a stock and identify a new trend. Most people’s investing problems come from not being able to sit on their hands when they are right. Very few hold their winners long enough to make a difference in their returns.
If you don’t know why you bought a stock, you won’t know when to exit. If price action was the main reason you bought a stock, price action should be the reason to sell it. It is good to have conviction in your picks, but discipline should always prevail. Sooner or later, all trends end and when they do, it is not pretty. I have accepted that I won’t be right every time and I have learned to live with it. Being wrong is not a choice. Staying wrong is.
There should be a very clear distinction between trading and investing. Long-term investing is essentially a bet on how other people’s perceptions will change over time. It is about answering the question What are the catalysts that will change market’s expectations? Trading is about capturing real time changes in sentiment and benefiting from the sweet spot of a major repricing process. You have to define yourself – are you an investor or a trader? – because the path you choose to take will impact everything you do.
The 5 Secrets To Highly Profitable Swing Trading
There are two major ways to consistently make money in the market:
1) Hunt for several huge winners in a year. Build large positions in them and ride them for monstrous gains.
2) Hunt for hundreds of 5% to 30% short-term winners, where the goal is to compound capital quickly by actively moving in and out of them.
There is not right or wrong approach here. Both have place in the arsenal of each active market participant.
Everything comes at a price. If you want to catch a 200% to 300% long-term winner, you have to be willing to sit through multiple consolidations and several bigger than 30% pullbacks. Not everyone has the stomach to ride big stock market gainers, but maybe you don’t have to.
If you sell all your winners, when they are up 20%, you will never catch a double or a triple. Fact.
What is also true is that in any given year, there are a lot more 20% moves than 100% moves. If you learn how to catch hundreds of quick 5% to 20% moves, your capital could appreciate very quickly while you keep you keep the drawdown in your account to a minimum.
Swing trading is among the fastest way to grow capital if you learn how to properly apply its principles. Swing trading is all about velocity and opportunity cost of capital. The goal is to stay in stocks that are moving quickly in our favor and avoid “dead money” periods.
Stocks move in 5% to 30% momentum bursts that last between 2 and 10 days, before they mean-revert or go into sideways consolidation. The goal of every swing trader is to capture a portion of a short-term momentum burst, while avoiding consolidation periods. Then to repeat the same process hundreds of times in the year by risking between 0.5% and 1% of capital per idea.
The beauty of swing trading is that it provides many signals. You don’t need to risk a lot per signal. You won’t second-guess yourself whether to take a signal or not. One trade is not going to make your year or your month, but it also won’t ruin it. It relies on the magic of compounding. The idea is to grow capital quickly by being leveraged to the hill during favorable periods and being mostly in cash during unfavorable periods.
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- The Next Big Thing
- The Nasdaq Composite Is Within 4% Of Its Dotcom Highs. Now What
- Do You Really Want To Own The Best Performing Stocks Of Every Year?
- Here’s Why the Next 10 Years Will Be A Stock Picker’s Market
- Markets Will Be Markets
- Algos Have Made Financial Markets More Inefficient
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