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I am a mathematician and political scientist by training and have utlized these 2 disciplines to develop a fundamental and technical perspective to trading. I quite often analyse the news and use graphs to pinpoint entry points. I have worked as a stockbroker, for the United Nations, and am... More
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Phase Shift Trader
  • Assymetric Trading: Using Your Advantage As A Small Trader 0 comments
    Nov 29, 2012 2:39 AM

    Asymmetric warfare is war between belligerents whose relative military power differs significantly, or whose strategy or tactics differ significantly.

    Private traders often think they are at a disadvantage because of the resources available to big banks and funds. However, trading on your own with small lots can be quite an advantage in the fast paced world of trading. As we have seen after the multitude of bank failures financial institutions are placing layer after layer of risk management algorithms in their trading models. Understandably, the high frequency traders make money in milliseconds from slight changes in the market, but we are not competing with them anyway.

    Most private traders these days have access to as much information online as a corporate trader. Most technical analysis packages have all the signals needed and so much news and so many pundits can be easily followed on Twitter. All this can have negative implications, the fog of war.

    New traders depend on too much information to make a decision. This multitude of information channels makes rapid decision-making difficult and takes out the edge of being a private trader. This is a problem the majors are faced with, the multitude of analysts, program trades and information.

    The principle of asymmetric warfare is to move fast with stealth like weapons. Private traders can do that. We trade smaller lots so don't need to worry about moving markets and we don't have risk managers and compliance officers monitoring all our moves. Use these advantages they are great to level the playing field.

    We should use our advantage of stealth and use some guerilla warfare tactics. You make rapid decisions, pounce and ambush trades and leave quickly if necessary. That is the edge of a mercenary. In military speak it is known as asymmetric warfare.

    Lets call it asymmetric trading. It's the only way to fight the market and take out the big players.

    Analyze information rapidly

    Make quick decisions based on available information


    Asymmetric warfare is also about getting out quickly when things are not going your way.

    The market is volatile but having a pre-determined point at which losses are unacceptable is an important security factor in trading. That point must be clearly established based on your money management criteria.

    Signal contagion.

    Now to my second point. To make all this easy you need a well-defined system and entry and exit points. Often traders need the comfort of having lots and lots of signals (MACD, RSI, Stochastics, MA, Bollinger) you know what I mean. All these signals come from the same information, price, they just present it differently. You should play around with the signals and see which ones work for you. Back test the system and then use it.

    Basically you only need 2 indicators.

    One measuring trend (one of these)

    MA, Bollinger band

    And an oscillator (one of these)

    Stochastic, MACD , RCI, RSI, ADX, there are others.

    Or you can just follow price action and monitor the news.

    After that set up your entry and exit points and you are set.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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