If you graduate from Harvard Business School with an MBA, you will have been fully trained in strategy development and implementation. SWOT Analysis is Harvard’s Strategy Creation Model. In this article, I break down SWOT Analysis and show you how to use it to further your trading career.

SWOT ANALYSIS APPLIED TO TRADING

When analyzing your Forex Trading Career, SWOT analysis reveals your Strengths, Weaknesses, Opportunities and Threats; the four needed building blocks of strategy.

Coffee Swat

SWOT is an analytical framework that helps you identify your internal strengths and weaknesses while considering the opportunities and threats outside of you. In using SWOT Analysis it is very important to break the categories of analysis into Internal (Strengths and Weaknesses) and External (Opportunities and Threats).

These mentioned areas of analysis are segmented into four quadrants so you can examine each individually and then strategically align the components of SWOT to create the best strategy for your endeavor.

INTERNAL ANALYSIS (STRENGTHS AND WEAKNESSES)

As a trader, you begin your SWOT Analysis by doing your INTERNAL ANALYSIS

STRENGTHS  What am I good at?

  • What trading patterns have I been able to consistently make money on this year?
  • What currency pairs do I have a read on and understand.
  • What economic events do I feel strong trading?
  • What major market sessions do I excel in?
  • What trade plan has worked the best for me?

WEAKNESSES  What am I doing wrong?

  • What are my weaknesses in trading? Honestly.
  • Do I let my winning positions run to full profit potential?
  • Am I impulsive in my trading?
  • Are the risk / reward ratios in my trade plan working?
  • Do I add to loosing positions thinking that the market will soon turn my way?
  • Do I carefully consider the risk associated with each trade I take.
  • Do I ever trade based on emotion?
  • When I loose a trade do I ever force my next trade?
  • Do I create professional trade plans?

EXTERNAL ANALYSIS (OPPORTUNITIES AND THREATS)

After you have identified your strengths and weaknesses as a trader you then identify the opportunities and threats outside of you.

OPPORTUNITIES  What are the opportunities in Forex?

  • Do I trade economic news releases?
  • Do I take advantage of economic news releases out of Great Britain?
  • Do I take advantage of economic news releases out of Australia?
  • Do I check the economic news calendar at the start of each week to plot my news opportunities?
  • Do I trade Asian Pairs in the Asian Session?
  • Do I trade the New York Session?
  • Do I trade the London Session?
  • Which session is ideal for where I am geographically located?
  • What trade setups are forming in the market?
  • Am I seeing and taking advantage of these setups?
  • Which good setups did I miss out on this week and why?
  • Am I analyzing multiple pairs to find the very best setups?

THREATS  What threats are before me in trading?

  • What do I do if my hard drive crashes while I have trades open?
  • What happens if there is an electrical surge in the grid and my computer shuts down?
  • What do I do if the internet goes down while I am trading?
  • What if I get sick and am not able to work?
  • What if there is another major new event like the Swiss National Bank (SNB) suddenly announcing that it would no longer hold the Swiss franc at a fixed exchange rate with the euro? Do I have stops in place to prevent catastrophic loss in an event like this?
  • What if Japan announces additional quantitative easing and greatly weakens the yen? Can my trade plan handle that?

Positive Neg Swot

Once you have identified your Strength, Weaknesses, Opportunities and Threats then you start your strategy creation process by asking questions about how your Internal Strengths and Weaknesses will interact with the External Threats and Opportunities in your environment.

MATCHING INTERNAL STRENGTHS WITH EXTERNAL OPPORTUNITIES

  • In analyzing your strengths you may find, for example, you are good at trading triangle patterns. How do you align that strength with an external opportunity? Answer, take time out to analyze the major currency pairs looking only for triangle setups. There may be triangles forming in the market in pairs that you don’t frequently consider. In doing this you are expanding your realm of opportunity. There are actually quite a few flag and triangle patterns that form in Gold. Maybe you should consider trading commodities in addition to Forex. The effort here is to fully take advantage of the strengths that you have by aligning those strengths with the right opportunities in the greater environment in which you operate. So, if you are just trading the EURUSD and you have a talent for a particular trading setup, then expand your horizons and search out all the opportunities in multiple pairs for that given setup in which you have the strength.
  • Maybe you found a strength of yours is swing trading. You can align that strength with an external opportunity by spending extra time on analysis and finding pairs that are trending well and can sustain a swing scenario.
  • Possibly you have a strength in trading the news with a Fibonacci based entrance strategy after the initial move pulls back to the 61.8.  Then, align whatever entrance strategy works for you with the top news events for the month. Mark them on your calendar and be ready.
  • Also, with news events you can diversify you positions across multiple pairs. Rather than just focusing on one pair, which may not respond as strongly to the news, trade smaller lots on a few different pairs and you will see clearly which is moving and add to your winners on those positions. Expand your horizons to give yourself more opportunity in the area of your strengths.

MATCHING INTERNAL WEAKNESSES WITH EXTERNAL OPPORTUNITIES

  • In the process of creating a strategy for your trading you must equally consider your weaknesses and how those weaknesses come into play with the markets in which you trade.
  • A common weakness in trading is not having a bullet proof trade plan that includes guidelines for lot sizing. It is a common weakness to have a series of winning trades and then increase your lot size size and wipe out your recent gains with one loss or a few losses.  If you have a specific plan for your lot sizes and you stick to it you will never run into the problems associated with emotional or vengeful trading where lot sizes are increased to make up for losses. If you conservatively stick to your game plan with consistent lot sizes where you never risk more than 1 or 2% of your account on any given trade, then you will be able to weather difficult times in trading and will eventually prosper when the market once again turns your way.
  • Everybody has weaknesses and if your are objective about them and  take responsibility for them ahead of time by building your plan in a way to account for them, then you will overcome them and keep those weakness from seriously hurting your trading career.

PUTTING IT ALL TOGETHER – DIFFERENTIATION 

  • Once you have gone through the processes described above you will have a much more accurate perspective of yourself and the market in which you operate and will be able to put together a strategic plan that takes into consideration the elements of strategy mentioned here.
  •  Once you have this understanding you are in a much better position to see clearly what differentiates you as a trader. This differentiation is an important part of strategy. Every business has to have a strength that gives them a competitive edge. What is your competitive edge? What do you specialize in?  Why would someone invest with you? What unique edge do you have to offer?
  • Having this understanding of what makes you different and the areas in which you excel creates confidence as well. When you have a clear sense of what you are good at it greatly helps with pride in your work and strategic direction on what areas to focus.
  • To read further on Strategy I recommend Harvard Business Essentials: Strategy. This book is for sale on Amazon for $15.

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Kind Regards,

Tyler Lund

U.S. Dollar Analyst, FOREX.TODAY

13 thoughts on “HARVARD SWOT ANALYSIS APPLIED TO TRADING”

  1. powerusa says:

    Excellent post!! Thanks!

  2. Tyler Lund says:

    Glad you enjoyed it.

  3. Ryan Gandalf van Jaarsveld says:

    Thank you Tyler – your posts are always so detailed it is clear you spend a lot of time on your plans and this is the second article I have seen that focuses on the strategic side of trading and not just the tactical trade plan analysis. Thank you for taking the time to put this together for the community. I really like your work.
    I do have a question for you – how does your day run. Obviously you have to find time to trade, read news and make sure you are on top of fundamentals and then plan your trades. The planning part takes up the most time. When you plan how do you select the pairs you are going to trade and how do you fit the two or three hours you need for planning into your day. With you being in the US your morning is filled with trading – I imagine, seeing as you have the London and Euro market open until mid day. Then it goes quiet until Australia and Asia later on. Do you use this quiet time to plan and how do you deal with knowing you might be missing out on trading opportunities? I reside in South Africa so the London open is at 9:00am for me. My quiet trading time is from 19:00 until 24:00. I know that the planning part is the most important though I often find myself making trade plans for all the pairs and this is taking me a lot of time which results in my work day starting at 7:00 and ending at 22:00 – do you think I am being economical with my time? Do you suggest rather making plans for the pairs with obvious opportunities or do you suggest sticking to certain pairs and only trading those? Thank you for your help and your time.

    1. Tyler Lund says:

      Hi Ryan, thank you for your response.
      I live in Los Angeles, and like to trade the New York session which is 5AM my time, which is an early morning. The Asian session starts at 4PM my time which is a good time for trading. I try to focus on those two sessions but trade the London session if there is a setup I like.
      Regarding you using your time in an economical way, I would say that initially it takes a serious effort to do the full analysis required to understand a given pair, and this time invested is worth it. However, after you have really done your analysis you should be able to revisit that pair and move quite quickly through it and see where price is within the plan / analysis that you have made. In truth, what takes the time is learning how to do the analysis the right way. I recognize that this can be a difficult process. I plan on posting about how to do analysis the correct way and break a currency pair down to help the traders. In short, I would start with support and resistance in the larger time frames and then move in through the smaller time frames. But, the daily view and the 4 Hour view really are your guides. I would wait for setups in the these time frames and then use the smaller time frames to execute your 4 Hour and Daily plan. If you stick to the larger time frames then your process is simplified. Look for Fibonacci retracements in the 4 Hour, they are very helpful. My most recent posts on the EURUSD trade break some of this down. I will post more about how to best trade plan.

      1. Tyler Lund says:

        Also Ryan, you asked if you should stick to a few pairs or trade multiple pairs. In my opinion, your focus should be what setups your trade rather than what pairs you trade. For example, if you know how to recognize a Fibonacci setup in the 4 Hour view, then you can scan given pairs and find the pair that has than setup. Rather than sitting around and waiting for your one or two pairs to finally setup in this way. So, first an foremost work on your setups and then once you know what you are looking for then go through the pairs and choose the ones that are right for you. Start with one pair and do your full analysis, and then the next week add a pair and then the next week add a pair… and you will finally arrive at a place where you have enough options… but always expanding your horizons is helpful. I would start on new pairs with very small lots to get comfortable and get the feel for them.

        1. Ryan Gandalf van Jaarsveld says:

          Legend brother – thank you very much!! Early day for you today! May the pips fall in your favour!!

  4. dima pekurovsky says:

    Thanks Tyler,as always great and detailed articles.Where it possible to download the mentioned “Harvard Business Essentials: Strategy”.We appreciate a lot your afforts and time you spend to help us.
    Have a great day.

    1. Tyler Lund says:

      Hi Dima,
      I am glad you enjoyed this article.
      Te Harvard Business Essentials: Strategy is a book you can purchase online. Just google the name it is about $15.
      Tyler

  5. Jim Reddihough says:

    That’s a brilliant post. Looks like I’ve got a job for the weekend.

    1. Tyler Lund says:

      Glad you enjoyed it Jim. Give SWOT a shot. Let me know how it goes.

  6. Rana Haq says:

    Thank You…

  7. Wayne McDonell - TradersWay.com says:

    I did a SWOT analysis before quitting my day job to become a full time trader. However, I missed “isolation” as an external threat. Trading in the middle of the night from my home is a lot different that working with a large team in an office setting.

  8. Tyler Lund says:

    Wow. I’m glad to know you use SWOT. Yes, isolation is a challenging part of trading. It helps to have the Forex.Today community and interaction with other traders. For whatever it’s worth, your decision to go off on your own has blessed the lives of hundreds of people that are in trading. There are costs in blazing your own trail in life, and unforeseen benefits. I’m one of the people that has benefitted from your strength to venture out in your own. So, thank you for that leadership and example.
    Tyler

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