Archive for November, 2011
6 Must-Have Trading Books
November 30, 2011 at 9:09 am
I was asked this week about the best trading books from a trader who expects to have some downtime this winter due to his seasonal business. Here’s the list I sent him.
Market Wizards, New Market Wizards, Stock Market Wizards, all by Jack Schwager. These are interview-style books loaded with insights from traders of all styles and in all markets. Must-have books.
Reminiscences of a Stock Operator by Edwin Lefevre. This classic is a memoir-type book modeled after Jesse Livermore, one of the most famous traders ever. Underline the lessons that stand out to you, but it’s full of wisdom even though it’s approaching 90 years old.
The Zurich Axioms by Max Gunther. A list of rules from Swiss bankers which is apply for any trader. A little harder book to find, but a great one worth reading multiple times.
How I Made $2 Million in the Stock Market by Nicolas Darvas. A true-life account (published in 1960) of a guy who made every mistake imaginable before finding his winning system. It’s got a lot of great lessons and it’s one I’ve read numerous times for that reason.
All these are great aids for traders, they are not how-to books but rather the kinds of books with lessons that last. I’d recommend them all!
UPDATE: Somehow I left off the newest book worth reading, which is One Good Trade by Mike Bellafiore. I reviewed it earlier this year and have re-read it since, it’s that good. Somehow in writing this post, I was fixated on older books but this should have been a post on 7 Must-Have Trading Books!
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Viewing a Loss as a Courtesy
November 29, 2011 at 8:56 am
My ‘Don’t Be a Monkey‘ post prompted some discussion on how to view losses, so I just want to explore that idea a little further. Specifically, Eric commented ‘learn to love loss, and you are on your way.’
Love might not be my chosen word for it, but yeah, that’s the idea. Put it this way…
Last year, we were house hunting with our realtor. When we’d pull up in front of a house that just wasn’t at all our style, we’d offer a preventive “next” to save us all the time of going through a house we just didn’t envision actually buying.
You can’t judge a book by its cover, but some houses you can! Plus, this was a close friend, so he didn’t mind. In fact, he appreciated it. By crossing those no-way houses off our list, it narrowed the search and saved him time.
Couldn’t you view your trades that same way? You could even look at each position as an employee. Poor performance is grounds for dismissal. Take the attitude of “thanks for letting me know you aren’t going to work so I can move on to the next candidate.”
When your trade’s showing you poor price action, don’t get upset. That just might be a gift – a signal to move on to the next idea. No point in getting your feathers ruffled or making it personal. That will only compound your frustration.
In our member area, I’ve been trading the exact same way. Booking some winners here and losses there, playing the numbers game that trading always is. No single trade carries great importance, but it’s important that losses are viewed properly. A failed breakout or a sluggish move away from a key area means the trade is suspect and may require an adjustment or early exit. I appreciate those warnings from the price action.
And even when in a position, I’m taking note of those subtle changes of character, staying aware of signals the price action may be sending which suggest the trade is struggling.
Recently I entered ADTN upon a breakout attempt at $34, but it just couldn’t stick. A few attempts to clear that level continued to show hesitation, so I tightened my initial stop by 2% on 11/16. I’m glad I did. The stock reversed to stop me out the next day, I booked a tiny 1.7% loss, and moved on to the next trade.
By taking cues from the price action (including failed patterns), it’ll only save you money by way of useful adjustments. Look at those as a courtesy.
Trade Like A Bandit!
Jeff White
Producer of The Bandit Broadcast
To see what I’m trading tomorrow and how I manage my trades, check out the free trial of our stock pick service.
Why I’m Careful Trading Drug Stocks
November 22, 2011 at 10:22 am
I’m really careful with trading drug stocks, there’s just so much to them. You have things to consider like FDA approvals, patient trials, lawsuits, huge news of positive or negative test results, etc. It can get to be a mess, and very few of those items are scheduled news, so they’re usually surprises.
That might sound exciting to some, but any veteran trader like me would tell you that surprises are not what a trading career is built on. Surprises spook us, and full-time traders like me want only to avoid them.
Take the buyout news in VRUS, for example, which sent the stock higher on Monday to the tune of 85%. Catching a pop like that doesn’t sound so bad, right?
Well, considering that technically the stock was set up better for a short than a long, the technical play wasn’t to be long over the weekend. The daily chart had shown both lower highs and lower lows in recent weeks. Those short would have effectively lost their entire position. Ouch!
Among other (more important) things this week, I’m thankful I had no position to begin with, but I just couldn’t help but notice the outsized gap on Monday morning.
Risk in market is required to profit, but great traders identify ways to reduce risk. Buyouts aren’t easy to see coming, but drug stocks just have too much other stuff going on anyway.
Bottom line: drug stocks are very tricky when it comes to overnight trades, so be consider the VRUS move another reason to be careful if you’re trading them (and consider options instead of common).
Here’s a closer look at the chart:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Video Review of the Indexes 11-20-2011
November 19, 2011 at 9:01 pm
Last week the indexes pulled back to test some important levels, with the NAZ actually cracking 2600. For the time being, support zones elsewhere are holding, leaving the door open for a rally higher within the range.
This week only has 3 1/2 trading sessions, with the market being closed Thursday in observance of Thanksgiving, then an early close on Friday. For all intents and purposes, it will feel like even less than 3 1/2 sessions though, so it’s a good time to be selective and trade smaller due to the diminishing volume as the week progresses.
As we head into a brand new week of trading, let’s examine some important levels to keep an eye on in the days ahead. That will have the greatest influence on how individual stocks are going to move, so it’s where the trading week begins.
(Direct video link is here for those interested in sharing).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Don’t Be a Monkey
November 17, 2011 at 10:20 am
Ever seen those monkey traps where they put some bait in a trap, a monkey comes along, sticks its hand through the hole to get the bait, but when making a fist, can’t remove its hand from the trap?
They have to drop the bait in order to escape the trap, but their greed and ignorance prevents them from letting go?
I’ve made some trades in that same manner, and I’m guessing you have too. The ones where I just refused to let go in time because I wanted it to work so badly, and ultimately they proved extra costly.
Dropping the “bait” in those cases would have freed me to go in search of many other, better opportunities, but my short-sightedness prevented it.
Monkey Brained
And while every single one of us has been there at some point in our trading, what’s curious is that it originates not with the setup or a poor strategy or a flawed technique for entering or exiting. It starts with not having a properly prepared mind.
It’s a flaw with our pattern of thinking.
At times it’s based on a fear of scarcity, whereby we stay with a mediocre or poor trade because there’s nothing else on the radar. In effect, we’re bored, in which case we shouldn’t be trading anyway. Listen to the charts!
Other times it’s that our pride is too much on the line and we’re more interested in defending that than our capital. That prevents us from moving on to a truly worthwhile trade, thus keeping us trapped.
Remember the Goal
I’ve talked at length previously about trading as a numbers game, but it’s such a fundamental viewpoint to have as a trader – something we just can’t lose sight of.
Over time, we want lots of at-bats to let our edge play out. When sifting through setups we select actual trades based on probabilities. That’s the aim.
And on any given trade, if we’re keeping that in mind, we’re willing to let go when the feedback we’re getting doesn’t support our original expectation for the play. The price action is weak, a key level fails to hold, or a reversal of direction has begun and the charts are telling you to shut it down – yet you aren’t listening.
Stay on track. Keep the bigger picture in mind. Be willing to lose in this one trade if you need to, so that over the next dozen or hundred or thousand trades you can be profitable.
… In other words, Trade Like A Bandit – not a monkey!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Detecting Subtle Changes of Character
November 15, 2011 at 12:06 pm
As traders, it’s imperative that we take note of any nuance or variation from character when reviewing charts. Doing so can give us occasional false or contradicting signals, but it can also alert us to imminent moves or potential pattern failures.
Take for example those imminent move alerts. A sudden perk in volume as a stock turns to challenge a key level can sometimes be an indication that a breach of that zone is about to take place. Someone’s accumulating shares ahead of the break, and technical traders will take note of the volume expansion ahead of a possible break, placing that stock on the radar of many.
Deteriorating Demeanor
Potential pattern failures can also come to light sooner by taking note of variations in how the stock is moving. With that in mind, let’s examine a stock which may be giving off some of these subtle suggestions like I’ve been discussing.
ARUN has a multi-month uptrend line (higher lows) which has provided support on numerous occasions, letting dip-buyers use it as support to play short-term bounces. It’s still intact, but something else is of concern.
Specifically, the stock had been establishing higher highs along the way up, with each bounce attaining new recovery highs – until recently. Over the past couple of weeks, we’ve seen bounces carry to lower levels, and one could even consider drawing a rounded top around the peaks of the past month. This suggests waning strength in the stock, so I’d avoid a support-based buy at this point. ARUN may rally again from this area, but I’m not betting on it.
A New Plan
My inclination would be to give this one a bit more time and see if another descending trend line can be drawn at some point from the 10/27 peak along the recent highs and wait for an upside break. This stock has a history of clearing such trend lines (including the 3 drawn below), so that’s likely a better approach for getting long than a support buy after the establishment of lower highs.
Here’s a closer look at the chart:
Again, detecting these subtle variations in the price action is not a guarantee for better entries and exits. What it does is alert us to potential changes of character so we can make better decisions based on probabilities – and trading is all about probabilities.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Video Review of the Indexes 11-13-2011
November 13, 2011 at 3:55 pm
Last week we saw the major averages test important short-term areas to further validate the recent trading ranges, and the tests were passed. Now it’s up to the bulls to produce a breakout, but from a technical standpoint they’ve got some real positives going for them.
As we head into a brand new week of trading, let’s examine some important levels to keep an eye on in the days ahead. That will have the greatest influence on how individual stocks are going to move, so it’s where the trading week begins.
(Direct video link is here for those interested in sharing).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
