Archive for December, 2005
Patience
December 22, 2005 at 11:22 pm
Sometimes it’s good to take a break from trading. I’ve called it a year already and can now relax and take it easy until January 3rd when the market reopens. In the meantime, I can spend time with family, do some traveling, and get clear on my trading goals for 2006. I love to trade, but it will be good for me to patiently wait for the New Year.
Perhaps you plan to trade the remaining market sessions for 2005, and if so, it’ll likely pay to be picky. With year-end crosscurrents affecting the market and the light volume that accompanies holiday trading, consider watching and waiting for the very best opportunities. This might mean you prepare each day and fire up your trading screens but never even place a trade. If so, that’s fine too.
One of my favorite trading books is Market Wizards by Jack Schwager. Jim Rogers, the famous hedge fund trader and partner of George Soros in the Quantum Fund, is quoted in the book as saying,
“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”
This is excellent advice for trading at all times, but particularly right now at the end of a choppy year. Be picky if you’re trading this final week of the year. Don’t overtrade this market, so wait for the right conditions and follow your trading strategy.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
GOOG – Big Move Potential
December 22, 2005 at 12:20 am
I’ve day traded GOOG a lot in the past week. It’s got great volume and moves a lot every day. The beauty of it is that I can be wrong several times in it, taking small losses each time, and then catch one move and make back much more than I may have lost, even trading the same share size.
What I’m wondering, though, is after this huge run, can GOOG make more giant intraday moves like the high-flyers of ’99 and 2000? Having traded actively back in 1999 and 2000, I remember plenty of the triple-digit stocks which made $25 moves or more on a regular basis. Stocks like NSOL, SDLI, BRCD, QCOM and many others all made tremendous moves. Some more volatile days in GOOG like Monday’s reversal would leave me feeling a little nostalgic while the market chops around in this high trading range.
Is a 10% move in GOOG intraday out of the question? GOOG‘s biggest gain of the year came in October following earnings, but it was all gap. GOOG has only posted 5 days this year with a 5% gain or more. Perhaps it’s just a different animal than the high flyers 5 & 6 years ago, but I’m still on the lookout for more monster moves someday soon from the top dog of the NAZ.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Do Your Homework
December 20, 2005 at 9:08 am
Having a trading routine is essential. It doesn’t even have to include a lot of steps, just as long as you have a routine in place which allows you to gauge market strength or weakness and formulate some trading ideas to capitalize on your market view.
Doing my homework includes screening for chart patterns, staying aware of scheduled news events (Fed meetings, earnings, economic releases, etc.), and monitoring my trading performance in case my trading strategy needs an adjustment. Staying on top of these things gives me a game plan for my trading each day. I get a feel for the market by seeing how many stocks or sectors are strong, weak, or just flat. It lets me feel prepared, knowing that I’m starting the day with more confidence than had I just walked into my office and started buying and selling stocks randomly.
While I cannot predict what the market will do, I can certainly outline a plan of trading actions to implement once the conditions are right. Being wrong is one thing, but indecision is unacceptable in this job. Trying to locate trades only after the market is already on the move is often futile. Even when I do find stocks to trade on quick notice, many times I feel as if I’m chasing them, which means inferior risk/reward setups and increased slippage. No good!
So find what works best for you and make a habit of doing your homework. You’ll trade more decisively and reap the benefits of daily preparation!
Make the Bandit Broadcast stock newsletter part of your daily routine – we do the homework so you don’t have to! Sign up for your free trial today and see what the buzz is all about!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
The Learning Curve
December 19, 2005 at 9:09 am
I had traded for a while on a part-time basis before I walked into my first day trading office at Protrader. I was amazed how much money people were making in there! Two guys my age on that day had each cleared $40k for the day in profits. WOW – how soon can I get up and running?!
I started out looking over a few different traders’ shoulders, watching their moves, mistakes, and profitable trades play out. I learned a lot for several weeks, mostly from their mistakes. I was emotionally detached from their trades, and I came to realize that my situation allowed me to think more clearly than they did in the heat of their battle.
After the first few weeks, my learning rate slowed. The next few months, I continued to learn, but it wasn’t brand-new to me anymore. I was getting a feel for things and able to recognize many conditions which I would have previously overlooked.
It’s now been over 5 years since that first day I walked into the Protrader office, and I’m still learning! The lessons are different now, and the market is my teacher rather than another trader. I’m still learning though, and I’m still in the game (there are 2 of us still trading out of about 35 in that office). I’ve learned a lot about the market and myself since that first day.
The learning curve for trading doesn’t happen overnight! Perhaps you know yourself very well but have some learning to do about the market and trading. Maybe you understand how to trade, but have some learning to do about yourself, your tendencies, and how to deal with them effectively. As you progress down the timeline as a trader, be patient and make learning a priority!
Check out the trading education page, where you’ll find links to trading topics of all kinds to help you in your quest for profits!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Trading Goals – 5 Steps Toward Reaching Them
December 16, 2005 at 8:52 am
With New Year’s rapidly approaching, most of us will take the time to review 2005 and make at least a mental list of what we’d like to accomplish in 2006. It might be your waistline that you choose to focus on, but if it’s trading, here are 5 ideas for making them happen.
Be realistic. When setting goals for anything, it’s important to be realistic. You want to set the bar high enough that you’re challenged to meet them, but not so high that they seem unattainable. Setting reasonable goals will keep you motivated and won’t have you feeling “behind” if you don’t meet your objective. If you’re trading with a $10,000 account, it would be unrealistic to expect to make $100,000 by the end of the year if you’re only trading stocks.
Measure your progress. Periodically measuring your progress will keep you on your toes to alert you of possible needs to adapt your strategy. You may want to do a weekly review of your progress, with more intensive check-ups monthly and quarterly. A day-to-day approach would likely be looking too closely under the microscope, causing your stress level to fluctuate more than your account balance.
Consider both process and results. Striking a blend between process-related and results-related goals will help you determine your goal AND a way to get there. Process goals may include a commitment to finding chart patterns each night for the following day’s session, or monitoring your win/loss percentage. Result-based goals would include the profit you expect to make each month, or a percentage return you hope to post by the end of 2006. Think of your results goals as destinations, with process goals being the road maps to get there.
Be willing to revise your goals. As time progresses, your goals may need adjustment. If you prefer short selling and the market is strong, then you’ll need to adjust your expectations. If you prefer the long side and sentiment shifts, it may require that you make a change to your trading strategy or your goals. On the other hand, a fast start might mean that this is finally your year and you are poised for greatness. Embrace that success and expect more from your trading than you had initially planned.
Finally, write down your goals. Just like the way mental stops tend to get blown, an unwritten goal can easily be forgotten. A written goal can be like a binding contract, motivating you to uphold your commitment. Place your goals where you’ll see them frequently, and it will greatly increase your odds of reaching the goals you’ve set.
I hope that 2006 is a breakthrough year for you in every aspect of your life – including trading! Sign up for your free trial to our stock newsletter and see if you aren’t closer to reaching your goals in 2006!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Averaging Down
December 15, 2005 at 9:04 am
It’s common to hear that as a trader, you should never average down. After all, throwing good money after bad isn’t the best way to come out ahead in the long run. Investors with longer timeframes are happy to see lower prices to allow them to improve their cost basis, but a trader who makes a habit of adding to losing positions will at some point pay dearly.
But….
There is a time when it’s OK to average down – when you originally planned to do so. Maybe you’ve been stalking XYZ stock to short sell a quick rally right to resistance. It is looking like a double top to you, so you decide to put on a partial position to see if you’re right. The stock begins to roll over, bounces a bit past your entry but resistance holds, and you put on more shares. This is the kind of scenario in which adding to a losing trade is acceptable with your stop-loss nearby. You planned to do so, and adding to the trade only took you to a full position size – not above it.
On the other hand, we’re all plenty familiar with the blown stop loss and that urge to improve our average price by adding to a losing position. Those are the times when emotion is taking its toll, and the need to be right overcomes goal number 1 of capital preservation. You’re soon over-exposed in a stock that you’re clearly wrong about. Adding shares in times like that are a recipe for pain and an eventual disaster. Getting away with it a few times just reinforces a bad trading decision, and it’s gonna hurt down the road when it fails to work!
So if it’s part of your original plan to add to a trade at worse levels, then go ahead and do it if you still have the conviction. If you’re stuck in a bad trade and you’ve already got more than you want, look for a good spot to exit and rid yourself of the trade ASAP.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Goal Number 1
December 14, 2005 at 8:39 am
New traders want to know how much they can make. If they have X dollars in their account, how much stock can they buy and how soon can they get rich?
Veteran traders know better. They became veterans by surviving. They endured the occasional painful losses, yes, but even more so, they were able to withstand the times when trading just has very little to offer. Veterans are willing to wait out the slow trading times without putting it all on the line to make a quick buck or add some excitement. A veteran trader will tell you that goal number 1 in trading isn’t about how much you can make. Goal number 1 is all about protecting your capital and staying in the game.
Trading capital includes the cash you have to trade with…….your seed money…..your bankroll. It’s what you absolutely must have to stay in the game, and only then can you reach toward goal number 2 – making money. Protecting the cash in your account will enable you to seize opportunities when they arrive so that you may profit.
I think there’s a certain amount of emotional trading capital each trader begins with as well. To me, it’s as important as the cash in my account, because I could always borrow additional funds to trade with if it came down to it. I take as many precautions to protect my emotional capital as I do to protect my cash. If I lose my confidence trading, then it won’t matter if I have cash left to trade with! If I get on a losing streak or overtrade when the market is choppy, then I end up confused and clueless what to do next. That’s no way to make money trading! Protect your emotional capital too – get smaller when you’re trading poorly, or step away entirely when things aren’t clear.
Always keep these two goals in the proper order and don’t ever forget your primary objective every day: survival! Protect your capital and you’ll stay in the game plenty long enough to reach goal number 2.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
