TheStockBandit.net

Thanks to the kind folks over at TradeKing for featuring my blog this week on their Financial Pulse page! If you haven’t checked out their list of blogs you owe it to yourself - it’s quite a resource!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

As important as it is to be able to manage your trades properly, it is equally important to have a money management system for your trading. This includes knowing when to trade small and be picky, as well as when to trade big and be aggressive.

When conditions are right, trade aggressively with good money management.

For me, there’s 3 occasions when I trade aggressively:

Trade aggressively when you’re ahead. Losing streaks in trading call for trading less frequently and cutting down position sizes. It only makes sense, therefore, that profitable times are the best times to press and get bigger. Profits come as a result of being correct in your trades, so capitalize on being in sync with the market by increasing your size. When you’re seeing things clearly and gauging momentum correctly, take every signal you get. Trading bigger and more often when you’re ahead will allow you to make much more money when you’re right than the times when you’re wrong.

Trade aggressively in the midst of a clear trend. The market doesn’t trend all the time, making it important to be able to recognize an uptrend or a downtrending stock.

Trade aggressively when good setups are plentiful. When there’s a lot of good chart patterns showing up in your stock screens, it’s usually because the market is giving a stronger indication of an impending move. When a sector or the market in general is on the verge of a breakout, it can be tough to determine which stocks will be leaders in the next move. This makes it important to enter more positions than usual as good chart patterns confirm. You may wish to trade on margin to accommodate the additional positions during such times.

Find out when I get aggressive and when I lighten up with a free trial to my stock newsletter and learn to add some money management principles to your trading!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

One of my favorite trading books is Reminiscences of a Stock Operator by Edwin Lefevre. Based on the trading of the famous Jesse Livermore, Reminiscences is full of trading lessons from cover to cover. Although it was written 83 years ago, it still applies to today’s market. Learning from the successes and failures of one of the all-time great traders is hard to beat.

Among the many lessons embedded in the book, one common theme is that a trader should keep his mistakes small. Livermore developed a “probing” system in which he would enter small positions to monitor their activity before he built up to a full position. This way, if he was wrong, it only cost him a little.

Chapter 10 begins with some great advice:

“All stock market mistakes wound you in two tender spots - your pocketbook and your vanity.“

This is so true! No trader wants to take a loss. It costs money and diminishes pride to know you were wrong. The mistake of losing money is compounded into a shot to your confidence which is so important to keep intact as a trader.

Lefevre goes on to say:

“Losing money is the least of my troubles. A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.”

I can certainly relate to that. The times when I know I could have gotten out of a bad trade at a better spot but didn’t because of a bad decision is always a shot to my pride. Such a feeling can be very detrimental to subsequent trading results, as the need to “make it back” leads to forced trades and compounded errors.

Make it a point to keep your mistakes small this year. Take small losses – they are easily overcome with winners, and you’ll keep your confidence intact!

Find out how I trade for a living by keeping losses small and locating winning stock picks to overcome them with a 2-week free trial to my stock pick service.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

It’s a brand new trading year. In some ways that’s a good thing, in others maybe not. The slate has been wiped clean, and regardless of whether you did well or poorly in 2005, it matters no more. A fresh month and a fresh year means starting at square one for me.

I like to start the year out by doing my best to hit singles for a while. Making incremental gains is part of my style anyway, as I trade for a living. However, booking regular gains early in the year helps me to build my confidence and get back into the groove of trading after taking some time off over the holidays. This way, I can grow my account and my confidence. It also lets me build a pad of profits and get in sync with the market before pressing it. Once my confidence is where I want it and things fall into place, then I can get bigger and trade more aggressively.

NO, no…… I said get “in sync” with the market!

Hit singles while the year is young. It’s a long year, so get synchronized with the market before stepping out boldly. There’s no reason to start the year off behind!

Start your year off right with a free trial to my stock newsletter – it could be the best trading decision you make in 2006!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

The Apprentice finale ended recently, and I was reminded that Donald Trump’s wealth was amassed through the use of leverage in real estate. Borrowing money to make money isn’t just done in real estate, however. Day traders have additional buying power on hand every day in the form of margin, and using it properly can mean significant gains.

Possibly more impressive than Trump’s ability to leverage is his ability to balance a dead animal on his head.

Margin is the ability to borrow against cash and/or securities in your trading account in order to purchase more. Day trading margin accounts allow for 4-to-1 leverage intraday, and 2-to-1 leverage overnight against the cash held in the account. This gives the active trader access to the double-edged sword of leverage, generating profits and losses at a much faster pace. Although swing trading stocks and holding overnight on borrowed funds costs interest, day trading on margin doesn’t cost a thing.

Margin trading isn’t for the faint-of-heart. Knowing that you can lose money up to 4 times as fast as a cash account can be scary to a trader, but it’s important to note that it shouldn’t be used at all times. While a designated day trading account inherently comes with the increased leverage, the trader is the one making a decision on just how much of that buying power is to be used.

Consider these 3 ideas when it comes to margin trading:

Margin is for experienced traders only. Beginning traders can be more susceptible to emotional swings that come with trading. The urge to “make it back” after a loss can easily be compounded into a major error when trading on margin. Consider trading on a cash account for a while until you feel comfortable with the added leverage that a margin account can provide you.

Margin doesn’t have to be used every day. On a day trading basis, I use margin more frequently than I do when I’m holding overnight positions. Market conditions and the stocks you’re trading will determine whether you need or should be using margin regularly. If you’re day trading several thousand shares of QQQQ and SPY simultaneously, you may need the additional buying power that a margin account can offer you. A liquid issue like QQQQ or SPY which are index-based will move far less than a headline-driven stock like RIMM, making them prime candidates for trading on margin.

Margin demands your respect. Any veteran trader would agree that only on occasions will market conditions be ripe for going “all in.” Putting the pedal to the metal with regularity will at times no doubt leave you leveraged in choppy markets, digging a hole which will take you some time to get out of. Don’t let the scary stories of margin trading spook you away from using it as an instrument to your trading, just be sure you respect what it can do - both for you and to you!

Trading on margin can offer tremendous benefits to the trader who knows what he’s doing. If the market has momentum and you’re in sync with it, you can make much more money when you’re right and boost your returns significantly.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com