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It’s easy to fall into the rut of trading the same size for every stock across the board, but on occasion you’ll inevitably run across a stock that fits a lot of your criteria but isn’t quite ideal. That’s when the dilemma arises: Do you ignore it or take the trade?

Volume is a key ingredient to me when I’m considering trades. Not only do I want the stock to be reflecting some level of interest (activity), but I also want to know that I can execute my orders effectively and without too much slippage. Strong volume also tends to mean narrower bid/ask spreads, which means a more competitive market. Naturally, volume is the next thing I look at after the chart. When it seems too light for a trade, my first inclination is to pass on the stock and move on to the next, but that isn’t the best or only option I have.

So in the case of the light-volume-but-bullish-stock, why not pick up a few shares if the chart is good and simply take a smaller position? If it pays off and the chart pattern produces the move you’re expecting, the profits may be slightly smaller but it’s still money in your pocket!

RIMG is a stock I’m currently eyeing which has a nice bullish pattern but trades much lighter volume than I generally prefer. The pullback of the past two weeks off the recent high has created a large bull pennant pattern, and a push up through the upper trend line will confirm the pattern and could free up this stock to head north.

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

Instead of passing on the trade entirely due to the light volume, simply taking a smaller position in the trade if it goes would still allow room for some profits. Perhaps that will translate into a smaller winner than another trade where I may have a larger position, but as a trader I’m all about seizing opportunities whether large or small.

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

It’s been 7 years since we saw a lot of these chart patterns emerge, but even today there are stocks which get in uptrends at steeper and steeper angles until, POP, the party ends. These moves don’t happen frequently, but when they do there are some big opportunities for pain and gain in both directions.

TNH has been trending higher for many months now, and recently this one went parabolic. As the stock continued to advance, bases were built and breakouts were produced time and time again. Without a sufficient resting phase for the stock, the pace of the climb continued to accelerate until the stock was moving up at a near-vertical rate. Once the ascent reached a climax, the path of least resistance became down.

There is a great deal of psychology at work in a move like this, and it impacts those on both sides of the trade. Buyers see gains stack up at a dizzying pace, and more momentum players quickly join the chase. This produces some stellar gains in a very brief amount of time, which feeds the rush. Those who want to fade the move and short sell into the strength quickly get squeezed, watching their losses mount rapidly as panic sets in. The shorts begin to cover, adding fuel to the fire as the stock reaches stratospheric levels. And once everyone has finally made their buys, the music stops and there’s not enough chairs. There’s nobody left to provide demand for the stock, so everyone rushes for the exits at once, producing a spectacular reversal with record volume.

TNH is a perfect example of what a blowoff top looks like after a parabolic run. This one image shows both fear and greed, and it says “stay away” for the next little while as this stock tries to get its bearings.

(Click on chart for full-size image)

Staying greedy in a big trade or trying to fade a powerful move too early can be costly, so keep your wits about you when you see explosive moves like this. If you don’t, you’ll be padding someone else’s trading account!

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

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

The DJIA is going for its 15th up day in the last 16 sessions. That’s only 1 losing day in the last 3+ weeks! Have we seen pullbacks? Sure, but they’ve remained very shallow thanks to one phenomenon:

Dip-Buyer Domination.

There seems to have been an amazing amount of cash sitting on the sidelines just itching for virtually any downtick to put it to work in recent weeks. This has kept the market climbing steadily, while simultaneously preventing pullbacks from showing any follow through. As a result, the dip-buyers just have a ton of confidence and they will continue to do their thing until it stops working.

This morning, however, we have a sizeable upside gap which has potential to change things (at least temporarily). After a huge run recently, the market is now up far enough to finally entice some profit-taking. Those who have been buying every dip now have a possible exhaustion gap which is tempting the bulls to line their wallets and book recent gains, and who could blame them?

Technically, this is a good thing. Markets don’t move in straight lines for very long, few would argue that. But the indexes are now up far enough from their uptrend lines to allow them some room to retrace without disturbing the uptrend. That means a breather could set in without panic, and that would be very healthy for this market whether you’re a bull or a bear.

Here’s a look at the DJIA as an example:

(Click for full size.) Chart Courtesy of TeleChart.

Although the odds of a rest have improved after this morning’s gap, don’t be in a big hurry to short sell, because the dip-buyers aren’t likely to run away quickly.

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

Day trading candidates are often listed in the Bandit Broadcast stock newsletter for the more active traders at TheStockBandit.com, offering some additional opportunities to grab some gains on an intraday basis. With earnings season underway, we’re still swing trading some, but right now is a good time to shorten timeframes a bit until the scheduled news passes.

While most day traders pay close attention to the price action, one of the most important indicators for short-term momentum can be found in the volume levels, particularly in relative volume. I keep a close eye on relative volume via Trade-Ideas Pro, a real-time scanner. Relative volume is the comparison between current volume levels in a stock and what the volume levels typically are for the same time of day. So for example, if XYZ is hitting highs on 2x relative volume, it is seeing twice the volume today as it typically sees for this exact time of day.

On Monday night, GROW was provided for our members as a day trade candidate in the Bandit Broadcast with a $31.50 buy point. The stock had pulled back slightly on the daily chart, but the pattern wasn’t quite clean enough to warrant a swing entry. There was a small descending trend line just overhead which was acting as resistance, and a push up through that level ($31.50) was likely to generate a quick pop to the upside. Here’s the original chart that was shown with the trade:

(Click for full size.) Chart Courtesy of TeleChart.

On Tuesday, GROW cleared the $31.50 buy point not long after the market opened, and quickly shot higher as momentum players jumped into the stock. However, the relative volume was only running right at 1 in my Trade-Ideas filter, which meant it was merely average volume. With the stock up $1.20 past my buy point (a 3.8% move) in less than 45 minutes, I decided it was time to ring the register. I posted my exit on the Bandit Bulletin trading blog for members, and moved to the sidelines with a nice chunk of change. The comment I made at the time of my exit was that it was “too good of a move not to book when volume is only average.”

That proved to be true, and I was relieved to have pocketed the profits as the day progressed, with GROW slowly fading all the way back to the trend line area by the end of the day. Timing really is everything in trading. Here’s a look at the intraday chart which shows all of Tuesday’s trading, including the gradual slide back down after our exit:

(Click for full size.) Chart Courtesy of TeleChart.

Sometimes the simplest things can be the most beneficial to watch. Trade-Ideas offers some amazing tools for day traders, and yet I seem to find ample value in the Relative Volume feature (they have several new features in the works as well). So the next time you’re catching a nice move in a short-term trade, be sure the volume is strong enough to support it. If it isn’t, you’re probably looking at the perfect time to book that gain and move back to the sidelines.

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, Trade-Ideas

Recovery plays are always higher-risk, and while a stock may be closer to $0 than it once was, it can still fall 100% from your entry level. However, there still seems to be some appeal to traders and investors in search of “a good deal.” Be sure you know what you’re getting into when that’s your aim, because as one stock just proved, cheap stocks often get cheaper!

As a trader, I pay very close attention to the recent history of a stock’s behavior. Sure, there are occasional surprises, but stocks which make steady moves tend to keep doing the same. And stocks which have a history of large price gaps are usually prone to more big gaps in the future.

Take ADLR for example. Back in September, the stock lost 52% overnight! Then it cratered again in November, losing 39% overnight. Ouch!

(Click for full size.) Chart Courtesy of TeleChart.

But it gets worse….

On Tuesday of this week, the stock did virtually the same thing. After closing on Monday at 8.72, it shed 56% overnight.

(Click for full size.) Chart Courtesy of TeleChart.

The lesson here is to avoid stocks with an ugly history! If you dare venture into a stock hoping for a recovery, consider taking a smaller sized position because these rebound plays are far more speculative and you’ll want a lot less of them in the event of a disaster.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

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