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RSSArchive for March, 2006

Seeing the Future?

March 9, 2006 at 5:35 pm

It would be nice to have a crystal ball. But that’s not what trading is all about. Timing is everything. Although we might accurately predict the next move of a stock or the market itself, as traders we must still place the corresponding orders to enter and exit positions at the right times and in the right directions in order to profit. Simply understanding the direction to trade in won’t help you near as much as knowing when to get in and when to get out.

While I think it’s important to be able to locate and use chart patterns and technical analysis for trading, I sure don’t think a trader’s ability to tell the future (or backtest the past) will make him a profitable trader. Chart pattern recognition is certainly helpful to traders, but what about execution? What about psychology and knowing when to ride out a pullback versus recognizing a reversal and knowing when to bail out? The learning curve can be steep. Some things you just have to learn by trading.

Crystal Ball

Don’t get tied up trying to hone your prediction skills! Every trader is going to go through times of being right and being wrong. Successful trading is about damage control when you’re wrong and pressing it when you’re right. What’s most important is staying in sync with the market and adjusting your trading size and frequency at the right times in order to maximize your profitability.

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

Backtesting

March 8, 2006 at 4:38 pm

It has become an everyday word……backtesting. You can hardly avoid seeing it, because so many marketing efforts are convincing traders during this choppy market that backtesting is the magic bullet for successful trading. I’m not so sure I agree.

Maybe a PC tells you that a given trading system would have made or lost X dollars over the past 6 months. So what? Isn’t the market always in motion, always changing? If it is so easy to just figure out what worked over the past month and apply it toward the coming month, then wouldn’t the market be showing us some phenomenal trends right now with everyone pushing stocks in the same direction rather than the back-and-forth choppy action we see so much of?

Instead, we’re getting a LOT of program trading that keeps things choppy as dips are bought and rallies are sold. With the trendless market, it has truly become a market of stocks. Good swing trading right now is about doing your homework to locate good technical patterns and then keeping your risk/reward in check.

Don’t let glossy advertising from software vendors fool you into thinking that your trading strategy just isn’t complicated enough. Remember Gartman’s rule and the simplicity it offers. Keep tabs on the market environment and adjust your trading plan accordingly. If a good trend exists, then look for some continuation setups like flag patterns and triangle patterns. If prices are stuck in a range, then consider some reversal setups like the double top or trade a channeling stock. Your ability to adapt to existing conditions is what will add to your P&L, not your ability to backtest effectively.

Successful trading is about recognizing what kind of market you’re in and how to trade it most effectively, even if it means that you stand aside at times. Hoping that you could spend the next long weekend backtesting a magic formula based on past conditions may just be a shortcut that will only leave you more frustrated.

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

Parabolic Uptrend: IIIN

March 7, 2006 at 9:17 am

Some stocks on the move are simply best avoided.

We’ve looked at MOVI twice (December 6th and February 13th) as a downtrending stock to avoid. Cheap stocks can be tough to short sell because they don’t move very much and they become more ripe for takeovers, which you sure don’t want to get caught on the wrong side of!

But sometimes stocks move up at such a rate that they too are best avoided. Anytime a stock is running higher at a rate which is not sustainable, it’s probably best to just observe and wait for a good chart pattern to develop before entry.

One such stock is IIIN. This stock has now moved higher an incredible 17 sessions in a row, moving up by over 44% during that time! This is called a parabolic uptrend, and although it often will be the way a stock ends its advance, it is extremely difficult to trade. For one reason, the stock has advanced so far that it’s tough to buy it with any confidence. Secondly, when the music stops, you can bet that everyone’s going to start looking for a chair and the stock could surrender lots of ground quickly in search of bids at a lower price. This makes a stock like IIIN hard to buy or go short in.

Parabolic Uptrend IIIN is on a tear, but I wouldn’t want to be a buyer here. Buying puts would be my only consideration, because trying to short a stock like this can be like stepping in front of a freight train!

Always consider the emotions of other traders in a stock like this. The ones who are short desperately need to cover, and the ones who are long are tempted to take profits. Such emotions in a stock like IIIN after an extreme move will surely keep things tricky! If you must dip a toe in the water, be careful with this one. Puts might be the only thing to buy related to IIIN, but avoidance is probably best for now.

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

2-Way Street

March 3, 2006 at 11:31 am

Although this blog has historically been kind of a one-way street with my thoughts going out to you, I’d like to change up the dynamic and get some more interaction and feedback on your thoughts!

I correspond frequently with members of my stock pick service, but I’d also like to interact with more of you blog readers! Many of you email me directly through the contact form, but why not just have some more open discussion right here on the blog to allow everyone to learn simultaneously?

2-Way Street

So, let’s make this a 2-way street! I’ll definitely still be putting up some informative-type of posts, but your feedback is always welcomed here anytime (regardless of the post type). If you disagree with me, feel free to say it! (I sure don’t have all the answers, even if I’d like my wife to think so). If you have a question or have some trading thoughts, throw your 2 cents into the mix!

There’s a comment area for every post, so feel free to participate. Comments are moderated to help curb spam (there’s too much these days!), but don’t let that stop you – I’ll respond to every one of them. I want to learn from you too, so let’s mix it up a little bit!

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

Something for FREE?

March 3, 2006 at 12:55 am

A few new features have been added to the public pages over at TheStockBandit.com. Among them is the Market View page which offers Free Stock Market Commentary. Every few days, the page is updated with a portion of The Bandit Broadcast stock newsletter and contains a look at some of the major market indexes and free commentary to go along with it! Check in every few days to see what’s new, and add it to your own trading opinion.

Of course, if you want the stock picks for swing trading, you can take the 2-Week Free Trial and see what we’re all about. There’s a reason why month after month we produce big trading profits!

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

Stocktickr: Now Open!

March 2, 2006 at 8:24 am

My buddy Dave at Stocktickr let me in the door a little while back to check out his new product. I was very pleased with what I saw, and even handed out several invitations to traders I know for the beta release which we were using for the past couple of months.

Stocktickr is not only a great tool for tracking your trades, but the journal feature really sets this product apart from the others. Using Stocktickr’s journal, you’ll get comprehensive reports about your trading that you might not otherwise ever know about. It will keep track of your performance, but will also calculate expectancy and winning percentage right there for you. This is an excellent tool for taking a realistic look at your trading performance and learning from your past results.

Stocktickr also allows users to view the trades and timing of other traders, thereby making a community of traders. You can even “tag” your trades with custom names like “new high” or “volume jump” to help you see better which kinds of trades are working for you. I highly recommend checking out Stocktickr, it is a wonderful trading tool with the ability to pay huge dividends on your trading when used the right way. And Dave, keep up the great work!

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