RSSArchive for September, 2008

Prevent Poundings

September 30, 2008 at 10:22 am

Yesterday we saw a historic decline in the market as the major averages posted some of their worst performances ever. The selloff was harsh, unrelenting, and decisive (to say the least). The damage to many stocks will not be repaired for quite a long time, and it’s safe to say that just as many trading accounts suffered significant losses.

In fact, I know that’s true from my recent correspondence with many other traders. Just yesterday I heard from one I’ve known for a couple of years, finding out he’s leaving the game after having blown out his account after adding to a bad position. In his words, he failed to preserve capital and instead broke a fundamental rule by leveraging and averaging down when underwater. It’s a disappointing thing to hear of, and I’m sure it’s a common story this week. About the only positive thing about the situation is that those 5 Expensive Words aren’t likely to be used by him again.

To see the market come under heavy distribution is certainly not a new thing, because we all know that the market does much more than simply climb higher. Over time there are impressive rallies, there are dull trading ranges, and yes – absolutely – there are mind-blowing bloodbaths which can rock your confidence to the core if you find yourself caught on the wrong side of it.

Learning from Gustav, Ike, and Kyle

We’re at the tail end of hurricane season, and there are some realistic parallels we can draw here. Those who live in the projected path of these powerful storms whenever they come along realize that certain precautions must be taken in order to avoid physical harm. (See where I’m going here?) While a few of their belongings might sustain some damage, their willingness to pack up and get out of town when authorities say it’s time can save their lives – allowing them to return and rebuild, and once again thrive.

Similarly, as a trader you must be willing to seek shelter when storms come along, whether it’s a slow grind downward or a massive selloff like we witnessed on Monday. During these times, your account might take a hit, but any effort to preserve capital during such times will enable you to at some point resume your activities as a trader. (And that’s not something to be taken lightly, because I know of numerous others who wish they were able to do just that). Once the clouds begin to break up, then you can seek out those profits once again and begin to rebuild your confidence.

Safety First, Profits Second

Knowing that the market corrects is one thing, but making provision for your own safety in the event of such a move is entirely different. In my next post, we’ll look closer at a few specifics on how to put this idea into practice, but I wanted to set the table for it today and post a reminder that goal #1 is based on staying in the game. Without a sound understanding of that basic principle, making money over time becomes far more difficult.

It’s been a nasty market out there, so keep your head on straight and don’t let an adverse move take you completely out – whether you’re short or long. This too shall pass, so tread with caution and trust that better times will arrive when being bolder is far more prudent than it is now.

Trade well today, and I’ll see you back here soon with Part 2!

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

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

What Makes a Good Trading Market?

September 26, 2008 at 10:43 am

The market has been all over the map lately… huge selloffs, sharp rallies, and just a lot of uncertainty in general. The government intervention has also made the landscape an unfamiliar one, as bailouts of individual companies have occurred, along with the introduction of a bailout plan for the economy as a whole.

Further, we’ve seen things which used to happen only on occasion become the recent norm… major intraday reversals, tremendous gaps to both the upside and downside (which are frequently filling), and a significant expansion in the average true range of the overall market. Needless to say, as traders we have had numerous additional reasons to stay on our toes!

Pros and Cons

There has been no shortage of excitement and movement for day trading, which is great for those of us who are able to monitor the action throughout the day. However, anyone with a longer timeframe has no doubt found it to be a mess with limited opportunities and sizeable risk.

With all the wild price action, my personal tendency has been to lighten up. I’ve not held an overnight position since late-August, instead opting to stay in cash and focus more on day trading in order to more closely manage my risk. Being one who typically does a lot of swing trading, that’s a big shift.

I’ve encountered many other traders, both in and out of the limelight, who are taking the same approach. The consensus has been that recent conditions fail to inspire much lasting confidence on either side (long/short), and therefore the better approach is to lighten up temporarily or stay sidelined until the technicals improve and things can smooth out.

And this market will smooth out.

But in the interim, all this discussion begs the question, “what makes a good trading market?”

Textbook vs. Practical

In a textbook sense, the ‘right’ answer to what makes a good trading market might be that it’s a trending market, perhaps even one which moves steadily higher. That’s nice and it might leave you feeling warm and fuzzy to know at some point that will happen again, but it might not help us right now. So instead, let’s get a little more real and explore some practical ways in which this market might improve in the near term for those of us who are traders.

Removal of ‘some’ uncertainty.
By starting here, I have to emphasize the word ‘some.’ There is never a complete lack of uncertainty in the market, which is exactly why there is risk and reward present. That’s good and we need it! However, market participants have had to fret continually over what will happen next, to a degree not typically seen. Instability is running high in many areas right now, as industries such as banking face unprecedented times and some have gone completely out of biz. Once we get back to an environment in which stocks are able to move more routinely (based on underlying supply and demand, rather than primarily in response to the daily despair or elation of the general market), there will be many more opportunities for taking trades with defined risk. At the moment, ‘defined risk’ is very difficult to find on a multi-day basis.

Lack of intervention.
I’ve only been a trader for a decade, but I have not ever seen such frequent government intervention as we’ve seen this year. I have no desire to discuss politics, the success of the interventions themselves or debate whether or not they were warranted/needed/wise, so I’m avoiding that here. The point is that when the market begins to fixate on how the government might inject liquidity or bolster confidence or disappoint and deny hopes for help, it’s an unusual environment for trading. Prior to recent months, about the only times we’d see that occur would be on FOMC days when interest rates might change and the policy statement is released on the economy. Aside from those times, the market has generally been able to focus on economic and company-specific data to make its decisions on, and lately those have been placed very much on the back burner. Once a return to that routine is seen, we should be able to expect more typical price action than what we’ve been seeing.

TA back in the saddle.
When the market is seeing so much violent price action in both directions and the news flow is causing extreme reactions on a day to day basis, technical analysis takes a back seat. Not only is it more difficult for bases to be constructed and well-defined patterns to emerge, but even when they do it’s more difficult to trust them to act like they ‘normally’ would. Consolidations are extremely rare to find when the market is whipping back and forth to the degree we’ve been seeing, which prevents a lot of reliable patterns from ever maturing to begin with. Further, when a bull flag or channeling stock is finally found, one has to wonder why the stock in question hasn’t been participating in the large market moves. As the market begins to settle down a bit and traditional chart patterns once again come into focus, we’ll see many more trading opportunities begin to surface.

More psychology, less knee-jerk reaction to news flow.
One of the primary reasons why I avoid trading earnings announcements or get extra-cautious on FOMC days is that the market gets fixated on the news. The nimble trader can capture some quick moves once the news is out, but the anticipation prior to the actual news release is what tends to alter the price action away from the norm. Any factor which interferes with the usual forces of greed, fear, confidence, or uncertainty is going to make the trading environment a little more tricky because the psychological aspects will play less of a role. Understanding the battle which ‘normally’ takes place within the minds of traders on each side of the market offers an edge, so whenever conditions shift in such a way that the importance of psychology is diminished, that edge disappears with it. We’re used to seeing emotions get paired together such as greed and fear, so when we recognize them both at work there is some natural opportunity which emerges. But when the primary emotion is uncertainty (like it is now), it’s extra difficult to determine who is poorly-positioned. As a result, new trades with good risk/reward profiles become harder to locate. Once the everyday focus moves beyond ‘bailout,’ it’s going to quickly become a smoother market for trading timeframes longer than a couple hours.

Looking Ahead

Of course there are additional factors which are impacting the trading environment right now, but I wanted to run through a few of the ones I’ve noticed of late which are combining to make the current environment a little harder to navigate than normal. If I’ve left out some others which stand out to you, please feel free to post them as comments below.

The good news right now is that we could start to see some of these things improve in the coming days. In the market, even a few days can make a tremendous change in the landscape, so don’t count out the possibility that the dust might begin to settle soon.

It has been a bizarre couple of weeks on the Street, but it certainly won’t always be that way. So start watching for some of these shifts to come along, because they could be here before you know it. And won’t that be a welcomed sight!

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

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

Reckless Testing

September 24, 2008 at 11:34 am

Some traders are just reckless when it comes to trying out a new strategy.

From time to time, every one of us will see the need to modify our style in order to keep improving, and truthfully that’s a willingness each of us must have if we want long term success as traders. There is no shortage of tools or trading styles that might have the ability to improve your trading, so there’s certainly nothing wrong with trying them out when you recognize it’s time to change. In fact, some of the best traders I’ve ever known are willing to try new methods when they realize it could be better than their current approach. However, the key is how you test out those methods.

Reckless traders aren’t reckless because they are experimenters. Rather, they’re reckless in the way they fail to protect themselves while experimenting.

Just Enough to Feel It

Now, I’m not a fan of paper trading because no emotion is involved. Red and green numbers in a demo account somehow just don’t have the same impact on one’s psyche the way real dollars do, so naturally I don’t find it beneficial to “pretend trade.” Instead, having some real money on the line is the fastest way for the market to not only get your attention but also for you to learn quickly.

But hold your horses, because I’m definitely not advocating bold trading during a test phase. Yes, trading the actual shares with real dollars (as opposed to claiming a would-be entry on paper) gives you the best sense of how a new style really works, but go small. I cannot stress that enough.

The idea is to learn something new with minimal pain. Of course, stock market 101 requires that we pay the occasional tuition, but why tinker with different methods and invite more pain than is necessary before getting a feel for the new ways?

Just in case that tuition bill comes due, you want the price tag to resemble something from the local junior college – not an ivy-league school!

How to Test Best

So when the time comes that you find it necessary to do a little experimenting with a style that’s new to you, go slowly. You want to trade new methods so small that if you take several hits in a row you’ll still be fine. A couple of minor bruises still send the same message to your brain (‘that didn’t work‘) without requiring a broken leg to get the point across!

Don’t be reckless with new trading styles – be smart and find the best ways to get results with the least amount of risk. After all, you can always step up the risk ladder later on.

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 September 21, 2008

September 21, 2008 at 11:12 am

What a wild one last week was! Incredible volatility provided sharp moves on both the downside and upside, bringing about new 52-week lows as well as a major rebound to a degree not seen in quite some time.

The week ahead might not hold quite as much excitement, but it’s still to be packed with uncertainty and elevated emotions which should keep prices on the move. That translates into opportunity for traders like you and me!

So before you even push a single button in your trading platform this week, be sure to check out the Market View video over at the main site for a close look at the overall market and some things to consider in the week ahead.

(Click image to view video)

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]

Welcome to The Kirk Report Readers!

September 18, 2008 at 2:10 pm

I just want to welcome those of you who arrived here on the blog today as a result of the Q&A post on The Kirk Report. I’m glad you stopped by and hope you’ll return often!

Charles is a great friend, a class act, successful trader, and of course top-shelf blogger who works hard day after day to churn out only the highest-quality content for his readers. Needless to say, I’m honored to have been invited for a “Q&A” on his site! It was without a doubt the most in-depth, challenging interview I’ve ever done, and I really enjoyed the thought-provoking questions Charles asked. Hopefully you find it beneficial to read!

While you’re here, let me point you to a few posts which will help you get a bit more familiar with my style of trading and writing…

You can read the about page for more info on my background and this blog. I’m a technical trader, a family man, and I wear t-shirts to work!

I write a nightly stock newsletter over at for traders wanting daily ideas, but I put out regular content here on the blog which I hope you find useful whether or not you subscribe to the paid service. There is also a Free Video Newsletter which I publish nightly that you can sign up to receive. Just see the top-right corner of the blog sidebar and add your email address there to get it (you can opt out anytime).

As for the tour of this blog, you will find over 300 posts here from the past couple of years along a variety of trading subjects. I’ll run through a few highlights from the archives which you might want to check out.

Here are a few articles about my trading style…
*Deciding if a Stock is Trade-Worthy
*Small Mistakes = Small Consequences
*Goal Number 1
*The Day After
*Check Your Rolex
*Another Definition of Trading
*TASC Magazine Interview

A few articles on trading psychology…
*Slay Your Trading Giants
*Trading Discipline
*How Gaps Change Motivations in the Market
*When Bulls Become Sellers
*The 2nd Worst Feeling in Trading
*My Biggest Trading Fear
*3 Signs You Have a Pet Stock
*Gap Lessons: When Trades Get Lucky

Here are a few how-to articles I’ve written…
*How to Grow Your Trading Account (Part 1)
*How to Grow Your Trading Account (Part 2)
*Gauging Urgency in Chart Patterns
*3 Keys to Buying Dips
*Finding Short Sale Candidates
*Stop It!
*How I Use Worden’s TeleChart 2007
*Watch List Management
*Blending Your Style With the Current Environment

Regardless of what you choose to read about while you’re here, I hope you find it useful to your trading approach. This blog exists for that very purpose, so make yourself at home and come back often!

If you’d like to subscribe to this blog, here’s the RSS feed. There’s also a feed reader icon in the righthand sidebar which will do the trick, or just beneath it you can subscribe by email so that you won’t ever miss a post!

Thanks again for stopping by to visit, enjoy your weekend, and I hope to see you back here soon!

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

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

Market View Video September 14, 2008

September 14, 2008 at 11:30 am

Volatility is climbing in the market and we’ve seen some increased activity in the past 2 weeks, bringing along with it many opportunities for short-term traders.

Looking toward the week ahead, there are 2 big keys to keep an eye on which I discuss in this week’s video. If they end up complimenting each other, it could spark the next major move for this market.

So before you push a single button in your trading platform this week, be sure to check out the Market View video over at the main site for a close look at those 2 big keys for the days ahead.

(Click image to view video)

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]

Maintaining Your Watch Lists Video

September 10, 2008 at 11:47 am

This video was originally published last night for those who are on the Free Video Newsletter mailing list. In it, I show some ways to build and maintain your watch lists using Blocks for maximum efficiency and a great way to transfer stocks from one of your lists to another.

I’m posting it here for those of you who are curious about the kinds of things the free videos discuss, plus it’s a look at a very useful way to maintain and streamline multiple watch lists. You can join the Free Video Newsletter list HERE or via the top of the sidebar on this page (all you need is an email and you can opt out anytime).

Feel free to share this if you’re a fellow blogger, the embed code is on the YouTube page.

Without further delay, here’s the video. Enjoy the show!

Blocks charts courtesy of Worden Brothers, Inc.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

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