TheStockBandit.net » Day Trading

Intraday Extremes Offer Big Opportunities

TheStockBandit — Tue, 20 Jul 2010 14:02:40 +0000

The old adage says to ‘buy low and sell high.’ That’s misinterpreted by most, as they tend to sell their strongest stocks when strength is still present or buy before corrections are completed.

To the inexperienced, it may look like the move is done, but often times is followed by an encore of sorts. Timing is everything, indeed.

Extremes can really pay quite well. When fear is at its highest, it’s a great time to get long. And when everybody and their mom is making money, it’s certainly time to raise cash. But for the sake of this post, I’m not talking about buying a “generational low” or calling a long-term top in the market. In fact, I’m not even referring to the daily timeframe here.

I’m talking about how some of the best trades will happen at extremes…

…the kind which are found intraday.

Profit Where Others Fail to Look

Define it however you like, but at the heart of it, an extreme is approaching quickly whenever a move is unfolding at an unsustainable pace.

That might be a parabolic uptrend, or intraday capitulation. An extreme is a price spike which is showing exceptional momentum now, but the enthusiasm is beginning to fade, and soon there’s going to be a reactionary move.

That reactionary move is the one you and I can catch most often. I say that because once we see a stock that’s really on the run, the odds are that the easy money has been made for that particular move. Attempting to join the move means chasing price without a clear-cut exit plan, and that’s a huge no-no for any professional trader. So, the reactionary move is the money train for those who missed the original move.

What’s so funny is that most traders see a huge intraday run and just know they missed it. Don’t be as closed-minded as them. They drool over what it would have been like to be on board, and fail to recognize the opportunity that’s about to unfold. Dare I say, a more defined-risk opportunity.

You Missed the ‘Move’ - So What?

Take Monday for example. Education stocks bolted higher in the morning, ripping through offers on the way up as they painted the tape bright green. By the time most of us noticed them, they’d already put up very impressive gains.

Maybe you saw APOL, ESI, COCO, DV and others up in the neighborhood of 10% in just the opening few minutes. It looked like they could keep going, but suddenly the buying frenzy morphed into profit-taking, and thus, opportunity arrived.

RIG provided an excellent move for me (from Sunday night’s premium newsletter), but my most profitable trade of the day actually came in a short sale of ESI. Let’s take a look…

ESI ripped higher by $9 right off the open Monday, but I wasn’t long. It was up about $6 by the time I noticed it, and I’m not a buyer of that kind of strength. So instead, I waited for the enthusiasm to wane. And shortly after, it did.

The stock had painted a high of $95.62, and then backed off slightly. It spent several minutes consolidating, and then on the 3-minute chart I saw something noteworthy. I shorted at $95.10, set a protective buy stop up above, and waited to see if profit-taking would develop.

An hour later, the stock was more than $6 lower, trading in the low $89’s, and I was out of the last of my shares (after scaling out). It didn’t last long, but the overreaction on the upside was followed by a nice reaction on the downside, and that was the move that paid me.

Here’s a closer look:

Chart courtesy of Worden

I outline my entire method for trading these extreme reversals in my Advanced Trading Course, so the specific details are reserved for students, but I will give you a few general pointers here.

Profiting from extremes begins with a mindset shift. When you see a giant move, don’t kick yourself for missing it. Instead, start looking for a way to profit once it’s over. Be creative - the market requires it!

Take note of intraday extremes. Don’t chase them, just watch them. See if the pace of the move begins to slow down, and at the first sign of a turn, you’ll know you’re looking at an opportunity. They will not all pan out, but the risk/reward associated with them makes them well worth studying, and often times quite lucrative to trade.

Trade Like a Bandit!

Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com

Are you following me on Twitter yet?

Attention: Unless you are reading this post in an RSS reader, you
are reading a scraped feed. This site has violated copyright laws by
stealing the content of TheStockBandit.net. Please
let us know where you read
this so we can take legal action against the scraper!

©
TheStockBandit.net

Sponsored By: TheStockBandit.com Take the Money and Run!

Watch for Timing Themes

TheStockBandit — Mon, 12 Jul 2010 12:02:22 +0000

As a rule, no there is no specified timeframe which I refuse to trade. However, it is always a good practice to pay attention to developing themes in how the market is moving.

For instance, (and this changes periodically, hence no hard-set rule), not long ago the market was in a bit of a routine of not doing much for the opening hour or so, and then finally we’d pick a direction and make a move. When I began to notice that, I’d get extremely picky with which trades I’d take in the opening hour. Once that routine changed and we started seeing cleaner moves right after the opening bell, I was again willing to trade whatever happened to be on the move.

Listen With Your Eyes

There are always timing themes you can pick up on if you watch closely. An obvious one is that it’s common to see stocks get quiet around the east coast lunch hour as traders step away, so that’s a good time to stay pretty quiet with your trading. Sometimes we’ll settle into routines of making big moves in the final 30-45 minutes of the day, offering some nice potential late in the session.

Just keeping a close eye on these kinds of things, or keeping a trading journal will help you to identify common behaviors of the market and notice times to stay away or be more active. Stocktickr has a time of day feature which will tell you which times of day are best or worst for you, among many other stats it’s able to generate, which makes it a great tool to check out if you haven’t already.

Here and Now

One thing I’ve paid attention to lately is the rhythm of the market moves. The market has been volatile and very reversal-prone, and yet there has been some order to it if you look a little closer.

Taking SPY as an example, we’ve seen several moves take place, both on the upside and downside, of similar duration and size in the past couple of months.

For these examples, I’ve counted the bar where a low or a high is set as bar 1, and have used the final bar of the move as my total. In the chart below, we see from the flash-crash May 6th low, there was a 6-day bounce before a reversal kicked in. And from the July 1st low, we’re now sitting on a 6-day bounce (through last Friday).

We’ve seen a pair of 9-day declines as well, starting from May 13th and ending on May 25th, and another from June 21st to July 1st.

Here’s a closer look for you:

Chart courtesy of Worden

Paying attention to the size, duration, and general rhythm of prices carries tremendous benefits to you as a trader. Watching for chart patterns is a great place to start, but don’t just stop there. Study price moves closely, and see where it gets you.

What have you noticed lately?

Trade Like a Bandit!

Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com

Are you following me on Twitter yet?

Sponsored By: TeleChart 2007 #1 Charting Software

Relative Volume On Demand

TheStockBandit — Tue, 23 Feb 2010 16:01:58 +0000

I’ve long been a user of the real-time scanner and filter Trade-Ideas Pro - since 2003. It has a ton of features for locating stocks on the move during the trading day, which is huge for a full-time trader like me.

My favorite feature is a pretty simple one though, which is called Relative Volume. This compares current volume to normal volume for the same time of day, and it’s displayed as a ratio. So for example, a stock trading 5 1/2 times its normal volume would have a Relative Volume display of 5.5.

Until now, I’ve thought that to get Relative Volume readings within Trade Ideas Pro, some other specific alert would need to be triggered (new high, new low, etc.). But today, I did something weird…I asked for help!

The CEO of Trade Ideas, Dan Mirkin, gave me the work-around for getting on-demand Relative Volume, which I want to pass along to you. Here are the steps to take:

Open a New Alert Window from within the program. No alert or filter settings are needed.

This window can stay minimized and just pulled up when needed. Just right-click on it and go to Configure, and then Symbol Lists. Select ‘Single Symbol’ and type in the stock you’re after.

Click ‘OK’ once done, and it’ll then display the symbol and Relative Volume for you, like this:

I understand Trade Ideas Pro is undergoing some changes to include even more features going forward. Should make an already great product even better!

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Sponsored By: TeleChart 2007 #1 Charting Software

The Envy of Other Traders

Jeff White — Thu, 07 Jan 2010 12:30:47 +0000

If you have traded for virtually any length of time, you’ve no doubt found yourself on both ends of the spectrum when it comes to winning and losing.

At times we can do no wrong, nailing trades with concise entries and the ability to scale out at our own prices. It’s nice. And during those times when it feels much more easy to fatten our accounts, it seems like such a foreign concept to lose. How could I ever have done that?

The Grass P&L is Greener on the Other Side

Other times, we find ourselves dead wrong with terrible timing. We’re dead wrong, and it feels like the moment a trade is entered, it begins moving against us. Frustration builds while confidence erodes, and you wonder if there’s something else you should try - anything to stop the bleeding. To top it off, knowing that we’re building the accounts of those guys on the other side of our trades is completely awful!

When we’re at our best, the traders we’re going against know the P&L is greener on the other side. Our side. It’s not about keeping “them” down, but rather ourselves up with consistency.

If there is one reality of trading, it is that we will indeed have losing trades. But how can we find ways to increase our odds of staying on the winning side more often?

5 Ways to Maintain an Edge

Put Yourself in Their Shoes. Considering the other side of your trades on a regular basis can give you a valuable taste of the emotions driving your competition to take action. Recognizing the greed or fear of traders by way of the price action will give you a valuable edge, whether by way of timing a new trade or adding to your confidence in an existing position.

Remember that Cash IS a Position. At times you’ll need to move to the sidelines, and others will wish they were with you. Feeling like you need to be in something all the time is a major but common mistake. When you see no great opportunities, sit on your hands.

Maintain High Standards. This goes hand in hand with the previous point, but those who overtrade are not keeping the bar set high. They’re lowering the barriers to entry, so to speak, by accepting mediocre setups, sloppy patterns, and generally trades with risk/reward profiles that aren’t in the upper echelon.

Zig and Zag. Many of us do have a directional bias with our trading, which may simply be a part of our nature. But trading isn’t about making ourselves comfortable - it’s about extracting profits. Sometimes that requires us to lean against or, dare I say, step a little outside those outer boundaries of our comfort zones. Consider the occasional short sale, because there are always weak stocks (even in a bull market). And even within a bear market, there will be strong stocks to focus on. Keep an eye on the outliers, there’s opportunity there.

Don’t Hesitate. When you see the writing on the wall that you’re poorly positioned (on the wrong side, or on the sidelines), act immediately. Hesitation opens the door for doubt, which results in costly delays. You either end up chasing a stock too far and end up with a poor entry, or you miss it entirely. So the moment you know you need to be out of a trade or into another, do it. Stay sharp, and show up focused. Speed is everything in this game, and absolutely includes your decision-making.

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Sponsored By: TeleChart 2007 #1 Charting Software

How to Lose Like a Winner

TheStockBandit — Tue, 15 Dec 2009 18:48:24 +0000

I recently heard that in relationships, you can be happier if you choose to accept the whole person. The idea is that instead of trying to weigh everything you like vs. everything you dislike, accepting them as generally positive is a better decision. Thankfully, my wife does that for me, looking beyond my numerous flaws and allowing my positives to overshadow them.

If you stop to think about it, this is a pretty good way to measure everything and everyone in our lives. Staying objective about ‘it’ lets you recognize that overall it’s a positive thing.

The successful trader is no different. He looks at his overall trading operations for a given timeframe, and if the profits are there, then the mission was accomplished.

That’s not always an easy thing to do. In fact, I’d suggest that your inability to view your trading in that general light could put you in the popular camp of those who can’t cut it in this game. It’s much more natural to allow specific trades to stand out and influence our line of thinking. It can result in a directional bias, a pet stock, or a slew of other closed-minded patterns of thinking - all of which can lead to the destruction of one’s account.

What we want to do is to win. And if winning is defined as overall profitability, then winning will involve some losses along the way. You and I have to be able to lose like winners!

Here are 4 ways you can do that:

1. Allow no single trade to define your trading. Dwell on it for a short time if you must, but then move past it whether it was a big win or a disappointing loss. You might have put a lot of preparation, concentration, and capital into that one great idea, but it’s over now. Either pat yourself on the back for a trade well done, or brush yourself off and get back on your feet. Think about how you can use it to your advantage. Maybe you fattened your account with the profits from it, or expanded your comfort zone because of it. Great. Get back on your horse.

2. Win the war, not every battle. Put on individual trades which have sensible risk/reward, but place emphasis on your overall operations rather than each individual effort. Basically, see the forest and not just the trees! Accept that there will be some some losing trades, perhaps frequently, depending on your timeframe, and aim to overcome them with larger or more frequent winners. The point of taking this step is not to go to battle with every trade due to the mindset of having to be correct. Accept it when you are wrong, and no single ‘battle’ will ever sink your ship.

3. Cast fear aside. Fear is arguably our biggest enemy in trading. It can cripple you if you allow it. This is manifested in ways like trading so small that a win or loss has virtually no impact, or maintaining stops so tight that the stock isn’t able to fluctuate naturally without shaking you out. Those who spiral down the drain of losing are often times gripped by fear. Don’t allow that to be you. Maintain a healthy respect for the market, but don’t be afraid of it.

4. Learn from every loss. You’ve paid the tuition, so you might as well get the lesson! This makes a loss something you can still gain from, and every winner does it. Always seek out ways to increase your trading knowledge, whether through specific education like a stock trading course or simply picking up on subtle behaviors in price action that are starting to surface. Is the market starting to change, or are you refusing to avoid methods which aren’t paying off? Keep an open mind, always look for the lesson, and let the long-term losers be the stubborn ones.

Lose like a winner this week, and you’ll have more to show for it.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Sponsored By: TeleChart 2007 #1 Charting Software

Managing Day Trades Effectively

TheStockBandit — Mon, 09 Nov 2009 16:14:07 +0000

Would you rather make money by the minute, or by the day?

I’m open to either, so why not both! I like swing trading for the set-it-and-forget-it benefits it offers, as I can structure my trade and manage it with little effort on a multi-day timeframe. The time requirements are minimal, and the payoffs can be great. But I also like day trading and the flexibility it offers. I can enter the day with zero directional bias, and still find some opportunities to capitalize on from the intraday chart patterns.

Trading multiple timeframes is one of the best ways to diversify as a trader, there’s no getting around it. But let’s explore this idea a little further of managing day trades, because that’s one subject so many seem to struggle with.

R & R

It’s no secret that the key to good trading - for most of us anyway - isn’t how frequently we’re correct, but rather how big we’re correct. After all, we’re going to be right sometimes and wrong sometimes, so the net difference is where the rubber meets the road. For me, that comes directly from the size of my winners as compared to the size of my losing trades, or my risk-reward ratios. Let me repeat: it’s not really the frequency of wins that matters… it’s the size of them.

So if that holds true, then it’s true across all timeframes. From the position trades you might hold for a few months, to the swing trades of a couple weeks, to the day trades which might last a couple of hours, the key is risk vs. reward.

Deciding on Day Trades

In the Bandit Hideout, there’s a nightly video newsletter called the Bandit Broadcast. It contains setups for plays across multiple timeframes, from the swing trades I’m considering over the coming days, to the day trades I’ll be making tomorrow. The day trades are for brief, short-term moves of up to a few hours. They look like on the daily charts that they could make a quick move but not necessarily a lasting one, so instead of holding them overnight I simply look to grab them for the initial move and then ring the register and set them free.

For these plays, I’m not trying to endure pullbacks or wait around to see if it’ll keep running for several days. So once I’ve determined if a stock is trade-worthy, I tend to watch 3-minute bars and simply look for the same kinds of chart patterns I seek on the daily charts….channels, flags, wedges, triangles, etc. The same patterns will still play out across timeframes, which I’ve long said is the beauty of chart patterns and technical trading.

The Other ‘E’

When I find a setup that looks suitable for a quick play, my attention isn’t solely based on where my entry will be. Too many traders focus on that alone, and in return, fail to recognize the other half of the equation - the exit.

For stops, I usually set about 1% from entry as a stop (as outlined in the day trading strategy). The previous day’s low is often much farther from there, so I really just focus on today’s chart and try to first and foremost limit risk.

After that, it is a matter of gauging momentum by monitoring the volume, strength, and pace of the advance so that I don’t overstay my welcome. I’ll gladly offer out shares in chunks on the way up, scaling out and using the strength to my advantage. Once the momentum fades, I’m outta there.

I really like the advantages that swing trading offers me when it comes to setting up plays and letting them work, but I simply can’t deny some of the aspects of day trading which offer flexibility and potential for grabbing short-term moves.

So as you construct your day trading strategy, be sure that it’s suitable to your unique needs as a trader. You might be willing to withstand more risk than the next trader - or less. You might prefer to exit in pieces, or you might like jumping out all at once when your stop or target levels are hit. Whatever your style may be, just be sure to stick to it for maximum consistency. It’s how you’ll manage your day trades most effectively.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Sponsored By: TeleChart 2007 #1 Charting Software

Why I’m Not Trading AAPL

TheStockBandit — Mon, 19 Oct 2009 15:27:26 +0000

AAPL is set to report earnings after today’s closing bell. It’ll be the focus of attention at times both today and tomorrow as the dust settles post-news, but truth be told, I have no interest either way.

Obviously it’s one of my trading rules to avoid stocks when they’re reporting earnings, as scheduled fundamental news simply carries with it no edge for me as a technical trader.

But I’ve had no interest in trading AAPL for a few months now. Let me explain why.

The short answer is that AAPL simply doesn’t move enough. For a stock that’s highly liquid (over 15 million shares/day on average) and within sneezing distance of $200, it should move a lot. And yet it doesn’t. On an average day, it’ll see an Average True Range (ATR) of about $3. There are stocks trading at a fraction of AAPL’s price which move that much and are still highly liquid, so why pay up for less movement?

Let’s take a look at the chart.

Over the past year, we’ve seen AAPL’s price rise dramatically, while its movement has shrunken dramatically. ATR is a price-based measurement (not percent), so as price gets higher and higher, often times we’ll see ATR expand along with that. That’s not the case with this stock.

StockFinder Chart courtesy of Worden

Anytime you’re trading the high-priced stocks, do your best to gauge whether there’s enough movement there on an average day to justify an entry. Others like GOOG, CME, and BIDU all are higher-priced than AAPL, but on a relative basis (when comparing ATR) they each move considerably more than AAPL.

At some point, AAPL will be worth trading again, but on an average day right now, the moves are just too limited to warrant an entry.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Sponsored By: TeleChart 2007 #1 Charting Software

Stack the Odds for Daytrading Success

TheStockBandit — Thu, 03 Sep 2009 22:04:27 +0000

Trading is all about stacking the odds for success. Risks must be taken in order to get paid, but the key is gauging under which circumstances the potential reward really outweighs that risk.

I discussed taking risks in a recent post, and I felt that a follow-up and an example of what I was referring to was in order. Here it is.

Many of my trades are continuation plays. They can be great for offering situations which warrant putting some money on the line once clues of a continued move are present.

However, there are many opportunities on the intraday timeframe which are exhaustion/reversal kinds of setups.

Buy or sell programs, news, and just plain old momentum drive stocks far beyond the pain thresholds of traders, carrying price a considerable distance in one direction or the other. That opens the door for some recoil, and catching the turning point can be quite lucrative.

Stacking The Odds

Here in a moment, I’m going to show you exactly what I mean in a video, but first let me outline a few keys which combined to produce a great trade in this situation.

Corresponding market action. With the indexes having a distinct possibility of a short-term turnaround, conditions were ripe for similar price action in individual stocks. This is a point I make over and over in the weekly index videos.
Prior key level on the daily chart of this stock was being tested. A huge intraday move which carries price right to a previously important level on the daily chart will increase the odds for a quick recoil move.
Intraday price action suggested the move was becoming exhausted. That indicated that a reversal could quickly develop in the stock.

Here’s a video explaining it. Select the HD option and go full-screen for best quality:

Stack multiple factors in your favor for a great trading situation. They’re worth waiting for!

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Sponsored By: TeleChart 2007 #1 Charting Software

Reversal Characteristics & Candidates

TheStockBandit — Tue, 25 Aug 2009 05:30:30 +0000

Stocks can reverse suddenly or slowly. Sometimes it takes place in one big bar, and other times it’s a process that occurs over time.

Because there are differences in how downside reversals can happen, after running across a couple of reversal candidates in the charts, I wanted to share a couple here on the blog.

Uptrends will often times be followed by corrective action, which may pave the way for further upside down the road. But a reversal is often a longer-lasting change of direction, and that’s what I’d like to discuss in this post.

When looking for reversal candidates, the thing to watch for is a change of character. Something that’s different from previous dips and stands out as a potential shift in the stock. That might be a lower high, or it might be a sudden decline which proves to be much sharper and faster than previous pullbacks were.

Show & Tell

In the video below, I want to point out 2 stocks which might be undergoing reversals. That means there’s plenty more to prove before they can be considered to be in corrective mode (as opposed to merely a dip within their uptrends), but chart reading is always a work in progress. If the characteristics which we’re seeing now happen to change, then so should our expectation.

For now though, let’s take a look at what’s going on and see if these show us the necessary price moves to confirm what the charts of FUQI and RL may already be saying.

Here’s a video explaining it. Select the HD option and go full-screen for best quality:

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Sponsored By: TeleChart 2007 #1 Charting Software

More on Recovering from Trading Losses

TheStockBandit — Mon, 17 Aug 2009 11:44:26 +0000

Ever been downright frustrated with your trading?

If you’ve been a trader for any length of time, I’m sure you have. There can be stretches of disappointments during which it feels like getting on the right side of a move might not ever again happen. Your account shrinks and your confidence takes hit after hit, causing you to question your desire to continue playing the game.

If it sounds like I’ve been there, it’s because I have been. Multiple times. Every time I’ve hated it just as much as the first time, but every time I’ve emerged as a better trader. No pain, no gain!

Dealing With Drawdowns

I think it’s a good exercise for every trader to know their thresholds, and to determine just what you’re willing to lose during a poor trading stretch. That’s not to say you plan on it, but rather you designate some amounts, which if lost, will prompt you to make some immediate adjustments.

That might be a dollar amount subtracted from your account highs, or it might be how many consecutive losing trades you’ll endure when a drawdown occurs. Once those flags have been raised, it’s time to shift the routine.

It doesn’t mean you entirely abandon an approach which has proven to work for you over time, but rather that you install some safety rails for yourself before the damage becomes far more difficult to repair.

Short-Term Steps for Long-Term Survival

If you’ve suffered from a recent drawdown, it’s important that you take a few steps to get back on track - both in the near term and for the long haul.

In the near term, it’s crucial to preserve whatever confidence you have left. Remember, that’s your psychological capital, and it must be protected. Take a few days away from trading, maybe a week, and just clear your head. This may sound obvious, but stepping away is the best way to stop losing! Discouragement leads to some poor decisions in trading, so come back in a few days to resume trading after some of the irritation has subsided.

When you do begin again, cut your position size down to an amount which is insignificant, whether win or lose. You want to gain some confidence in trading well once again, making some good choices without the influence of recent losses. P&L becomes an afterthought at this stage.

Focus on the method, on making good trades which work, and then gradually increase your trade size so that the profits return. The first few trades might not grow your account, but they can greatly aid your thinking process by lifting the pressure of “making it back” and then you can get to that shortly thereafter.

Staying in the Game

A string of losing trades is no fun - downright frustrating, irritating, and bothersome. But the idea is to limit the losses when they do come (and we know they’ll come, that’s just part of trading) so that we are still trading when the best opportunities come along.

That’s how my method is. I equate it to a poker player who loses small, hand after hand, folding to surrender antes before finally sticking with his bet when a good hand comes along so that he can win a pot. Lose small, lose small, win big - that’s exactly how trading must be. How you choose to respond to losing will make or break you.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Sponsored By: TeleChart 2007 #1 Charting Software