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Minor bumps along the way often require slight adjustments in trend lines.

Technical analysis offers a number or tools and indicators to apply to charts in order to better determine buy and sell areas. Some traders have hard-and-fast rules regarding their analysis tools (and I’m a big proponent of having trading rules in place), but there are parts of technical analysis which do require some ongoing flexibility.

Trend lines are the tool I use the most in my trading and charting, and they definitely require keeping an open mind. Drawing trend lines and trading effectively with them is certainly more of an art than a science, because they can morph over time. While a trend line can be defined as a straight line connecting at least two relative highs or relative lows, what’s often left off of the description is that they frequently need to be refined.

The first time I draw a trend line, I usually consider it to be a rough draft. That means I’m willing to adjust it slightly as the chart pattern begins to mature and time goes by. The more times that price bars touch a trend line, the more valid it becomes. However, not every break of a trend line leads to another meaningful move in price. Therefore, if price pierces the trend line slightly but there’s no change of character in the underlying stock (or index or futures), that’s my signal that the break is of less significance and I’ll likely need to adjust my trend lines.

My aim is not to be perfect the first time I set a trend line. What I want is to have something valid I can trade from, as that will not only increase my confidence in the trade but also my profitability over time.

Technical analysis tools exist to help us, not bind us as traders! Trend lines are usually a work in progress and therefore rarely set in stone. Keep this in mind if you use them in your trading, and try to be sure that something meaningful is occurring when you see a trend line being broken. If the volume is up or the momentum is building, you can take the trade with much greater confidence.

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

I often run across a stock with a tradable pattern, but a second look will often change my mind.

This week I ran across SVU, a stock which has been rallying steadily since August. More recently, it had a breakaway gap to the upside and has since consolidated to create a very nice bull flag pattern. Here’s the chart:

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

Ordinarily, I would be a buyer of a stock like this upon an upside breakout from this tight pattern at $33.25. However, zooming out to a longer timeframe reveals quite a bit of resistance from the past 2 years in the $34-35 range which could make a breakout somewhat short-lived as the stock encounters overhead. Here’s a longer-range chart:

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

Previous highs mark places where sellers are lurking, and staying aware of such zones can often help you select better trades to take.

There are a lot of stocks out there to trade, so there’s no need to be married to any particular one of them. At TheStockBandit.com, we do the heavy lifting for you by reviewing hundreds & hundreds of stocks every night to cherry-pick the best setups. If you want to save some time locating the highest-quality chart patterns, come trade with us!

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

By the way, subscribing to this RSS feed will mean you won’t ever miss a post!

I’ve written before about my homework and the process I go through nightly to locate trading setups, but there’s a hidden benefit to my process that I feel greatly adds to my trading results.

Bring your wide eyes to the table and you might be surprised what all your watch list can reveal!

Every afternoon after the market closes, I run my TeleChart scans and I end up with a ton of stocks in one big watch list. This big list is where I locate my trading candidates. Although I’ve seen software that offers to locate chart patterns and provide me with a potential shortcut, I feel strongly that a trained eye is better at picking up subtle nuances of a chart that may be extremely hard to mathematically define Read more »

I used to think that the most successful traders just knew how to locate the big winning trades and that was the key to their profitability.

We all know what happens after the STOP.

Not anymore - I’m past that, and thankful that I finally realized it. It took some time, probably because of the irony of it all. Who would have thought that the best traders’ real key to consistent profits in the market all boils down to humility and their ability to get out of trades when they need to the most? What happened to bravado and having the guts to take the plunge and go big when you really feel you’re right? Is that not how the best traders do it? Occasionally that approach might give you a windfall profit, but what happens when you’re wrong (and you WILL be)? If you don’t have an exit plan, you’re gonna be toast. It’ll be Hammer Time for your account, and it won’t be pretty or fun!

If you don’t respect the market, it will force you to respect it.

I’m a huge advocate of using stop loss orders, regardless of your operating timeframe. There are plenty of reasons to sell your stock, but the most basic premise is that once your trade stops behaving as you expected, it’s time to consider kicking it out the door.

Read more »

Second chances are so nice to get, even if we don’t deserve them! If you pay attention in this choppy market environment, you’ll often find that you get multiple chances to get into a trade (and profit).

This could be viewed as frustrating, as a stock breaks down or breaks out, only to quickly return to the support or resistance level. However, it can be great if you get caught snoozing on the first move!

Last night in my stock newsletter, I highlighted NTRI as a potential short. NTRI had broken down a couple of weeks ago and since then had formed a bear pennant pattern. A break below $51.00 at the lower trend line was the trigger for my short sale.

(Click image for full size) NTRI was primed and ready to break down from this bear pennant pattern, with the trigger being a break of the lower trend line at $51.00.

NTRI triggered soon after the open today and I was able to short sell it as it broke through the $51.00 level (thank you ARCA market sell/short!). Had I missed the first entry, I would have had another shot at getting in the trade by offering into the first bounce which carried it right back up to the $51.00 level (funny how that works!).

(Click image for full size) NTRI broke the $51.00 level right off the open, but the bounce which followed provided another shot at entering this trade. Gotta love those second chances!

Fortunately, NTRI drifted lower throughout the day, providing a nice trade whether you caught the first or second entry. In fact, if you don’t like to trade breakouts/breakdowns, you may actually prefer to bid into pullbacks or offer into bounces in order to establish a position - if so, this is an excellent market for you. Be on the lookout for second chance entries in these choppy conditions, and you’re sure to find some second chances to profit!

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

By the way, subscribing to this RSS feed will mean you won’t ever miss a post!

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