All Entries in the "Trade Management" Category
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
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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
Let Your Trades Go
August 4, 2011 at 7:15 am
Trading on certain timeframes requires that we monitor every tick, gauge the momentum, and continually modify our management of the trade.
For most traders, however, more of a hands-off approach is far better. Whether it’s a job that prevents fixating on the screens, or simply an aversion to that high a level of activity, many traders choose to operate on a timeframe that doesn’t require their nonstop full attention.
When I’m swing trading, there’s a tool I utilize that makes all the difference in the world. It allows me to take a set-it-and-forget-it approach to my trades so I can set them up and let them go. It helps me prevent interfering with my positions so that my original trade plan can fully develop.
Just as you should, I already know from the outset of my trade what I’ll risk if I’m wrong and where I’ll ring the register if my target is reached, so with those pieces of the equation already known, all I need to do is plug them in.
Read this post for an explanation and a video I made explaining how I trade with Peace of Mind.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Day Trade or Swing Trade? Progression of a Play
July 26, 2011 at 11:21 am
One of the things I’m asked about quite often is how I decide my timeframe for a good setup. Will it be a day trade or a swing trade?
That’s a great question, and it took me a long time to figure that out. I go in-depth in the Advanced Trading Course at TheStockBanditUniversity.com to explain it fully, but one component in the decision is the pattern quality. That’s going to encompass the risk associated with the trade, which means entries and exits are more defined by a cleaner, mature pattern vs. one which is simply building.
So rather than just talk about it, I wanted to show you an excellent example from last week of how a stock can go from being simply a day trade candidate to a swing trade candidate when the pattern matures.
I had run across CROX pulling back from its 7/7 high on 7/11. The uptrend was still very much intact, and this looked to be a potential dip to buy once the dip was completed. Here it was at that time:
CROX needed to be watched a little longer before a play was evident, as I wanted to be able to draw a clean trend line along the highs and then go long on a push through that trend line. Sometimes you have to wait on the market. It took a couple of days, but I finally listed it for subscribers on the night of 7/13 for a day trade the following day. It wasn’t a fully mature pattern, so I was only interested in grabbing the next pop if it occurred the next day (7/14). Here was the setup, which didn’t trigger (it stopped a few cents shy of clearing the trend line, therefore no trigger):
Despite not triggering an entry for a day trade, I kept CROX on the radar nonetheless. After two more daily bars had been painted on the chart, a cleaner trend line could be drawn, and the pullback had the appearance of greater stabilization. I then set up a swing trade since the pattern was more mature, the pivot was more evident, and a stop loss area was now well-defined. Here was the setup I posted for subscribers along with a $26.60 entry trigger price, a $25.70 stop loss (just beneath newfound support), and upside targets at $28 and $29:
From there, CROX triggered an entry on 7/18, dipped for a day on weak volume, then got back on the move. With Target 1 at $28, the stock stopped just a few cents shy of hitting that level on 7/21, creating a bearish engulfing bar. However, I stayed with the trade since volume didn’t confirm distribution, and the following day the stock blew through the $28 first target on much heavier volume.
CROX pushed all the way to Target 2, topping out exactly at $29 on Monday. That offered a nice quick 9% gain, allowing me to book a solid profit ahead of the August 1st earnings announcement (which I always avoid). Here’s a look at the final bar of my trade:
Several takeaways…
Allow setups to determine your trade timeframe. I’ve said it many times, but the smaller the pattern, the shorter the trade should last. Bigger patterns can be trusted for more, it’s just that simple. This started out as a day trade candidate but evolved into a swing trade setup after the pattern grew and matured.
Be patient as patterns build. I stalked this stock for several days before placing a trade. Waiting for stocks to “come to you” is the best way to improve your odds of success. Risk management is crucial, pattern awareness is important, and position sizing is not something to ignore. However, it all begins with making a limited-risk entry, so timing is everything. Don’t rush the process.
Monitor the volume in relation to the price action. This stock made a few moves which, based on price alone, would have made me wonder. The trigger day saw a weak finish. Four days into the trade a bearish engulfing bar could have spooked me out. But neither were confirmed by volume. Instead, I kept seeing volume expansion along with advances in price, which gave me conviction in the trade and allowed me to stick with it.
Stick with good trades and don’t get shaken out. Along with the previous point on conviction, staying with a good trade can be tough. The price action or the overall market activity can cause premature evacuation. Stick with your trade plan and what the overall trade is doing. If it pulls back but volume’s weak, stay with your existing stop. It could just be a head fake on the way to much higher prices.
Hopefully this walk-through helps you understand better how I determine my timeframe for a trade. Beyond that, this review should also give you some insights into managing trades along the way, because learning to assess how a trade is developing is a critical skill you must possess for trading success.
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
MON Day Trade Review
June 10, 2011 at 10:13 am
Lately I’ve not trusted the price action much when it comes to swing trading, and that’s largely a product of how this market has been moving. Just a couple of weeks ago we saw a late-May ramp which produced trend line breaks for several of the indexes. However, that move was quickly erased, and the market continues to correct as I type.
The sharp rally and turn-on-a-dime reversal to the downside of the past couple weeks negated most bullish patterns which were building in the charts of individual stocks, and the nonstop selloff since then has taken with it anything which looked remotely bearish. Clearly, there just hasn’t been much in the way of high-quality bases and the kinds of clean patterns I really prefer to see when swing trading.
My preference is to swing trade for overall account growth, and day trade to create cash flow. Operating on multiple timeframes allows me to not only maximize the use of my capital, but also to benefit from directional moves which don’t even have to be correlated. I may be short on a swing basis to participate in a multi-day correction, but there will be intraday bounces along the way which are worth day trading. That kind of approach works best for me, and forces me to not only stay aware of current conditions but also to keep an open mind for what could happen next.
So with little available in the way of swing setups in recent days, I’ve focused on day trading. I wanted to walk you through one of yesterday’s trades (highlighted in Wednesday’s Broadcast) and show you how finding a setup on the daily chart and then managing it via the intraday chart can benefit you.
The Setup
MON broke support in mid-May, but it proved to be a headfake and the stock turned sharply higher and tacked on a quick 10%. It pulled back early this month (along with the market), yet showed some nice relative strength by giving back only a portion of the previous move. There also was a clean descending trend line, which happened to be rather steep, marking the pace of the pullback. That offered a well-defined pivot for getting long, so I used $68.30 as my trigger for a long entry on Thursday. Here’s the setup:
The stock cleared the trend line shortly after the open on Thursday, pushing past $68.30. About an hour later, it pulled back, but held above the prior intraday low (noted below). From there, it started to creep back up, allowing me to draw a very clean uptrend line which I then used as my get-out signal. Here’s the intraday chart:
Late in the session, that uptrend line was broken to provide a technical exit and the stock slid lower into the closing bell as traders rushed to lock in profits. Here’s the chart showing the late-day break:
Takeaways from the Trade
Risk/Reward – As per my day trading strategy, my standard risk for day trades begins at 1% and is adjusted for volatility in the stock. This one required no special treatment, giving me an initial stop of 1%. As the stock trended higher in the opening hour, it made sense after a gap up open to expect that gap to hold, so I adjusted my stop to the low of the day (less than 0.5% –> even better!).
Intraday Trend – with the stock making regular higher lows intraday, it became clear that a change of that trend would warrant an exit. The emergence of a very clean uptrend line not only gave the stock a sustainable pace to rally, but also allowed for a well-defined, tight stop in case it were broken. I love finding setups on the daily chart and then trading them according to the intraday trend, and this is why.
Time of day – As the day progressed and the final hour arrived, MON made a new high by 1c as it cleared the previous high from 90 mins prior. Headfake. That break produced no follow through, which indicated that the high-level consolidation was in fact more of a battle than a rest. That alerted me to the idea of a failure at resistance, which happened soon after. The well-defined uptrend line was not far from price, so once it was broken it was clear that this was the time to ring the register and call it a trade (which traders did en masse). Grabbing a pain-free $1.60 or 2.3% isn’t bad for a few hours.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
