ZYCLE: A holistic swing trading strategy (Work in Progress)

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Hi, this is your Trader of Stocks. You are about to learn how the various techniques and ideas I employ in my everyday trading come together to form my holistic process of making money trading stocks. It reveals the immense synergy of a handfull well-defined, hard-learned and time-tested aspects of technical analysis, money management and trading psychology.

The General Concept

It is 2020 and my first decade of having skin in the game lies behind me. During that time my trading style evolved and has come a long way since my early CANSLIM years. I am profitable for a while now and here’s how I did it.

William O’Neil’s work on chart patterns and his formulation of the CANSLIM acronyms enlightened and helped generations of traders around the globe to get a grip on the markets via his easy to understand labels with a focus on picturesque chart patterns. He helped to push technical analysis into the mainstream and thus provided a sought after counterpart to Buffet’s and Graham’s buy and hold value investing.

O’Neils original work is great and got me hooked in the first place and I would not be where I am today if I had not discovered his classic How to Make Money in Stocks (short: HTMMIS) early on. The clearity, the rules and the focus on visuals had been very appealing to someone with a background in engineering like myself. O’Neil based his work on Wyckoffs groundbreaking analysis of how information hidden in the price and volume bars allows one to reveal the path of least resistance.

However, when you try to study trading within a rigid framework it slowly dawns on you that following strict rules and superficial labels hinders your creativity and critical thinking both imperative traits needed to master any complex task. At least I was not able to make any real progress until I started to look beyond the HTMMIS horizon.

A shout out to Gil Morales @Gilmoreport for opening the eyes of an aspiring trader, freeing him from his CANSLIM* shackles and teaching him to be bold when being bold is warranted!

(*CANSLIM was and arguably still is a working system for many in todays QE age. However it certainly did not suit my trading personality. More power to you if you manage to make it work for you! Feel free to find out more about it over at investors.com)

To make it in the game of stocks you must develop a deep understanding of the matter at hand and rewire your brain in order to be able to read the subtle information hidden in the price and volume signature of stock charts eventually. Furthermore you have to excel in rather boring things such as portfolio management and risk control techniques. But don’t worry, you’ll still get your dose of thrill from picking hot swing trades among high octane names. It also helps when you have a system in place which allows those hot names to mature from swings (sometimes even intraday) into solid, multi-months, position trades naturally. When you try to combine two basic approaches, getting the best of boths worlds is not a trivial task. The approach presented here made it work for me eventually.

Don’t get me wrong, I still try to catch the monster growth stocks for a ride from one consolidation area to the next. I am just not willing to sit through those bases anymore! Over the years I came up with various tweaks for techniques I adopted from others and novel methodologies each solving an issue or getting rid of various road blocks which I encountered during my long journey of becoming a profitable trader.

ZYCLE is an attempt to formulate my holistic process of making money trading stocks.

The whole process resolves around being in the moment and getting things done without forcing it. I figured out deliberate ways to detach myself from extrinsic factors such as the accumulation of wealth or the need to be right with my stock picks.

Day in and day out, I am living the process of…

  • …executing setups when they show up in real time.
  • …embracing market feedback via stop loss hits.
  • …Sitting on my hands when no proper setups are available.
  • …monitoring my portfolio, intervening when I see deviation.
  • …adapting to the ever changing market environment.
  • …finding joy and happiness in the act of trading.
  • …juggling the joy of spreading my knowledge with the noise associated with it.

The journey consumes time and must be it’s own reward in order to be worth it. There is no point in learning to trade if you don’t enjoy the process!

In my opinion one can only reach mastery when driven by an intrinsic passion for the very act of performing said craft. Extrinsic motivators, such as the aforementiond accumulation of wealth, won’t allow you to make it through the learning curve. It is likely that you will drop out at one point! It requires passion to dust yourself off over and over again and keep going. Let me tell you that you will become very efficient at “dusting off” as a self-taught trader! Especially during your early years.

Have you ever heard of a succesfull trader who truly quit once he had “enough” money?

Me neither!

Holistic is not an empty word here, I have techniques in place covering most, if not all, aspects of trading, ranging from stock handling over to portfolio management and managing psychological pitfalls.

The core idea is that a trader must detach himself from financial news and the general trading public in order to make independent trading decisions in the present with the limited information at hand. My approach is designed to focus your attention on the process and not the outcome thus protecting you from performance anxiety. In my opinion performance anxiety is oftentimes the last obstacle preventing seasoned traders from making the leap torwards net profitability.

Arguably all information needed to make money in the markets is hidden in the charts. A trader should cancel out all other noise, period! Forced mechanical screening is replaced by a rather ZEN-like approach where you sync yourself with the markets, coming up with trading ideas on the fly. You basically allow different stock setups, each suited for a particular environment, to find YOU when they show up in real time.

Portfolio management is treated more like a science in order to stack the odds of coming out ahead by applying various statistical methods. I also came up with various techniques to trick my own mind, be it the idea to trade a capped system which makes it much more easy to allow the big winners to run or a way to trade without thinking about your actual account balance (see performance anxiety above).

The individual stocks will determine the ideal position size in order to maintain a favourable risk/reward ratio. The maximum risk per trade is obtained from the real world win rate of your setups and reasonable diversification guidelines.

Most of your attention will be focussed on managing and coping with losses and being protected against big hits.

FOMO is nipped in the bud!

The gains will come by easily eventually and the system is designed in a way to allow your gains to grow in tandem with your stock handling skills over time. The latter is a hard learned skill, which I believe follows the 10k hour practice rule.

Chart reading itself is effortless once you know how to prioritize the hidden information it contains and tough before you reach that level of experience and skill. You will learn to identify and distinguish the important from the useless price and volume clues. This goes back mostly to original work of Richard Wyckoff.

All of this is done to answer one purpose only, namely to remain in a strong mental position and in sync with the markets to fully seize the brief windows of opportunity when they show up in real time. A big part of my edge comes from my hard learned ability to be in predator mode ready to strike when many other market participants still sit in the corner licking their wounds.

Applying my methodologies will require some commitment to get it right. But this was the only way to go for me once I realized that there is no such thing as a holy grail trading system and that you just have to continue failing forward until all major obstacles are overcome.

Learning to trade is the process of accumulating quality practice just like any other competitive endeavour. There are probably no shortcuts and only ways to speed up the learning curve. Talent might play a role, intelligence does not.

I believe that what I am about to present here is a logical approach to tackle the markets for full time and part time traders a like. It certainly allows one to suppress all the unbearable noise and hocus pocus encompassing the financials markets. It was and is an effective, efficient and profitable way for me and hopefully it will do the same for you too. In order to find that out, you guys need to commit for a while.

But first take your time, browse the website and do some research. Once you got an idea of Thweis and see our personalities as a good match, feel free to give it a go!

You certainly must dive and not dabble in order to make the adoption of a trading approach and moreover a particular mindset work out for you!

It goes without saying that all this helped me survive my own learning curve. This trading approach suits my personality and may or may not suit yours.

Now feel free to enter the Dojo.

A modern approach for modern times!

Trading vs. Investing

Who is this Trading style for?

Where’s the winning edge?

Novel or rehashed?

The main pillars

1. Pick high potential trade ideas

2. Handle your trades

3. Combine swing and position trading

4. Wear your trading armor!

5. Trick your mind and stack the odds

The final pillar (Market Timing)

1st Idea: Seize and Secure a position of strength

2nd Idea: Suppress the noise by trading in solitude

3rd Idea: Cope with performance anxiety and live the process

4th Idea: Master the simple things!

Speed up the learning curve

Ok, but what’s the real secret sauce?

Can you support me until I learned to fish?

my-winning-swing-trading-process
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Disclaimer

The content of this article reflects my own opinion which stems from my experience gathered trading real money in the stock market. It represents my style and it suits my personality and risk allowance and it may or may not suit yours. Please refer to my honest risk warning for further information regarding the risks associated with active stock trading.


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