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What constitutes a “good trade?” Is it a profitable trade? Is it one that works quickly and provides you with a gain? Those are certainly nice!

But I’m not so sure that we can define our trades solely by our results. In fact, I’ll go ahead and say that a truly “good trade” can be declared regardless of your results - so long as certain conditions apply.

We had this discussion recently in the member’s forum over at TheStockBandit.com. A trader had commented that he was concerned about a day trade he had just made. Although he closed the position for a profit, he said “(his) only concern was (his) stop loss was greater than his profit…the risk reward wasn’t there when the trade was all over.” He followed with the question, “was it still a good trade?”

Interesting topic, to say the least! Here’s the reply I offered:

“I’d say that if before the trade you saw a risk/reward which fit your preference, that it was still a good trade. We have to roll with the punches after we are in (a trade), and sometimes we make a gain which is less than what we originally planned for. I think the measure of a good trade is whether the risk/reward was there from the beginning.”

We’ve all faced this issue as traders. We enter a trade with a certain game plan, do our best to follow it along the way, but when conditions change and we adjust, sometimes we’re left with a smaller gain than what originally would have offset the risk we took in the very beginning.

Seeing every twist and turn before they happen isn’t a requirement for good trading (fortunately!), so we don’t have to attempt to. What we have to do is evaluate the situation as it unfolds, and make the necessary adjustments to our stop loss levels or price targets, managing the trade to the best of our ability.

It’s like a pilot after takeoff, he keeps navigating toward the goal but a safe landing is of utmost importance. If that means he chooses an alternate spot to set it down, so be it. Exiting a trade at a spot not originally planned is sometimes necessary, but that doesn’t mean our choice was flawed to take the trade initially.

It’s important to remember that if the risk/reward profile of the setup was appealing from the outset, then taking the trade was the right thing to do. That means regardless of if you get stopped out for a loss or if you realize a huge gain. Taking high-quality setups with proper risk-reward profiles is at the core of how we manage our risk as traders. If you’re doing that, then you’re making good trades regardless of the results.

When it comes to results, we all want good ones and it’s important to review them from time to time and make sure we’re on track (as I’ve discussed before), so I’m certainly not diminishing the importance of that aspect.

However, making good decisions with not only which trades we choose to enter, but also taking logical steps along the way to manage each trade accordingly is what keeps us trading with a level head. So long as that’s the case, you’re protecting your objectivity and therefore able to keep making good decisions.

Trade well out there!

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

First BSC got a $2 bid from JPM and yet it continued to trade above that level.

Now JPM has raised its bid to $10/share and BSC is currently trading far from that level.

What is going on?

Because there are some great resources out there that can explain the details of the evolving deal far better than I, let’s focus on what it means for you as a trader. Observing the deal is one thing, but wanting in on the wild price action in the stock is a completely different matter.

You can find the complicated answer elsewhere, so I’ll give you the simple one here: if you don’t understand it, don’t hold it overnight.

The stock is ignoring any technical action on the daily chart, which is the timeframe you need to be watching if you’re swing trading. However, on an intraday chart, a pure day trader with a shortened timeframe can still find some plays in the stock. Given that the majority of news comes outside of market hours, the risk of overnight gap is omitted by day trading it. Furthermore, a day trader is simply responding to price action over the course of seconds, minutes or hours. That’s the only way to trade such a news-driven stock like BSC is right now.

If you’re a part-time trader or someone who prefers a little longer timeframe, stay away from BSC. It’s a nice side show, but it offers you far more risk than potential.

Trade well today!

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

The Market Wizards books by Jack Schwager are in my opinion among the best trading books out there, as the interviews with top traders simply offer so much insight. I make it a habit to re-read these books semi-regularly because of the insights they offer, and it seems every time I read them I either pick up something new or am reminded of an important lesson.

One interview with Tom Baldwin contained a comment which I found interesting, especially given the clear lack of enthusiasm in Baldwin’s answers. Although Baldwin seemed to come across as stiff, arrogant, and basically anything but friendly to Schwager, he still offered some food for thought.

When asked how he learned to trade, Baldwin replied with this answer:

…All day long I stood there and developed an opinion. As I came to see that my opinion was right, I was reinforced, even if I didn’t make the trade. Then when I traded, I knew from standing there six hours a day, every day, that most of the time I was right. I would see scenarios develop over and over again.”

Baldwin’s comment is probably an oft-overlooked statement, and yet it carries some real value. “All day long I stood there and developed an opinion.” That answer isn’t anything flashy, but yet it’s so accurate. Your market opinion, your feel for the tape, your instinct….it all comes from those countless hours in front of the screens. Whether you’ve got 0 or 10 positions on at any given time, you are still soaking in the data and gathering important info which you’ll call upon sometime later.

Trading the market can be very exciting, don’t get me wrong. Pulling some fast money out of a stock and nailing a trade is a real thrill, and those of us who get to trade daily know that. However, newbie traders are often surprised at how boring the market can be at times and how much waiting is involved. Trading doesn’t mean constant motion and pure adrenaline from opening to closing bell. A lot of times it’s monotonous and dull, and yet it’s still wise to observe.

That trade you’ve been stalking might finally come around and trigger an entry, in which case you’re back on the wagon. And on the other hand, you might have days where you sit for hours on end without ever pressing a button. The best traders know this and are willing to wait when conditions warrant.

Observing the markets, watching stocks, gauging order flow and sticking close to the tape in general will help you tremendously. You’ll learn more about how particular stocks move. You’ll see where mistakes are made by others who bought or sold at the wrong times, and of course you’ll learn a lot about the role which volume plays in the action.

If you want to be a good trader, commit to putting in your hours each and every day. If you get tempted to overtrade and push buttons when you know you shouldn’t, then step away from the screen. Otherwise, formulate your market opinion by constantly staying close to the action. You won’t regret having a free ticket to the show.

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

Having founded a subscription-based trading website, I get the chance to interact with quite a few traders each day. Whether by email or through the community forum on the site, it’s always nice to visit with other traders about a variety of topics. Some of them have lots of experience and have been in the game much longer than me. Others are new and fresh and inquisitive. I enjoy dealing with each of them, but the newer traders often ask questions which I ought to cover here more often. One in particular deals with commissions.

Pardon the pun, but as an active trader, I do pay my share of commissions each year . Some years I pay more than others, and it just boils down to how much of my trading volume that year comes from swing trading vs. day trading. When holding stocks for a few days at a time, or swing trading, obviously the share turnover is much lighter than when scalping for a few cents at a time with a day trading approach. Each style can be lucrative, but the higher your activity level is, the more it can benefit your broker if you aren’t careful.

The majority of part-time traders I run across are on a per-trade (or per-ticket) commission structure, which means they pay a flat rate whether they’re buying 100 or 2000 shares. This can get costly fast. Partial sales will add to the commission bill quickly. The smaller trader begins to see his precious capital erode faster if he’s very active at all, and unfortunately this can soon lead to him passing up good trades out of the simple fear of it costing too much to enter and exit the trade. That’s too bad, especially considering that trading is a numbers game.

Enter per-share pricing. Rather than a flat rate per order, you simply pay a flat rate per share, which means you pay for what you trade and nothing more. In dealing with many newer traders, not enough of them are aware of the per-share commission structures which many brokers offer. And although each broker is different, often times it’s as simple as requesting that your commission setup be changed to a per-share structure.

My broker offers per-share pricing, and I’ve had my commissions structured that way for several years now. Their standard per-share rate is $.006/share, which means if you buy 1000 shares it would cost only $6, which still blows away the $9.95 per trade which so many traders pay these days. Very active day traders can even negotiate lower rates based on high volume levels.

Commissions are truly a cost of doing business in the stock market, particularly if you want access to a sophisticated trading platform, but you can still reduce those costs if you go about it the right way. Regardless of which broker you trade through, find out if they offer a per-share pricing structure. Making the switch should save you a little money in the short term and a lot of money over the course of the year.

Trade well today!

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

Most traders at least occasionally have to deal with the urge….the temptation….the allure of taking on more risk. Sound familiar?

Risk’s Widespread Appeal

I’ve had the good fortune of spending time and trading with quite a few traders of all types. Some trade stocks, others trade futures or options. Some of them are day trading, others are swing trading. Some of them trade part time, others trade full time. But regardless of the characteristics which define their approach, every last one of them has at some point felt this urge of which I speak.

Oh there have been some great stories along the way of big wins and losses, but every single memorable story involves risk. Great days and even downright pathetic days will all boil down to how much risk is taken, and how well it is managed. If you stop to think about it, we’re all quite lucky to have the ability to make this choice every day. Those who become highly skilled in the balancing act of taking and managing risk effectively become successful traders. Those who do not will quickly become a mere statistic.

Gambles Must Be Small

I’ll venture to say that all great traders have a respect for risk in the markets they trade, and as a result they all have a certain level of discipline which goes along with it. I’ve commented to people before when asked if day trading is a high-risk endeavor that “it could be your own little Las Vegas every day of the week if you want it to be” but that taking that path almost guarantees a brief career as a trader. Personally, I don’t want a real job!

But what if you love to take occasional risks? Can you still be a great trader? What if you just have that urge to swing for the fence sometimes? Well, I’m here to tell you that it can hurt you, unless you do it the right way.

Taking high-risk trades doesn’t have to mean the kinds of gambles which get amateur traders into trouble. Stubbornness and speculation are not the same thing. The trader who blows out his account after adding repeatedly to a losing position is very different from the trader who puts on a small position as a hunch, risking a limited amount and never putting his trading livelihood on the line. Buying a lotto ticket isn’t the same as putting your car keys into a Friday night poker pot! Rolling the dice is alright on occasion, so long as the consequences aren’t significant enough to cause any real damage.

Some traders might want to buy a small amount of a high-flyer, trade some out-of-the-money options, or dabble in some illiquid little stock while waiting for an anticipated story to play out. Maybe you can’t fight the urge to take a few shares of a stock into earnings, or to try to game a Fed move after the announcement, both of which are a complete coin-toss. Perhaps you’re able to do this right alongside your normal positions and never let these little speculations interfere with your day-to-day operations, but if you’re like me, you find them somewhat distracting as your attention moves from what you should be watching to these little speculative trades like horses in a race.

The Solution for Speculators

Never fear, there is a solution: trade multiple accounts! I’ve found this to be the ideal way to separate different types of trades, allowing me to satisfy that occasional urge to take a risk while still keeping my attention where it needs to be - on my primary trading account.

Funding a speculative or secondary account with only a fraction of what your primary trading account is funded with will keep any profits or losses at a minimum, because remember, profits isn’t the point of a secondary spec account. This account exists solely to let you trade the high-risk plays in order to scratch that itch for an occasional home-run-or-strikeout type of play. The aim of this account is to let you act on those urges without the consequences if you’re wrong. After all, these are the kinds of plays which could really wreck your main account, so keeping them separate and tiny lets you focus on what matters most - pulling consistent gains out of the market in a more methodical way than going for the long ball.

These secondary accounts can also be used to hide longer-term plays from plain view, which will come in handy on occasion. What happens if you’re short-term bearish but have some long-sided positions socked away for the long term? It’s easy under the gun to lump everything together, but separating your timeframes across accounts can be an effective way to trade both timeframes according to your plan. Secondary or spec accounts also effectively hide the number while letting your higher-risk plays fully develop.

If you haven’t considered having a primary trading account and at least one smaller trading account to satisfy your urge for that occasional added risk you love to take, give it a shot and you’ll quickly see the benefits. Have the discipline to set one up. If anything, it’ll keep your pain to a minimum when you swing for the fence and miss, while keeping you focused on the types of trades which really pay the bills.

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