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The bulls took another beating last week as they shed between 4 and 7% in the major averages. This puts the sellers in the driver’s seat right now, which means the bears are licking their chops. On the other hand, the bulls have their backs against the wall for the first time since the late-February tank-job, so they have their work cut out for them if they want to regain their edge. It should be quite a showdown if the buyers look to take a stand, as emotions are running high and bears are feeling good for the first time in a while.

It’s a tough time to initiate new shorts after last week’s carnage, but a relief rally could be a short-lived event if bulls become sellers at higher levels. Be sure to check out this week’s Market View page over at TheStockBandit.com before you start your trading week for a closer look at the indexes along with more of my comments. We moved to cash last Tuesday morning to let the market correct without us, but once the volatility settles down a bit in the coming days we’ll be looking to catch some great opportunities.

Trade well this week and stick to your plan!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

Technorati Tags: Stock Market, Day Trading, Stock Trading, Investing, Swing Trading

There’s a lot of talk about the D-word when it comes to trading, but what does it mean to put it into practice?

We all know that disciplined eaters are usually slim and trim. Everyone knows that disciplined savers don’t fret about retirement. And traders should know that disciplined traders are profitable over time.

Leave the Ego Behind

Good trading discipline means taking no action when you don’t know which action to take. Traders tied to their egos are afraid to admit when they don’t have a feel, so they keep pressing their bets, staying active and overtrading when conditions aren’t conducive to being active. They’ll trade anything that moves, just hoping to get something going and try to generate a feel for the tape.

Ironically, every good trader I’ve ever been around has been able to freely admit it when those times come along that they don’t have a feel for where things are going. They don’t let their ego drive their decisions. They keep their heads on straight and stay objective, only acting when the right conditions are present for their style. When those conditions are not present, it’s no shot to the ego to sit on their hands and remain passive. They’re in it for the money, not the thrill of the action.

Predicting is a Waste of Time

There are going to be plenty of times when you’ll be unsure of what your next move should be. Good news - that doesn’t at all have to be tied to your profitability! I have felt that way numerous times in the past week, and yet I’ve been able to make several profitable trades and grow my account during that same stretch. Predicting didn’t get me there, discipline did. Good traders know that perfection isn’t required, which means they don’t have to predict with accuracy what may happen next. Instead, it’s about selectivity and offsetting small losses with big winners.

Patience Pays

If you’re like me, you know very quickly when a setup comes along whether you like it or not. Some kinds of plays will just fit your eye, and you’ll know the timing is right to take action. Seize those moments as they come and use the opportunities to profit. BUT, when you’re not seeing the setups that just jump out at you, be willing to wait. If your watch list is providing no imminent entries even though the market may be running, sit on those hands instead of forcing trades!

Why be aggressive just for the sake of activity? I mean, I love my broker and everything, but I always want to be making more money than they are from my trades! I have no idea where this market will go tomorrow, but I know that I can still be profitable if I am disciplined. Improve your odds of success by exercising good discipline, and don’t just buy something for the sake of activity….only trade when the conditions you like are present. Everything else is just noise and a chance to give back those hard-earned profits!

By the way, subscribing to this RSS feed will mean you won’t ever miss a post!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

If you’re an active trader, it’s likely that you take a similar approach to me when it comes to earnings reports. Because I have no problem moving to cash quickly, I refuse to hold stocks into earnings announcements. Not only do I have no idea what the reports are going to be, I also don’t know how the market will respond once the report is out. I don’t have a crystal ball, plus the playing field isn’t level when it comes to information, which is why I’m a technical trader.

A key reason why I avoid earnings is that once an earnings report is released, the stock will almost always produce a breakaway gap after the news is out. That can shift the risk/reward profile significantly for a trade, so I tend to just let the stocks settle down later and revisit them at that point to see if a good chart pattern is developing. If it does, I will take it for a trade and manage it accordingly.

We’re right in the thick of earnings season, and it’s important to pay close attention to the calendar and know when your stock is due to report, whether it’s just a stock on your watch list or one you already hold a position in. This can save you money and confusion!

Over the weekend, a great example occurred of how watching the earnings calendar before a trade helped prevent confusion for me. I have had CALM on my radar for a few days for a potential buy, but before I actually set up my order for the stock I checked the earnings calendar first. I soon realized the report was coming out this morning in the pre-market, so I didn’t set up the trade. Here’s a look at how CALM looked prior to today:

(Click for full-size image, courtesy of TeleChart)

CALM gapped higher this morning but instantly came under pressure, falling 6.8% from its best level of the day in less than 40 minutes. Had I bought the stock, I’d have found my trade quickly underwater, which would have added some confusion on just what to do…(Wait for a rebound? Take the loss?). Here’s a look at CALM after the gap up and the way it left the daily chart looking:

(Click for full-size image, courtesy of TeleChart)

Just remember, earnings are tricky all around. Whether it’s a stock you already own or are merely considering an entry in, watch the earnings dates closely and be willing to avoid the stock around that time. There is a sea of stocks to choose from, so let the news-related excitement dwindle so that you can make a better-informed trading decision.

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

Lots of traders (myself included) notice that stocks behave differently as they approach round numbers, like $20 for example. That’s probably due to many stops being set around those levels, both on the buy and sell side. Once a stock gets through the large buildup of orders at those whole numbers, they often see a nice pop because the resistance (of sellers, or of buyers on the downside) is now behind the stock and it’s now able to move more freely.

But have you noticed the same thing in your trading account? As your account nears a nice round number (whether it’s $10,000 or $3,000,000), do you notice some “resistance” in clearing those zones? I sure have.

Of course, once they are cleared, things seem to cruise along nicely again. The trades tend to keep producing, and the account balance climbs.

I finally realized why that is….it’s because as my account approaches a nice round number, my attention gravitates to that number rather than focusing as I should on my trades. I get to thinking about how a particular trade might impact “the number”, but that’s not what got me there to begin with.

Fortunately, my broker has a great tool which allows me to hide “the number” with a single click, and that helps a lot. It makes me turn my attention back to my open positions so that I can manage them the best way I know how. That’s what good trading is all about - managing each position well.

If you’re finding it difficult to get over the hump in your account as you reach a certain number or account highs, HIDE THE NUMBER! I’ll bet it helps you focus on your trades much better, and that alone should get you back on the right track in growing your trading account.

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

Huge up days in the market like today have amazing power. Ordinary investors love them, because everything they own goes up. Traders sometimes hate them though, because underperformance can be common.

It almost never fails that on days when the market makes a giant move, my friends or family will inquire about how great my day was. It isn’t always what they might think. Maybe you’ve had similar experiences. Some of the best days even come when “the market” does very little, which is funny. But back to the topic….

Days of big point gains leave underperforming traders feeling like they need to JUST BUY SOMETHING so that they can participate in the move. That’s not always the solution, because if you’re a disciplined trader there are certainly days when the stocks you look at for possible trades simply don’t fit your criteria. So if you happen to underperform on a day like today, consider a couple of concepts which may help you get beyond the frustration of “missing out.”

* Walk away. It’s a choice each of us have as traders. Just shut down the PC and get out of your chair. Some days you don’t have it, so don’t force it if that’s the case. Maybe it’s you, or maybe it’s the market, but either way the bottom line is you’re not making bank. Come back and fight another day.

* Trade ETF’s. Sure they move slower than many of the high-beta names you might prefer to trade, but they are a definite solution that allows you to participate directly in large market moves. You can leverage up to offset the slower percentage moves, plus they’re liquid as can be so that makes them easy to jump into and out of.

* Be confident in tomorrow. I’ve had some great days right after major market advances like today. It’s funny, but I don’t really trade the mega-cap Dow components like many of which were leaders today. I like to trade lots of secondary stocks, and on days like today those are often an afterthought. Often times the following day, the mega-caps will cool off but traders are still just as eager to buy something. They turn to the secondary stocks, and that’s when you can knock out some nice gains.

Trade well Friday and enjoy your weekend!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com