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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

We’ve all been in trades which were treating us well, moving along in the anticipated direction as we giggled to ourselves about what we might spend the profits on….only to get slapped in the face when we get too greedy and stay too long after the move exhausts itself. It’s called wearing out your welcome, and it’s very tough on us as traders. It can easily lead to a loss of confidence, causing you to become timid with subsequent trades which you should be aggressive with. The fear of giving back gains again causes micro-management of trades, as a lack of trust begins to replace that winning swagger you once had.

Profits are the aim of our trading efforts, so it’s vital to recognize when the time comes to ring the register and pay ourselves.

Wearing out your welcome applies to a lot of arenas, so making a habit not to do it in other areas of your life can help to establish some better trading habits. For example, I was a professional golfer for a few years right out of college. A local country club allowed me access to their facility as a courtesy as long as I didn’t overstay my welcome. If they were hosting a tournament or it was a busy day with lots of members around, I slipped away and found another place to practice. Had I stayed too long, they likely would have asked me to leave, which would have been costly to me. As a result of my respect for them, we had a great relationship and they were happy to extend their facilities to me, knowing that I would not impose on the freedom of their members. All I had to do was stay aware of the conditions without getting consumed in my own activities.

Similarly, successful trading should be the same way. When you make a profitable trade and a stock meets your criteria for exit, don’t overstay your welcome! Knowing when it’s time to cash out and find another place for your trading capital is crucial to developing yourself as a profitable trader. Manage your trades well and you will end up happy. Staying too long and trying to squeeze that last drop of profit out of the trade will likely prove costly, not only in the current trade but perhaps also in your confidence going forward, depending on how much of your open profits you give back.

It’s been said that the last $0.25 can be the most expensive part of a trade, and I couldn’t agree more! So if you enter a stock for a trade, take most of your profits as a trade. Don’t say those 5 expensive words or let a trade become an investment. Always following your trading plan and resisting that urge to get greedy will let you come out ahead with both your profits and confidence intact.

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 at TheStockBandit.com, we caught some quick moves in a few stocks which were provided as day trading candidates. Each of them had earnings which were about to be released, which we won’t hold into, but yet their chart patterns were still very high-quality. So instead of looking for, say, a 15% move in a week or two by swing trading, we opted for the quick-hit style of a few percent. (It’s called The Stock BANDIT for a reason!)

We caught good initial moves for day trades in 3 stocks (2 longs and 1 short sale), taking the quick pops and then stepping aside. By adding up 2-3% at a time, we booked some solid gains by keeping timeframes abbreviated in these stocks which had earnings reports on the way but still had good chart setups.

I trade based on the charts, but I also incorporate the approach that each individual stock should be traded in a unique way. By evaluating not only the pattern itself, but also the stock’s personality and any scheduled news, an appropriate trading plan can be formulated which raises the odds of success (profitability).

Stocks which have already reported earnings should be given more time and room to move since there is no scheduled company-specific news to conflict with the trade.

On the contrary, a stock with earnings due out in 2 days should be kept on a pretty tight leash and not trusted very far, since the motivations of traders involved in the stock may change abruptly as the earnings release approaches. Taking the quick initial move in such stocks will still allow you to play the high-quality setups without having to take on additional (and unnecessary) risk with the potential landmine of an earnings report gap.

There will always be some news flowing into the market, but by staying aware of the scheduled news (like tomorrow’s FOMC announcement on interest rates), you can determine the right trading plan for the stocks on your radar.

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

The perfect entry is a lot easier to find than the perfect exit. Just look at your last few trades, because while you might be able to pick out a well-defined chart pattern to determine a trade entry, it’s never quite as easy to nail the exit. (Which is another reason that cleaner is better when it comes to charts.)

When speaking of exits, it’s important to always remember that perfection isn’t required to do well in trading. To turn steady profits in our accounts, we don’t have to sell the top. What we DO need to strive for is giving ourselves the best chance for a timely exit, win or lose.

When to Update Stops and Targets

I set key levels for my nightly swing trading candidates in the evening, including both stops and targets. The market is obviously closed, and that’s no coincidence. I’m in the right frame of mind and I’m unbiased (in the case of new positions). I am also unable to immediately act (in the case of existing positions), which removes emotion from the equation. That means I get to think through what I need to do, without the concerns or the pressure of a market which may be fast on the move!

Benefits of Evening Adjustments

Updating stop loss levels and targets in the evening (outside of market hours) can do wonders for your psyche, which in turn can do wonders for your trading. You make your decisions in a level-headed state of mind, you set your conditional orders, and you let your game plan play out. Setting my stops and targets outside of market hours has made the trading sessions much more relaxing for me, without diminishing the importance of my trading.

Now, I’m certainly not saying that your trades shouldn’t be important to you. They should be - it’s your money on the line! A subscriber of my service recently mentioned this to me via email, noting that they “are always worried” about their positions. Put it this way…..while some level of interest/concern in your trades is healthy, if you’re too anxious about it, the trade is probably too big. That is another topic altogether, but the point I’m trying to make is that if you feel like your decision-making could stand some improvement, consider setting your key levels outside of market hours. You’ll find your level of stress is lowered and you’ll have greater confidence in your trades because your job during the regular session is purely about executions - not fretting over when to buy or sell!

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

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