SWOT analysis is an important way to conduct analysis on stocks and other financial assets. It is widely used by managers of companies who are entering a new market or launching a new product.
The strategy is Also used by companies that evaluate whether To carry out mergers and acquisitions (merger and acquisition). In this article, we will look at the concept of SWOT analysis in day trading and investing.
What is a SWOT analysis?
SWOT analysis is a method Looking at an asset in many ways. s represent powerAnd w to weaknessAnd a to chanceAnd t to threats.
Let’s talk about power. For example, in the place of merger, the company can look at the power the merging companies will have in its industry.
Adobe $20 billion buy figma Giving the company more tools for developers. similarly, Microsoft Purchase Activision Blizzard It gave her more influence in the gaming industry.
weakness back to Possible downside case. For example, in the case of the Adobe deal, a potential weakness was the company being overpaid. Also, the weakness may be that the deal will not give the company the leverage it needs.
chance Back to The main reason for executing the transaction. Seeks to answer the question about what chance the deal will have on the company. For example, a deal could have a chance at that Give company additional market share in the industry you want.
the threaton the other side, Looks at what could go wrong in a situation. In the merger and acquisition example, threat refers to the factors that could have an impact on the deal.
For example, in the case of a merger and acquisition transaction, the threat could be the situation it is in Deal he His refusal is orderly. Also, there is a threat from a Bidding war That would push the acquisition price much higher.
This is amazing SWOT analysis can also be used in day tradingAs we will explain later in this article.
How to do a SWOT analysis
A common question is how to conduct a SWOT analysis in day trading. There are several steps you need to follow in this:
- You have a set of goals You should always have a set of goals when making any deal or making any decision. For example, what are you trying to achieve when you buy a stock? That should be the goal easyAnd Realizable And TRUE.
- Know your resources When conducting a SWOT analysis, always know your resources. For example, in the case of a merger and acquisition deal, find out your finances and whether you can finance the acquisition.
- Identify threats and vulnerabilities – The other important part is that you should Identify the main obstacles to the case early. For example, when you open a bullish trade, always look at the main threats and set a stop loss.
- Create a comprehensive plan Come up with a plan that includes all of these SWOT factors. In the case of a company, you should work with your team to identify all of these issues beforehand. For the day trader, having a trading journal is a good way to start.
SWOT Analysis in Trading and Investment (With Example)
To be clear, do a SWOT analysis in day trading It is not always easy. However, experienced traders have found a way to do this at a faster pace.
In short, a SWOT analysis of a trade aims to look at the strength, weakness, opportunity, and threat in a trade. To do this, we recommend that you use an advanced template or trading journal that is easy for you to use.
Let’s use an example of a company like Coinbase and do a SWOT analysis.
First, The company has many strengths Since it is a leading trading platform. Unlike most other cryptocurrency exchanges, it is registered in the US and audited by Deloitte.
Also, as a publicly traded company, it It is regulated by the Securities and Exchange Commission (a second). So, as other exchanges collapse, Coinbase Attract more customers.
Secondly, to her vulnerabilities Is this the The company is not profitable Like other big companies like Schwab and Interactive Brokers. Also, her Performance tends to track the performance of Bitcoin and other cryptocurrencies.
As such, even when a company is doing well and cryptocurrencies are not, it means that their performance could struggle.
Third , chance To invest in Coinbase The company could continue to do well if cryptocurrencies rebound.
Finally, threats include the collapse of the company, bank management as we saw with FTX, and lack of profitability.
It is also possible to conduct a SWOT analysis in the format daily tradeespecially When the company is about to publish its quarterly results.
SWOT analysis in the day trading profession
Another way to conduct a SWOT analysis is when you determine Whether you want to become an investor or a day trader. Here, you can take a look at strength point of being a day trader.
For example, you can assess your knowledge and interest in the financial market. on me weaknessyou can take a look at your day job and whether you will get it Enough time for daily trading.
Related “ How to trade part time when you have a full time job
on me opportunitiesyou may Fix some issues. For example, there is an opportunity for day trading Bring more money of your daily jobs. Also, there may be an opportunity to turn your trading account into a day trading floor.
There are many threats in daily trading. For example, it is Your account may be destroyed after one or more transactions. Also, if you run a trading floor, there is a chance that traders will sabotage your career.
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Other areas to conduct a SWOT analysis
There are other areas where you can conduct a SWOT analysis in your day to day trading career. For example, You can evaluate which model to use.
In this case, you can do a SWOT analysis on whether you will work for a large investment bank or if you will do home trading. Also, you can decide whether to start your own trading floor.
Another area to do a SWOT analysis is when you are considering whether you want to Become a day trader or investor.
An investor is someone who buys and holds a position for a period of time. A trader buys in and gets out of positions at a faster pace. Both approaches have their pros and cons, which you should look at in a SWOT analysis.
Moreover, you can perform SWOT analysis on the medium Which platform you will use and the platform you will use to carry out your trades.
Combine SWOT, technical and fundamental analysis
Another way to conduct a SWOT analysis is Combine it with other types of analysis Like basic and Technical Analysis. Fundamental analysis is an approach that looks at broader market factors and how they affect the financial market.
It also looks at key issues such as valuation and the latest news about an asset. idiomatic Analysis, on the other hand, toControversy in chart patterns and uses of indicators Such as moving averages and the relative strength index (RSI).
You can use a SWOT analysis along with these popular trading analysis strategies.
SWOT analysis is important decision making approach It can be used in all industries. It is used when making decisions at a level such as mergers and acquisitions. Also, it can be used narrowly when a person is doing investing and day trading.