Archive for March, 2007
Trading Responsibly
March 27, 2007 at 8:23 pm
You’re not the only trader who falls into bad habits from time to time. Sure, we all will occasionally blow a stop when we get a little overconfident, but I’m not even referring to those kinds of habits….. I’m talking about the ones outside the actual process of trading.
Irresponsible trading is in many ways a byproduct of choices we make outside of market hours. One very common way to trade irresponsibly is by failing to do your homework. However, even worse is when you are not keeping close enough tabs on your trading account.
It’s real easy to view account statements and print out daily P&L sheets when trading is going well, isn’t it? After all, every one of us likes to see the progress we’re making – whether it’s reducing our waistline or fattening up our trading accounts!
So here’s a simple tip that will help your trading: Print your daily P&L sheets!
My broker has an “Intraday View” which I print from the Portfolio Manager, and it breaks down all kinds of stats on the day’s trades. Included are such things as Total P&L, Commissions, Longs vs. shorts, and Biggest Gain & Biggest Loss. Just taking a look at basic stats like these takes about 30 seconds of my day. When the closing bell rings, I hit the print button and it’s right in front of me. But the benefits run deeper than just the superficial numbers.
One of the most important parts of the sheet I print out is the stats on my account. At a glance, I can see my account’s Starting Net Worth on the day, Net Worth Change today, and the current Net Worth on the account, along with the day’s P&L numbers. Having a hard copy of these stats in my hand each day makes the numbers seem a little bit more real, believe it or not. Punching holes in it and filing it into a binder is just part of my post-market routine, and it helps me keep close tabs on my progress.
It’s easy for me to flip back in the binder and see where I was in the past, whether a week or a month ago. But what I really like is that by forcing myself to review my progress in this way regularly, it helps me adjust my trading throughout the year. I can easily see where I stand in relation to my goals. I can also see if I need to be trading larger, smaller, or even less-frequently based on how my results have been. If things are going well, I need to bump up the size. If my account is shrinking, I need to back down the size and get more selective. And if the results are somewhat stagnant, then it helps me to see that a trip back to the drawing board and a closer review of my recent trading methods may be in order.
Be a responsible trader and keep close tabs on your trading account! I’m willing to bet that forcing yourself to even glance at your daily results will help you make critical adjustments to your trading as the year progresses.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Goodness & Greatness in Trading
March 26, 2007 at 7:50 pm
This week’s Free Newsletter over at TheStockBandit.com discusses the topic of Goodness & Greatness in trading. You can be great at just one thing in trading and good at the rest and still find success in the markets. The key is knowing which one thing requires greatness!
Knowing how to seek out the plays you prefer, reading the markets correctly, and gauging when to get aggressive all have some validity. However, there is one particular aspect of trading that you must choose to be great at. Stop by and check out this week’s free newsletter for my thoughts on the topic.
By the way, you can sign up for the free newsletter on the Free Newsletter page at TheStockBandit.com and we’ll notify you every time one is published. An opt-in form is provided at the top of the page which puts you in full control of your email subscription at all times.
Trade well this week!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Trading Chart Patterns: Why Cleaner is Better
March 22, 2007 at 12:54 pm
Gut feel comes with experience, but the only problem is that it’s based on feel. That means that discretionary trades which are based on feel are subject to your moods. So, whether you’ve been on a hot streak, a cold streak, you’re distracted or just plain tired, your trading method itself will vary. We all see results vary from time to time, but our method should only vary when we want it to!
I’m a chart pattern trader, there’s no doubt about it. Almost all of my trades are based on the charts, and for a few good reasons. Some time ago, I outlined the reasons why I use technical analysis, but here are the two biggest reasons why my trades come from chart patterns:
- Well-defined entries. Entries are only a portion of the battle, but it is still a tremendous advantage to have good timing. Clean chart patterns and trend lines give me a razor-sharp level at which a stock will officially be back on the move. Once I’ve identified these levels, all I have to do is execute.
- Well-defined exits. Knowing where to get out is arguably the most important aspect of any given trade. The tighter the chart pattern, the less I am putting at risk and the better I know at which point I’ll need to cut bait.
There’s no incredible magic about how clean or ‘tight’ the pattern itself is in terms of reliability, but there is some real substance in knowing exactly at which point in time you should be IN or OUT of a trade. That is of course derived from the chart pattern itself. A breakdown from a well-defined bull flag or ascending triangle pattern gives me a specific exit plan, and that puts me well ahead of the curve by telling me it’s time to step aside and move to cash, or simply shift those funds into a new setup.
This is the basis of our swing trading at TheStockBandit.com. We locate the chart patterns for our members and then explain why the stock is a trade candidate to begin with. Every single trade is provided with a specific entry level, a stop loss, and typically two profit targets so that we can scale out of the trade and take profits into strength (with price projections also being based on the chart patterns).
If you aren’t trading the cleanest patterns in the market, maybe it’s time you should. Check out our free trial today, and put some consistency into your method!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Day Traders Return
March 16, 2007 at 9:00 am
Yes it’s true, Day Traders are Making a Comeback on Wall Street! For years there have been quite a few of us, but I suppose the steady uptrend which started last summer and ran for nearly 8 months is part of the reason. Dirt-cheap commissions at direct-access brokerages also contributes to the rise of day trading, along with just greater education and awareness of active trading.
I used to purely be a day trader, but I’ve been swing trading more in the past few years. I still make a fair amount of day trades when I see inefficiencies that I feel I can capitalize on, and I’ll continue to do so for as long as there are opportunities to pull some profits out of the market, in spite of the ongoing debate about day trading.
If you’re considering doing some day trading, you’ll no doubt find it easy to get spooked away. With countless stories of traders who got their head handed to them (via TraderMike‘s QuickLinks), you might change your mind before you ever even get started! However, there are a few things to keep in mind that are positive aspects of day trading:
Day Trading Helps You Manage Risk
It’s true! By looking “under the microscope” and shortening trading timeframes, the risk is inherently lower on a per-trade basis. Overnight gap risk is not a factor. Event risk is limited. Stated more plainly, closing out trades by the end of the day would have saved countless “investors” a lot of money by not holding onto losers!
Day Trading Offers Higher Leverage
Leverage can be a double-edged sword, and should be used only by those who understand & respect it. If you meet both of those requirements, you can get up to 4:1 leverage for day trades that will enable to you profit by a greater percentage than would be possible without margin. That’s a big benefit that offsets the shorter holding times of day traders, but I cannot stress the importance of understanding leverage and respecting it.
Day Trading Allows Money to Compound Faster
This is probably the biggest advantage of day trading, as the more rapid turnover of funds and adding up more small gains will lead to the faster compounding of money. Einstein called compound interest “the greatest mathematical discovery of all time.” That certainly supports the concept of frequent incremental gains adding up very rapidly for day traders, and it’s hard to ignore. Gary B. Smith made a great point a few years ago that a trader starting out with $5,000 who increases it only 0.5% each trading day will end up with quite an impressive sum after 5 years: $3,000,000!
So of course, do your homework, determine what trading timeframe is right for you and your needs, and investigate some day trading strategies. If you’re slow to act or if you’re a compulsive gambler, then day trading is absolutely not for you. However, it just might suit you and provide you with another trading method to build up your account.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Changes of Market Character, or Just Emotion?
March 15, 2007 at 12:58 pm
It has been an interesting couple of weeks, to say the least!
The slow and steady uptrends that traders had grown accustomed to came to an abrupt halt on February 27th, as key uptrend lines were broken to the downside and the indexes started their first meaningful corrective phase in nearly 8 months.
The question on the minds of many is whether this marked a real change of character for the market, or if emotions just made a return and are riding high all of a sudden. My answer to that question is a resounding yes. Yes the character has changed, and yes emotions are playing a big role.
The change of character took place when the uptrends were broken with such ferocity. Not only were the point losses dramatic, but the volume was tremendous as sellers flocked to the exits in mass quantities. To me, that marked a major change of character from the “buy all dips” mentality that had paid bargain hunters so well for so many months.
Emotion was indeed running high on February 27th to contribute to such a massive decline, but since then it has played a continuing part in how the markets have moved. Traders have been timid to scoop up bargins out of fear that they might catch another wave of selling right in the teeth. This was evident in the low-volume bounce after the initial drop, and these emotions were confirmed when the first bounce failed with the second decline on Tuesday of this week. Even Wednesday saw plenty of emotion, as the March lows were penetrated with another triple-digit loss on the DJIA, only to be followed by a dramatic reversal of almost 200 points and a close in the green.
Here’s a look at the charts of the NASDAQ and S&P 500 indexes, which are two of the averages I watch the closest:
(Click chart to enlarge)
(Click chart to enlarge)
All in all, the character has changed and it’s still an emotional time for traders. That makes right now an excellent time to stay picky with trades while waiting for more of the dust to settle. We saw a huge change of character two weeks ago, and since then we have seen a failed rally and some bounce attempts, but neither attempt at the upside has managed to produce a meaningful recovery yet.
At TheStockBandit.com, we’re holding a few positions on the short side but have been reluctant to add new potential trades to our Trading List while we wait for this short-term volatility to diminish a bit. When price is swinging wildly in both directions, it makes for a much tougher environment to initiate new positions and find traction in them. Once this short-term choppy action plays out a bit further and things become a little clearer, we’ll be jumping right back into the market with some swing trading candidates to capture a piece of the next move.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Downside Damage Creates Opportunities
March 13, 2007 at 6:44 pm
It all started 2 weeks ago today. The major indexes hit an air pocket after enjoying steady gains for more than 7 months, sending share prices plummeting as key uptrend lines were broken. The landscape changed on that day, and those of us who were paying attention didn’t have to pay for it.
At TheStockBandit.com, we had been holding 3 long positions going into that Tuesday, each of which stopped us out on the opening gap (2 for small losses and 1 for a gain). Fortunately, we were in cash right off the bat, not having to endure the additional damage which followed.
Since then, only short sale candidates have been listed in the Bandit Broadcast newsletter because of the obvious change in character of the market. I discussed this recently here on the blog, highlighting the reasons why the shift in psychology left more than technical resistance overhead.
The bounce which followed the initial pullback has been a textbook sell signal, with prices rising while volume contracted, and I pointed this out on Sunday night’s Market View page at TheStockBandit.com. Those who were not already in cash from the broken uptrend lines two weeks ago should be by now, as the bounce has officially failed with today’s high-volume selloff which appears to have started the 2nd leg down.
Bulls’ Fears Confirmed
The bulls who had been holding on in hopes of a return to the highs are tonight having to face reality. Volume was not confirming the bounce, and instead set up a negative divergence which was consummated today. Those holding long positions have missed not only their first sell signal (broken uptrend line), but also the second sell signal (low-volume bounce the past several sessions). This dynamic will perpetuate the “sell-the-rallies” mentality as higher prices will continue to make for good opportunities to raise cash until the correction runs its course.
Bears Gain Confidence
The bears had been in hibernation for many months during the uptrend, and they sprung to life when the correction began. Sensing the pain of the bulls, the bears now have renewed confidence which was confirmed with today’s return of the sellers. Bears will continue to sell rallies, which also adds supply at higher levels and could keep the upside contained on bounces for a little while.
Those Not Short Should Be In Cash
Not everyone trades the short side like I do, but there is an alternative because cash is a position. At TheStockBandit.com, we encouraged members 2 weeks ago to move to cash, and there have been no swing trading candidates on the long side since then. When the conditions change and the path of least resistance in the market is down, it is no time to buy stocks. It is instead a time to sit on a pile of cash and wait and watch while share prices keep getting cheaper. On February 27th, we sent the long-only traders to the sidelines, saving them the pain that would have followed had they remained long. Until conditions improve, they can tend to other matters and not be concerned about a big tank-job like we saw in the market today. Even better, when stocks again become attractive for going long, we’ll be giving them the green light and they will be able to buy at lower prices than we’re currently seeing.
We Put Theory Into Practice
At TheStockBandit.com, those of us willing to trade the dark side are now positioned short and starting to enjoy a nice ride lower toward profits. We’ve waited patiently for the low-volume bounce to fail, and when it did we naturally got more positioned on the short side by way of broken rising trend lines and support levels. As the market goes down, our account values are going up, thanks to the trades we’ve taken on the short side. Those who are not trading the short side are feeling no pain during this market correction, even on a day like today when the DJIA sheds more than two hunsky!
The bottom line is this: good trading is about first preserving capital and THEN turning a profit. A good stock pick service should be pointing out great opportunities for you to do both, regardless of whether you trade long, short, or both. We put our long-only members in cash 2 weeks ago, saving them untold amounts of money just by heading toward the sidelines to preserve capital. What would that be worth to you? And as for the more active traders we serve, they are now seeing nice profits build on the short side. Both camps are finding the $99.95 monthly membership fee to be quite a steal, pardon the pun ;-).
Here’s hoping you make out like a Bandit this week,
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
The Difference Between Predicting & Anticipating
March 8, 2007 at 10:30 am
This column was originally published Wednesday for members at TheStockBandit.com. It’s being republished here as a bonus for TheStockBandit.net readers. For more information on subscribing to TheStockBandit.com, please check out our stock pick service.
As thrilling as it may be to predict a market move correctly, actually pulling it off is more about luck than anything. I always try to avoid making predictions in the market, because they skew my vision with a bias – which means they serve no purpose in my trading.
Predictions are often grand proclamations of what is going to happen, and they usually include details about even how events will unfold. With anything possible in the stock market at all times, it’s an appealing place for predictors to surface because they may just be right and be able to garner the glory that might come with it. Predictions tend to be stubborn, brash and unyielding, leaving no margin for error or revisions.
Anticipations might be described more as hunches, or gut feelings of what may happen. They usually involve a fair assessment of current conditions, and are based on how the current conditions are most likely to continue to develop. Anticipations help to serve more of an if/then type of role, and they allow for adjustments in a trading plan.
I don’t like to “hunt” for particular types of plays when I flip through my watch lists. Instead, I generally prefer to let the charts dictate my moves. If there are lots of bullish setups, I’ll end up net long. If there are lots of bearish setups, I’ll end up net short. On occasion though, when something drastic takes place in the market, I will let my trading experience guide me a little more and let that gut feel play a larger role in what my trading plans will involve.
This is of particular relevance right now, as I am not predicting another leg down but I am anticipating one. My anticipation right now is that the market bounce could last for a few days before another leg down begins, but I do anticipate seeing more downside based on the severity of the drop we saw last week. When the character changes so abruptly and so decisively, it usually isn’t an anomoly. Another wave of selling is likely, and there are numerous reasons (broken support levels, high volume declines vs. low-volume bounces, trapped bulls wanting out, etc.). Because of this, I’m anticipating some short setups to emerge for swing trading, so I am “hunting” for them more than I typically would.
The good news that comes with anticipating another move down is that the setups will have to prove themselves to warrant an entry. Rising trend lines and support levels will be required to break in order to trigger a trade entry for me. So at this point, anticipating another move down doesn’t back me into a corner. It allows room for an alternate trading plan, whereas predicting another leg lower skews my view and offers no flexibility.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
