I recently had a trading buddy ask me “How do I apply the core trading strategy for optimized profits?” Well, first, the core trading technique will get you to maximize your earnings when stock price action increases. This article will answer the preceding question and teach you how to work around a basic trade, the methodology, and a twist. If you can master the core position trading method, you’ll be able to excel at long-term investment as well as active trading.
It makes no difference in trading how excellent you are at identifying trade opportunities or how smart your approach is. If you are unable to correctly manage risk and position, you will eventually lose all of your money.
And, the last thing we want to do is lose money in trading.
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While some losses are unavoidable, you must take proactive efforts to ensure your portfolio performs as expected. In this article, we’ll go over one of the fundamental components of the core trading approach. Trading around a core position can eventually assist you in optimizing your earnings and minimizing your losses.
If you simply purchase and hold, you will have to bear periods of loss when the markets correct. Learning a basic trading strategy may be the most effective approach to deal with market corrections.
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Before we show you how we trade around a core position, let us first define core position trading.
What Is The Core Trading Strategy?
The core trading method is taking a primary long-term position, also known as a core trade, and then actively buying and selling shares based on price movement. In other words, a core trade combines the long-term purchase and hold approach with active trading.
Once you learn the core position trading method, you will be able to maximize your earnings while limiting your losses.
The most popular method for trading around a core position consists of three steps:
- Purchase shares at the original price, which becomes the core trade.
- Scale-out of your primary investment as the stock price rises, and cash in profits as short-term goals are met.
- As the size of your investment is gradually reduced, your exposure to potentially negative price fluctuations is lessened.
- Wait for a stock price drop to purchase back your shares and rebuild your core position.
As a result, the core trading strategy rakes in the profits as the stock price rises while allowing stock investors to maintain a core trade with exposure to additional stock price appreciation. The core position is rebuilt by capitalizing on a downturn, which would not have been feasible with the buy and hold approach.
Let us have a look at an example to understand how trading around a core position works in practice.
How Does Core Trading Work?
One of the core trading disciplines with which you must get acquainted is the establishment of a core trade.
Here’s an example of how to set up a core trade.
Assume you have a 500-share initial core stake in XYZ stock purchased for $100 per share. If the stock rises 10% to $110, you sell half of your stake (250 shares), then wait for a drop before repurchasing the same share.
We accomplish three things with this approach:
- Lock profits in
- Reduce exposure to danger.
- All these while still keeping some skin in the game by owning some shares in the event that the price rises further.
If, after purchasing your preferred stock, the share price falls further without affecting the company’s long-term outlook, you can purchase more shares. For example, if the share price of XYZ falls to $90, you may purchase a further 100 shares or as much as your risk tolerance allows.
The one disadvantage is that the core trading method does not function well when you hold low volatility stocks. Or, if the stock you purchased is of good quality and has a consistent rising trend.
Let’s take a look at why trading around a core position may help you manage your earnings.
How Can the Core Strategy Trading Optimize Your Profits?
Trading around a core position helps you to maintain exposure to your preferred stock while avoiding losses during a correction.
When trading circumstances are adverse, working around a core trade might help you decrease risk while keeping linked to the long-term stock outlook.
Here are some of the reasons why core position trading works.
The natural ebb and flow of market movement allows Smart Money to take profits, resulting in pullbacks. Retracements, on the other hand, provide an opportunity for novice investors to purchase low-cost equities.
When there is enough stock buying, the stock price will increase again. And the cycle begins once more.
The core approach capitalizes on these ongoing purchasing and selling forces.
Growth companies, for example, with long-term potential, are ideal candidates for establishing a core trade.
And there you have it. Implement this approach to your trading for optimum profits and a healthier portfolio over time. Do share your thoughts and questions in the comments’ section below. Thanks for your time!