All Entries in the "Trade Management" Category
I Don’t Care How Fresh Your Fundies Are
December 20, 2011 at 1:28 pm
I’m a trader, so what I care about is catching short-term moves in price. I’m not an investor who’s looking for long-haul appreciation or locating the next ORCL. For that reason, the health of a business doesn’t matter to me. It’s unlikely to change during the course of a trade that lasts anywhere from a few hours up to a couple of weeks (barring scheduled earnings reports or conference calls).
Some traders fixate on fundamentals. They might use the fundies as a starting point for trade ideas, which is alright, but is not necessary for short-term positions. They might use the fundamentals as a logic crutch to defend their losing trade, telling themselves “it’ll come back” because of the business. We know how that usually ends for them when opinions are allowed to interfere.
If you haven’t already done so, make this all-important distinction: there are good companies and there are good stocks, and they do not necessarily overlap. Sorry if that bursts your bubble, but many great businesses have a stock that’s going nowhere. Some stocks are making excellent, clean moves even though their business may not endure the test of time. The correlation between good company and trade-worthy stock is not at all guaranteed.
Here’s the point in case you’ve missed it so far… If you are a trader, focus on the price action and place importance on it alone. Trading is about compounding money by turning capital over frequently. It’s not committing to a long-term relationship with a stock…that’s investing and it’s an entirely different topic (not found here).
So if you are a trader, and if your timeframe is less than a few weeks, consider the likelihood that the health (or lack thereof) of the company behind the ticker symbol you’re trading just isn’t going to change that quickly. Business growth or attrition takes time. With that in mind, all you’re left with is the price action – right where we began.
Simple and straightforward.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Trading Timeframe Influences Position Size
December 13, 2011 at 8:58 pm
Equally important to locating entries and exits is the matter of sizing your positions. Too much and you can’t stick with the trade plan, aborting in favor of diminishing emotions (whether greed or fear). Too little and you don’t maximize the use of your capital.
While some traders prefer a standard lot size, in this video I’ll discuss the notion that your timeframe for the trade should influence your position size.
Yes, the chart itself will help determine your exits, but that’s also a function of how long you’ll expect to be in the trade.
Check out the video for a quick 5-minute explanation and you’ll see exactly what I mean.
(Direct video link is here for those interested in sharing).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Viewing a Loss as a Courtesy
November 29, 2011 at 8:56 am
My ‘Don’t Be a Monkey‘ post prompted some discussion on how to view losses, so I just want to explore that idea a little further. Specifically, Eric commented ‘learn to love loss, and you are on your way.’
Love might not be my chosen word for it, but yeah, that’s the idea. Put it this way…
Last year, we were house hunting with our realtor. When we’d pull up in front of a house that just wasn’t at all our style, we’d offer a preventive “next” to save us all the time of going through a house we just didn’t envision actually buying.
You can’t judge a book by its cover, but some houses you can! Plus, this was a close friend, so he didn’t mind. In fact, he appreciated it. By crossing those no-way houses off our list, it narrowed the search and saved him time.
Couldn’t you view your trades that same way? You could even look at each position as an employee. Poor performance is grounds for dismissal. Take the attitude of “thanks for letting me know you aren’t going to work so I can move on to the next candidate.”
When your trade’s showing you poor price action, don’t get upset. That just might be a gift – a signal to move on to the next idea. No point in getting your feathers ruffled or making it personal. That will only compound your frustration.
In our member area, I’ve been trading the exact same way. Booking some winners here and losses there, playing the numbers game that trading always is. No single trade carries great importance, but it’s important that losses are viewed properly. A failed breakout or a sluggish move away from a key area means the trade is suspect and may require an adjustment or early exit. I appreciate those warnings from the price action.
And even when in a position, I’m taking note of those subtle changes of character, staying aware of signals the price action may be sending which suggest the trade is struggling.
Recently I entered ADTN upon a breakout attempt at $34, but it just couldn’t stick. A few attempts to clear that level continued to show hesitation, so I tightened my initial stop by 2% on 11/16. I’m glad I did. The stock reversed to stop me out the next day, I booked a tiny 1.7% loss, and moved on to the next trade.
By taking cues from the price action (including failed patterns), it’ll only save you money by way of useful adjustments. Look at those as a courtesy.
Trade Like A Bandit!
Jeff White
Producer of The Bandit Broadcast
To see what I’m trading tomorrow and how I manage my trades, check out the free trial of our stock pick service.
Trading Roadblocks
September 29, 2011 at 8:12 am
Few things are as frustrating in trading as seeing a position start to take off, only to stop or reverse. When a trade hits the proverbial wall, it stops moving according to plan and quickly becomes dead money.
Nevermind the fact that you were long in the midst of an uptrend in the stock, and in a generally strong market environment. It’s time to bail out.
What if you had seen it coming?
Looking a little farther to the left on the chart can at times enable you to do just that. Sometimes we just get so fixated on the here-and-now pattern that we fail to recognize what might lie beyond. Overhead resistance looms like a roadblock, but without zooming out on the chart, you may never see it until it’s too late.
Due Diligence
As a short-term trader, I’m all about the recent price action. I care a great deal about how a stock has moved over the past 2-3 weeks, and every day of late. I’m gauging the volume, I’m looking for clean patterns, I’m designating my trading timeframe, and from there I’m able to project where the stock can go next if those patterns are confirmed.
But I don’t stop there.
Once I’ve identified a pattern, and made the corresponding game plan, my work isn’t finished. I still need to look at the bigger picture and take note of anything that might stand in the way of this stock running further. And I’m not referring to news which might break (although that’s particularly important during earnings season). What I’m referring to is potential resistance which the stock may have to contend with shortly after confirming the short-term pattern.
Exhibit A
For example, I recently discovered a bull flag pattern. I can project, based upon the pattern, where the stock could head to next if that pattern gets confirmed. However, a look at the bigger picture showed me a glaring issue with the trade: it didn’t have far to run before the next resistance would be encountered.
That congestion zone from a few months back was a major potential roadblock for the play. Although the short-term pattern could confirm, the stock may still not get through the next resistance zone. So, this is the kind of setup I’d only consider for a day trade rather than a swing trade, because the risk I’d incur for a swing isn’t in proper relation to the limited profit I’d make if resistance holds.
Here’s a look at the stock I’ve been discussing. I’ve erased the company name and ticker symbol, because it doesn’t matter. Rather, this is an example of how I evaluate potential plays.
A month from now, this flag may have confirmed and the stock might blow through prior resistance as if it were never there, but that’s not for me to decide. My job is to evaluate risk, and only put my money at risk when the potential for reward outweighs that risk by a considerable amount.
Taking note of potential roadblocks like this is one way I can ensure my risk/reward on each trade remains suitable. Occasionally I might regret not taking the play, but over the long haul, I’m preserving my capital for far better opportunities.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
3 Signs You Have a Home Run Trade
September 7, 2011 at 10:21 am
Here’s 3 signs you have a home-run trade on your hands:
* Your initial target gets reached faster than expected. Ideally, this is also accompanied by heavy volume to confirm the move. Either way, this is a stock that’s getting quickly on the move, and you’re participating – congrats.
* You get runaway gaps in your favor. A runaway gap is an indication that emotions are heating up and traders are becoming impatient. With prices moving in your favor, you’re in good shape to capture additional momentum and be able to offer out stock at higher levels.
* Your stock has a historical propensity to make big moves. This factor alone isn’t enough to produce a home-run, but with either (or both) of the previous two at work, it only adds to the likelihood that the move getting underway is going to pay you well.
Momentum trading requires a different mindset, and momentum arrives when there’s more emotion present than logic. Keep this in mind the next time you have a trade performing better than expected, and see how much you can get out of it.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Don’t Discount Daily Charts When Day Trading
August 31, 2011 at 9:16 am
The daily charts are where nearly all my trades originate. Whether I’m looking for a single-day move or one that lasts several weeks, I always at least take the daily chart into consideration.
Day traders often forget the value that the daily chart can bring. The conclusion is that it’s only suitable for swing trading or position trading, but the truth is that the daily chart can offer some good signals for entry and exit as levels are cleared or reached. Even better, those same levels can often add to your confidence in a day trade and help you stay in it.
Let me offer 3 examples from Tuesday’s session where the daily charts played important roles. On Monday night in the member area, I listed only 3 plays for Tuesday’s session, with each of them being day trade candidates. I’ll break them down one at a time with the initial setup, and then a look at Tuesday’s intraday chart where the daily level played a significant role.
First up was QIHU, which looked poised for a push higher after establishing both a higher low and a higher high in recent weeks. The pullback over the previous several sessions provided a clean descending trend line which I used as a pivot for getting long at $23.60. Here was the original setup:
QIHU pushed past that trend line and never dealt with it again, running initially almost 3% higher before pulling back but still holding above that same trend line:
Next up was GLNG, which had corrected and then settled into a multi-week narrowing consolidation pattern in the form of a symmetrical triangle. These patterns can break either way, and with a strong market and the upper trend line being challenged, I was looking long on a trend line break through $32.15:
GLNG triggered an entry as it cleared the $32.15 level, showing a nice initial pop followed by a pullback to test the breakout zone. To heighten the validity of the $32.15 level, the low of the pullback was $32.18, just 3 cents above it. From there, it ran again in the afternoon to clear the morning highs and get 4% beyond the morning trigger. Not bad for a few hours and no pain:
Last but not least was FSL, a little stock which had huge potential. It had just pulled back to test and hold the early-August closing low, and in recent days had stabilized just above that level. On Monday it saw expanding volume but only minimal progress as it edged past a descending trend line. I set a trigger for $11.25, which would be a multi-day high, to get long. Here’s a look at the pre-trade setup:
FSL triggered late in the day with a massive thrust higher once it cleared the $11.25 level, vaulting straight up to $12 to offer a very fast 6.6%. The move was fast and furious, but a quick payoff once the level was cleared:
A couple lessons from these trades…
A level is a level. Doesn’t matter if you found it on the daily chart or some other timeframe, the odds are it’s going to be evident across multiple timeframes. Recognize and respect that, because it could pay quite well. All 3 of these trades were winners, and each of them respected the level originally found on the daily chart.
Keep an open mind. Perhaps your preference for day trades is a 15-minute chart or a 30 or a 5-minute chart. That’s great. But keep an open mind about how trades might originate. Don’t resign the daily charts to something only multi-day traders consider. You’re missing out on several great opportunities per day by ignoring the daily charts.
Hopefully you found this walk-through helpful. If you want to know what I’m trading tomorrow, stop by the site and begin your trial to our stock pick service.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Weighing Risk & Reward on Day Trades
August 30, 2011 at 8:48 am
A trader on the email list received a recent video I sent out on stops, and came back with these questions:
“Excellent video, please keep sending more. But how do you determine ‘risk reward ratio?’ Your day trading strategy points to a starting point for a stop loss at 1%, so how do you determine that it has 2-4% of upside potential?”
Great questions! Here’s how I responded…
For most stocks, a 2-4% intraday move is not out of the norm on any given day (especially lately). That’s well within the wheelhouse for most stocks I trade, whereas those without the propensity to move I simply ignore and don’t earmark as trade candidates.
When I do run across a stock that’s more volatile, I’ll cut my size in half and give it 2% from entry, and then expect a multiple of that on the top side (so I’m looking for 4-8% on the profit side to offset the risk).
As for knowing if a stock has that ability to move, for me it’s mostly a feel thing since I’ve traded so many stocks over the years and I watch the market every day, so I’m familiar with their movement to that extent. For anyone who isn’t, even applying a basic indicator such as the ATR (average true range) to a chart will give you an idea of how much that stock moves on a given day. It doesn’t have to get complicated, but that will allow you to structure your trade (or skip it entirely) based upon typical movement.
How do you determine your risk/reward?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
