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I thought I’d mix things up a little bit and post a video of a trading lesson I learned in the market today.

If we’re open-minded and attentive, the market is always showing us ways to improve our trading results. Today’s video shows you a trade we just closed out today for a nice gain over at TheStockBandit.com, and I hope you find it useful!

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

Without further delay, here’s the clip:

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

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

Chart patterns are great for selecting trade entries, but rarely do I see them being discussed from the perspective of risk management. One of the best things about them in my opinion is that they show me clearly when I should be in or out of a trade. When they fail, the signals are clear and I can limit my loss. What else could I possibly want when I’m wrong??

Take SOLF for example. This stock recently tripled in just a few short weeks, putting it on the radar of every momentum trader around. With ample liquidity and lots of strength, it’s no wonder it hit my watch list. I particularly liked the symmetrical triangle pattern it formed as it consolidated recent gains, creating a nice pivot point for an entry on the long side.

I bought it on Friday morning for a trade as it cleared $27.25 at the upper trend line of the triangle, but the stock couldn’t hold the breakout and failed soon afterward. I took a loss of 2% on the failed trade (I’ve certainly had worse). Although a losing trade isn’t any fun, I definitely felt the setup deserved a chance, and if faced with the same opportunity again I’d take it. However, I limited my loss because the pattern failed.

The stock is now 10% below my exit price just one session later. Taking my cue from a failed pattern really prevented additional pain, allowing me to move on to the next trade and protect my capital rather than babysit a stock which had reversed and hope for a comeback.

Here’s a look at SOLF and the failed symmetrical triangle pattern:

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

Trade great setups which offer big potential rewards when you see them, but be sure to let the patterns you’re trading guide your exits as well.

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

Anytime we see a big contra-trend move like we got last Friday, the discussions begin….

Was it the end of the trend? Is this just another dip to be bought? Is the world ending?

Those questions arise for the overall market, but also for individual stocks. In reference to the stocks, the answer to all 3 questions is yes, depending of course on the stock in question.

Whenever I am considering whether a dip is buyable, the most important aspect of the stock to evaluate is whether the character has completely changed or not. Some stocks go through a minor character change when they see a minor dip in the midst of a strong uptrend, but others will reverse course sharply and never look back. The latter kind is what I want to avoid like the plague!

As you begin to work your watch list and seek out potential long-sided plays in the days ahead, take careful note of just how intense the dips are. Doing so will greatly assist you in deciding whether a buy is warranted, or if instead you need to keep waiting for a better opportunity.

Let’s look at a couple of examples.

MMM was trending nicely higher recently, climbing and basing on the way up in a healthy fashion. This stock’s ability to put in rest helped it keep climbing without getting too extended. A couple of weeks ago, MMM began to pull back gradually, but the uptrend was still intact. This stock actually had found support just above an old base, but then came Friday’s sharp move lower on heavy volume. The big spike down was followed by more weakness on Monday, and needless to say this chart no longer resembles an uptrend. As a result, I’ll avoid buying anything that looks like this.

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

NUAN has been trending higher the past few months, and this stock also recently began a pullback. It also took a dip on Friday (and Monday temporarily), but the character of the stock was not affected. The pace of the pullback has remained constant, as is evident by the trend line just overhead. This is the kind of setup which I would consider putting on watch for a potential long-sided play once things shape up (and if it could clear the trend line). Stocks which may be impacted by widespread selling pressure but which still hold up relatively well are the only stocks worth looking at once the storm passes.

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

Be careful out there with new buys, and pay close attention to the character of your stocks! If the intensity of their pullbacks worsen considerably, cross them off your list of buy candidates and move on to the next good setup.

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

Last week I mentioned that the bulls were taking a breather, but the weak-to-choppy price action turned decisively sour on Friday as the selling intensified and the bulls got hammered to the tune of 2.5% or more across the board.

Obviously this implies more weakness in the short term and the need for further resting action before the buyers get back in gear, so the key at this point becomes capital preservation. Trying to catch this dip can mean getting your head handed to you, so be patient with new buys if you venture into the market on the long side. Then again, as individual traders we have the luxury of waiting for things to stabilize before buying again, so embrace that advantage. The big funds simply don’t have our agility.

As your trading week begins, 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 and some chart comments which were posted this evening.

Trade well this week and always protect your precious trading capital!

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

I love to trade breakouts, and we’re seeing a lot of them in the current market environment. Many stocks have rallied back up near their summer highs, built new bases, and are starting to move higher once again. In general, there has been no shortage of breakout candidates in recent weeks, and if the bulls keep running then we’ll only see more in the coming weeks.

I’ve talked before about gauging the character of how a stock moves, and that certainly holds true on breakout plays. Ignoring things like weak volume on a breakout, late-day selling to come down from the highs, or simply the way a stock might clear resistance and yawn, are all ways to deny an underlying lack of strength which should really be monitored closely.

Let’s look at an example. Last week, I really liked the setup in SYNO. The stock had been in rally mode for a few weeks, and more recently had settled into a nice consolidation phase to digest the gains of the past few weeks. As the stock rested, it built a well-defined bullish pattern in the form of an ascending triangle. Volume had slowed during the rest phase, and I set up a trade to go long once resistance was cleared. My buy point was $23.25 as the upper horizontal trend line was cleared. Here’s a look at SYNO’s chart the day before entry:

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

On Friday, I got my entry signal and went long. However, the stock wasn’t acting the way I would have expected it to as it got back on the move. The buying was sluggish and upside traction was short-lived. Although the stock closed higher on the session, it fell back into its base, finishing on a weak note to end up right back below the trend line.

Over the weekend, I raised my stop on the trade. This is quite common for me as a trade progresses, particularly when I’m facing a potential failed breakout like this was setting up to be. The best breakouts will trigger and rarely even look back, but that isn’t what this one did. On Monday, the stock gapped lower and never turned back up, so I was stopped out right after the opening bell. Here’s a look at SYNO’s failed breakout:

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

While the failed trade cost me money, it certainly could have been worse. I could still be in the stock having to babysit a losing trade. I could have left my initial stop intact and taken a larger loss than necessary. I suppose I could have decided it’s now an “investment” and cling to hope that it will turn back up.

But I didn’t.

Sluggish breakouts can’t be trusted, it’s as simple as that. When you enter trades as stocks clear key levels, it’s difficult to know just how far a good move can carry. However, it isn’t too difficult to know when a stock is stinking up the joint and sending smoke signals that it lacks the gusto to keep going. Pay attention to those signals!

Keeping close tabs on the character of moves will let you hang onto more of your trading capital on those occasions when you’re wrong, which is the name of the game. Small losses are very manageable, but stubbornness isn’t. So the next time you notice a breakout play starting to falter, cut it quick and move on to the next setup.

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