RSSArchive for August, 2008

Don’t Push When You Can Pull!

August 27, 2008 at 10:32 am

It would be nice if the market would post a sign and tell us where it’s headed, but if that were the case then trading wouldn’t be so lucrative when we’re right. Good trading doesn’t have to be about nailing every move, contrary to what many believe.

Rather, letting the market pick a direction and then jumping on for a ride can be a very effective approach simply by limiting our mistakes.

Often times we find the market to be range-bound or lacking momentum (such as right now ahead of the Labor Day holiday). During such times, it’s extremely important not to force trades in an effort to anticipate the start of a meaningful move. The drifty price action found within those trading ranges makes it extra difficult to gauge momentum, so making shorter-term trades with tighter stops and narrower objectives for targets is a necessary approach during such times.

Heads Up

Have you ever pushed on a door expecting it to open, failing to notice the “Pull” sign posted right in front of you? Had you only been paying attention, it could have been so much easier. 😀

Similarly, trading requires the same awareness on our part. Keeping our heads up and taking notice of any changes in the landscape which may serve as clues goes a long way toward avoiding blunders. If we don’t stay sharp and pay close enough attention to formulate an opinion, we’ll never catch those clues.

If you’re pushing when you should be pulling, recognize the difficulty you’re facing with your trading and change your approach. There’s a reason why that trade you’re fighting right now isn’t cooperating with you – and it isn’t that you’re unlucky or hard to get along with!

You’re trading against a headwind of some sort, and the sooner you recognize it, the sooner you can move on to a trade that offers you some real potential.

Even if you’re a contrarian, wait for those signals and confirmation that it’s time to act. Trading is easiest with the wind at your back, so don’t fight it!

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

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

Anything’s Possible

August 25, 2008 at 9:49 am

On a week like this when the trading is expected to be so light in front of a major holiday (Labor Day is next Monday), it’s easy to forget something very important…

Anything is possible.

Literally anything can happen in the market at any time. Just because the big boys (funds) have been away lately doesn’t mean an appearance is out of the question this week. The recent lack of volume indicates a distinct absence of institutional trading which could easily continue this week, but stay on your toes just in case.

Good trading involves continually evaluating the environment. That also means finding the right balance between expecting more of the same and watching out for potential changes to come along. It requires our objectivity, not only with our own trading process, but also with whatever big-picture market conditions we find ourselves in.

While I’m not looking to make any big, bold bets this week, it’s still a good exercise to remember that a big move can always happen if the conditions are right. Which is part of what excites me about trading to begin with.

So regardless of whether you’re bullish, bearish, or neutral, remember this week that anything is possible. Stay sharp out there if you’re pushing buttons, because the competition is present and will pick you off your perch if you show up without your game face or aren’t paying attention!

Trade well this week,

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

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

Market View Video 8-24-2008

August 24, 2008 at 2:37 pm

Very poor volume has plagued the market lately with many traders taking a late-summer opportunity to go on vacation and get away from their screens. We might be in for another week of that, but perhaps it will improve after Labor Day as is typically the case.

On a technical basis, the major averages do have a little something going for them in a positive light, which I discuss in more detail during this week’s video.

So don’t go pushing buttons this week until you’ve checked out this week’s Market View video over at the main site for a closer look at the averages and some things to consider if you’re trading.

Trade well this week!

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

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

Identify Failing Bounces for Short Selling

August 20, 2008 at 7:45 am

Traditional Wall Street tells you that the market goes up over time, which has proven to be true. That’s nice if you’re a “long-term investor” who socks money away in mutual funds and doesn’t care about working your capital a little harder.

But for the self-directed trader, it’s important to remember a couple of things. First, the market (and stocks and sectors) will undergo corrections from time to time. Even if a longer-term trend persists, short-term hiccups and even the occasional gasp for air will occur. Second, those corrective phases (or downtrends) offer the best opportunities for short selling if you know what you’re doing.

Flip the Chart if You’re a Bull

You might be predisposed to trading the long side, in which case you’ll certainly relate to this analogy. Within uptrends, buying dips can be an excellent strategy to participate in the move. Doing so allows you to effectively buy on a short-term discount a stock which is in the midst of a longer-term advance. On the flip side, one of the best ways to participate in a profitable way within downtrends is to correctly identify failing bounces.

It’s the mirror-image of buying dips.

Shorting failing bounces can be a great way to trade the dark side, but it does require some finesse and an added dose of patience. These aren’t like breakout plays where you should expect an almost immediate pop and follow through. Rather, they are sometimes more like watching a cruise ship turn around… it might take a couple of days before the direction really changes! With that being the case, these kinds of plays are usually best for swing trading.

The Look

So with the concept laid out before you, let’s talk about what to look for and then I’ll show you an example. What we want to find is a stock which is in fact trending lower. That means lower highs and lower lows are in place, so that support levels have been broken in recent weeks or days with some high-volume selling. Since then, the stock has attempted to bounce back up but has been unable to attain previous relative highs on the chart.

Furthermore, as price goes up in the near term, volume is going down. That creates a negative divergence which shows us that the move is more of a dead-cat bounce as opposed to true accumulation taking place. Often times this establishes a bear flag or rising wedge pattern. As these patterns are confirmed, you’ve got a trade candidate on your hands.

Here’s what good shortable failed bounces look like on the chart, and be sure to notice the lack of solid volume on each bounce attempt:

Chart Courtesy of Blocks

As you find these types of setups, be sure to take notice of the duration of each bounce since stocks will often stick with a certain rhythm in how they move. Also seek to find some sympathy weakness occurring either in the same sector or in the overall market. That way when the time is right, you’ll be putting the odds of success in your favor as you profit from the next decline rather than just endure it.

Trade well out there!

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

Broken Trades

August 18, 2008 at 7:15 am

A memorable Far Side cartoon is called Horse Hospitals. In the picture, a pair of racehorses lie flat on gurneys with broken legs hoisted. A veterinarian rounds the corner staring at a clipboard in one arm while holding a rifle in the other. The adjacent room shows another gun-wielding vet with a large caption reading “BLAM” while eyes widen on the injured racehorses, suspecting their time is drawing near.

Those poor racehorses! If they only knew that a broken limb would seal their fate, they’d undoubtedly run with much more caution!

Now I’m no advocate of cruelty to animals, but my stocks are a completely different story. I have no love for them if they do not work, and I certainly know when something is broken (remember, my P&L tells me!).

If you think of your trades as horses in the race and one of them pulls up lame, it’s time to turn out the lights for that trade. If that trade was your employee and not doing its job, wouldn’t that be grounds for dismissal?

Let it go if it isn’t going to work for you. Staying in beyond your planned stop level exposes you to unnecessary risk with far-diminished odds of a reward, leaving your capital tied up in an underperforming trade.

Good trading requires a cold approach. Building and implementing a game plan is followed by reviewing results so that any adjustments can be made. If you want to trade successfully, make a commitment to operate in such a manner. It might not be an overnight process, but it’s one which will be well worth it to you in the long haul.

Btw, even the vet in the cartoon doesn’t bring his feelings into play…he’s staring at his ‘chart‘ before making a decision. 😉

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

Market View Video 8-17-2008

August 17, 2008 at 12:23 pm

Lately we’ve seen some mixed market activity with the NAZ showing better strength than the DJIA and S&P 500, but all in all there is some constructive price action taking place out there.

Earnings season is behind us and the market isn’t yet consumed with election-related things, so we’re at a spot where some good trading conditions are emerging. A big move could be right around the corner one way or another, and that’s something I discuss in this week’s video.

So before you go pushing buttons this week, make sure to check out this week’s Market View video over at the main site for a closer look at the averages and some things to consider if you’re trading.

Trade well this week!

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

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

Has the Easy Money Been Made?

August 14, 2008 at 1:51 pm

It’s a question all good traders find themselves asking on a regular basis…
“Has the easy money been made?”

Sometimes it’s in regards to an open position which has stalled out or losing momentum. Other times it’s tied to a look at the overall market, trying to determine whether or not the current move still has some fuel in the tank.

Indeed, few questions in trading are as important as this one.

As you evaluate your own trades, this is the question which will most often be your deciding factor in what to do. Perhaps you’re eyeing a nice setup for an entry… is the risk/reward structure as it should be? Or maybe you’ve been in a position which is warranting a second look right now… do you stay in, jump ship, or tighten stops due to a lack of trust?

How Do You Know?

Watching the rhythm of a stock’s (or market index’s) movement over time, and particularly the recent action, can provide you with some excellent clues as to what’s really taking place. Every stock has a personality, and your ability to decipher it will ultimately prove whether it’s trade-worthy.

Suppose we’re eyeing a rally which is underway and we’re trying to decide if it’s likely to continue. Gauging the upside volume compared to the downside volume can offer us some important clues. We can also glean a lot of useful info with a close look at the pace of the advance – is it sustainable? Measuring the depth of the dips, the quality of the rest phases, and of course the upside acceleration as strength resumes is going to complete the picture and leave us with some crucial elements to consider. Weighing each of these is what will ultimately bring us to action (or inaction).

A Fork in the Road

Whether it’s the current market move off the July lows, or any single position you are evaluating, always seek to determine if the easy money has been made.

If your conclusion is yes and you’re concerned the current wave might be closer to the end than the beginning, then be extremely cautious and keep any new trades on a very short leash. You might just be in the midst of one of those times when discipline and patience is needed while some new bases form in the charts.

However if your conclusion is no, then keep working your watch list in search of swing trading candidates which can leave you properly positioned should the move continue.

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