It’s been one hairy market out there during the past few months.  Over that period, we’ve seen nail-biting selloffs and toe-curling rallies of tremendous proportions.  Volatility has expanded to a degree not seen in many decades as the market has grappled with big issues like failing banks, several episodes of government intervention (bailouts), a presidential election, and the prospects of a bleak business outlook for the foreseeable future.

More recently, we’ve seen the major averages settle into trading ranges spanning more than 5 weeks with support preventing downside momentum and overhead resistance keeping rallies limited.  Such conditions make for a reversal-prone market, catering nicely to those who are day trading, but requiring those who generally swing trade to remain sidelined and wait for some smoother moves to come along.

Avoid Looking For What Isn’t There

When so many cross-currents are at play, it’s easy to start including some hunches in your decision-making process.  It’s an effort made to gain an edge.  We all do it from time to time, but we’ve got to be very careful anytime we start including more than what we can see on a chart.

This is a bit of a touchy subject, because I do think that experienced traders should develop some gut feel over the years.  It can offer some needed flexibility. That I don’t have a problem with.

The trouble comes along when those opinions (or gut feel) begin to interfere with what the charts are telling you. Having a hunch is one thing, but becoming married to that hunch is a far more dangerous topic.

What we don’t want is to let a thesis we’re operating on interfere with what a stock is actually doing. Opinions can be helpful to stick with a trade, but so long as they don’t interfere with what the chart is saying they can be a help and not a hindrance.

The idea is to stick with what the chart is telling you - make decisions based on the price action when it comes to your entries and exits, even if your overall directional bias is founded on an opinion. Keep those opinions in mind, but only act on the price action!

The Wait Will Be Worth It

Here’s the thing: right now we’re range-bound.  That means we’re going nowhere fast, at least until key support or resistance gets broken - preferably, for more than a day.  So as long as we’re stuck in this trading range, it’s a time to let others formulate opinions.  If you’re trading right now, don’t wear out your welcome.  Stop out quick and book profits more aggressively when you have them.

Once the range gets broken, we should then have plenty of technical reasons to be opinionated.  Until then, they’ll simply interfere.

Trade well this week!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

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The downtrend has been absolutely brutal to those who are invested, trapping them at higher levels and removing their ability to act quickly when they see trade-worthy opportunities.  Those who have refused to take small losses or who have attempted to buy at levels they felt would be turning points have instead found themselves handcuffed by their positions.  I know because I’ve heard from them lately, and because there were times in the past when I’ve been there too.  The market-wide frustration of late which has been caused by that is enormous, and we’ve seen the effects of it by way of huge volatility and heavy selling even after a major decline.  Nobody would choose to sell after such a big slide, so those who are doing it clearly have to.

If this selloff caught you by surprise and you’ve become a stock-, er, stuckholder because of it, there are some lessons you’ll no doubt learn from this process.  Let’s take a look at a few in particular…

• Anytime you need the market to make a move in order to bail you out, you’ve gotten yourself into a tough spot.  That’s not a fun place to be, and is very much a situation worth making a continual effort to avoid.  If you’re a trader, stay a trader.  Use stops, eat losses when necessary, but don’t get stuck where you’re unable to move.
• Greed is a major root of frustration.  The greed of not taking a loss is always a major issue with those caught on the wrong side of the market.  The mentality which requires getting back to breakeven leaves so many would-be traders sitting in bad positions just wanting to not be wrong.  If instead they would focus on what could happen next, they’d be more proactive on bailing out when they know they should.
• Impatience is another source of frustration.  Those who jumped in on the long side in hopes that the market was oversold enough for a good bounce were clearly very early - repeatedly - over the past couple of months.  The desire to just get in rather than wait patiently before putting cash to work has left the capital of many would-be traders all tied up.  What began as impatience now leaves them facing greed (see previous point).

Remember, there’s tremendous freedom for those holding cash - especially right now.  Far too many traders don’t have that luxury at the moment, so if you do, congratulations.  If you don’t, then you’re going to have added incentive to move to the sidelines the next time you see a market correction starting.  When that occurs, if you’re able to stay flexible and keep trading (move to cash when necessary), you’ll recognize that there are two kinds of good markets.  The best kind of course doesn’t require higher prices for you to be able to make money.

Returning to cash offers opportunities like nothing else. Not only does it clear your head and leave you fully objective when viewing the price action, but you can sit on your hands until your favorite setups come along.  You’re able to watch the price action and move quickly when you see the need.  And most of all, you can preserve capital.

Trade well this week,

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
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Anyone who has traded for virtually any length of time is familiar with the feelings losses bring.  Frustration, irritability, and maybe even some despair if the streak has continued long enough.  But possibly even more damaging, more crippling, is the loss of confidence.

Every trader has some risk capital to be used for their trading operations, but what many often forget about is the amount of psychological capital they have.  We all begin with some amount of confidence that we can turn a profit with our trading, which of course can grow or shrink based upon our results.  And while we can locate more money to trade with (if needed), it’s not as if we can locate a fresh pool of confidence!  As a result, it becomes incredibly important to protect what confidence we do have.

Decisions, Decisions

If you’ve been struggling with your trading, you aren’t the first to feel that way, nor will you be the last. At times it almost feels like our timing could’nt be worse, and that’s just going to happen occasionally to those of us who trade. Markets are uncertain, so if there’s one thing we can count on it is being dead wrong at times.

Having said that, the one thing we CAN do is choose how we respond.  We can decide we’ll never be a success, and we’ll be correct if that is our choice.  Or, we can choose to find a way to trade profitably. There are many ways to skin the market cat, but we need only to find 1 or 2 of them to turn a profit.

Our response not only includes the attitude with which we approach trading, but also how we manage our money.  When we’re trading well, we want more at-bats.  When trading is bad, we want fewer at-bats and smaller trades even when we do play.  Backing down your trade size while waiting for clarity is your top priority when you aren’t seeing the ball well.  It’ll help to preserve your confidence and your account, making it far easier to make up lost ground in both categories once you hit your stride again.

Break the Cycle

If you’ve felt caught in a rut lately with your trading, I’d encourage you to re-assess your attitude, and base it not solely on the results you’re getting but on your entire process.

If you’re staying disciplined and taking only high-quality setups for trades, then you’re doing your part and it’s an uncooperative market (and time to back down or employ a different method).

However, if you’re pressing when you’re down and trying too hard by forcing trades to work, attempting all sorts of trades just hoping that something will hit, then you aren’t following a method that’s going to pay off or restore your confidence. Take a step back for a few days and evaluate how you trade your best and what changes you need to make right away.  And then make them.

Always Be Willing to Adjust

Trading the market isn’t easy, and it requires this ongoing assessment of ourselves and our method. When what we’re doing isn’t working, it’s time to slow down, trade smaller and less frequently, and work on getting our heads clear again.  Sometimes our problem lies in our method, other times it’s caused by our attitude or impatience.  Once that’s done, then we go back up in size and trade frequency. But it’s far too easy to let poor performance press us into more bad mistakes in an effort to make it back quickly.  And the path to good trading just isn’t found overnight.

Trade well out there!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

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It’s a fact that risk must be taken in order to profit, but our ability as traders to manage those risks is of utmost importance. Anytime those risks cannot be managed appropriately, it’s not the ideal time to be trading. That certainly describes the recent price action for those who prefer longer timeframes than a couple of hours, but the good news is that it won’t be that way forever. Further, it brings up an important question…

Are Conditions Shifting For Your Timeframe?

Fortunately, it looks like we just might be entering into a quieter time, although getting there won’t be an overnight event. Volatility has been running extremely high, and it’s finally starting to back down. That isn’t to say that uncertainty is disappearing, because this market still has much to deal with (election, earnings, economy, etc.). However, we’re likely to start seeing smaller day-to-day moves in the weeks to come as a result of the declining volatility - if it continues to decline. That will not exclude the occasional jaw-dropping rally or gut-wrenching selloff, but it should make it easier to locate better bases for trade candidates, as well as improve our ability to set prudent stops when protecting the downside.

Day Traders

If you’ve been day trading, I hope it’s been good for you lately. There has been no shortage of intraday opportunities in recent weeks, offering quite a bit for traders who have the ability to move quickly. There will continue to be good conditions for day trading going forward, so don’t turn your back on that approach even as things settle down further - it’s great to be skilled in more ways than 1. Instead, just be sure to adapt accordingly so that you aren’t overtrading or forcing the issue once volatility contracts.

Swing Traders

To those of you who are swing traders and have stood aside in cash as opposed to taking trades with elevated risk, congratulations - you’ve made a great decision. That willingness to step aside when conditions aren’t suitable for your primary trading style has kept you objective while simultaneously preventing losses while you were waiting. You’re now poised to resume your trading without any emotional baggage, unlike those who lacked patience during the past several weeks.

Whatever your trading style, it’s always important to remember that the market is perpetually in motion and conditions are always prone to changing. Stay on your toes and watch for even subtle clues that a shift might be coming - it’s a great habit to be in.

It’s time to get back to doing your homework and working the charts in search of setups. We could start to see some nice opportunities surface soon, and those who are digging diligently for them will have a definite edge in the days ahead once they arrive.

Trade well out there!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

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This is Part 5 of a series, be sure to check out Part 1, Part 2, Part 3 and Part 4 as well. New posts will be made during game days of the World Series.

Losing is Losing, Or Is It?

In baseball, there’s no official clock but there are innings and outs. That makes it simpler to gauge how many opportunities are remaining to make up runs when trailing. You’re either going to win or lose, and in the case of the latter, it doesn’t matter if it’s by one run or eight.

So it’s not surprising that late in the game, the team which is on the verge of losing is apt to taking some extraordinary risks like the squeeze play in an effort to erase the deficit. After all, if it fails, they’ll be no worse off.

However, in trading, it’s a vastly different story.

Stay Patient

Losing small is way different than losing big. Small losses can be made up quickly, forgotten fast, and put in the rearview mirror with even one or two decent winning trades. On the other hand, big losses leave lasting bruises on a trading account. They scar the ego indefinitely, and they’re sure not easy to overcome.

It’s a basic fact that you get paid for taking risks in the market - there’s no denying that. However, that doesn’t mean unnecessary risks should be taken. Whether it’s right after taking a tough loss, at the end of a poor trading day, or the last day of the month, there’s no way to justify trying to be a hero. Attempting to make up the difference with a last-minute save is often the best way to compound the problem, not solve it.

Instead, stay patient. Hit singles for satisfaction. Wait for only the highest-quality opportunities to come along. There will no doubt be many sub-par chances to put money at risk each day, but you’re going to make real progress with your trading by focusing on the best ones. It requires patience to wait for them, which isn’t always fun or glamorous. But winning is fun, and your decision to trade the best setups is going to increase the odds that you’ll be victorious.

The goal is to live to trade another day, week, or month. If your survival as a trader comes down to the outcome of just a single trade, then you’re toast - whether that’s today or some other time. Always play the game with your head on straight, and remember that losing small is far better than losing big.

Trade well out there!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

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This is Part 4 of a series, be sure to check out Part 1, Part 2, and Part 3 as well. New posts will be made during game days of the World Series.

Bring it In, Back it Up

Nearly every batter a defense faces will mean repositioning. Outfielders may shift to their left or right, or infielders may come in a little closer or play a little deeper than normal. It all depends on what they know about the guy standing at the plate. Is he explosive with the ability to send outfielders sprinting for the warning track, or is he more prone to hit an infield chopper and ground out?

As traders, we often need to make similar adjustments. It might depend on the general market conditions. Is it a quiet environment, or a volatile one with wide-ranging days? Or it may depend on the individual stock’s personality we’re considering a play in. Is it prone to trending smoothly, or does it tend to gap frequently and make holding overnight positions far more difficult?

Stay Objective

Our ability to properly assess any situation we face will make a huge impact on our ability to trade it successfully. Recognizing the conditions we’re trading in and staying disciplined enough to adjust accordingly will keep us in the game. It’ll minimize our errors, and it’ll maximize our success when we’re at our best.

They key here is to stay objective and honest about what we’re seeing. Having the presence of mind and the maturity to accept whatever that may be means keeping a level head. It means we’ll recognize volatile situations with frequent gaps and know that we need to reduce our trade size and shorten our timeframe to day trading. And if that isn’t our preferred timeframe, then we wait for that which is. At other times it means we don’t attempt to dart in and out quickly as much, instead realizing that smoother trends exist which offer us much more by way of swing trading on a multi-day basis.

So as you come across quality setups in which you’re considering making trades, remember the conditions you’re trading in and blend your style with the market’s action. Shorten or lengthen your timeframe as needed, and you’ll be far better positioned to profit from the moves.

Trade well out there!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

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This is Part 3 of a series, be sure to check out Part 1 and Part 2 as well. New posts will be made during game days of the World Series.

Lose Small

With a base runner on and a batter at the plate, one thing we’ve come to expect in baseball is the sacrifice bunt. Rather than risk hitting into a potential double-play situation, a definite option is to force a fielder’s choice with a bunt. Doing this isn’t likely to result in more than one out, and it just might advance a runner and put him into scoring position.

In the trading realm, we’re often faced with the decision of choosing between multiple trades, some of which just aren’t cutting it for us. And it doesn’t have to be multiple trades, it might be multiple trading strategies which need to be reduced. In order to make net progress, we might give up a little bit of potential with one of them in order to focus more on the one which has higher odds of growing our accounts. Eating a small loss in one trade (or strategy) for the sake of managing a better-performing trade (or strategy) is never a bad choice. We’re putting our attention on something that’s actually producing, and that’s the key.

Take One For the Team

Not every at-bat is going to be a glamorous one for the baseball players on TV, so when it’s time for the sacrifice play, it’s important to note that there’s actually some honor for the guy willing to lay one down for the better good of the team. Accepting a short-term setback in return for the longer-term health of the team (or your trading account) is wise. It keeps the ego out of the equation, which is great because we want to be in the habit of making good decisions.

So the next time you’re faced with a choice between a trade you’re hoping will work vs. a trade you already have working, be willing to cut the unproven trade first, and trust that losing small now will mean winning big later. Your career just might depend on your adopting that mentality.

Trade well out there!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

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This is Part 2 of a series and a follow-up post to Part 1. New posts will be made during game days of the World Series.

When Plan A Requires a Plan B

Every game in the World Series is headlined by the starting pitchers as they come up in the rotation. Even throughout the season, when you get tickets to a game, one of the first things to ask is “who’s on the mound?”

Whether you’re a fan or a manager, your hope is that the starter is going to have his best stuff on game night. That’s the first line of defense needed to win games, but just in case, there’s always a backup. A reliever. Someone waiting in the wings who is the Plan B just in case the starter isn’t at his best.

In trading, we always want to have a stop loss in place for our trades. That’s the defense required to limit losses so that we can profit in the long haul with the winning trades we’ll have.

What If…

There’s nothing like being able to limit your losses, so make every effort to do so. Determine where you need to be out of a position, and stick with it. But don’t be afraid to have a disaster plan in place just in case. If your position gaps through your stop, what will you do?

Determining a ‘what if’ scenario at any given time in your trading is a good practice to be in. It’s also a great reminder to size your trades accordingly, because you don’t want everything riding on any one trade - ever. The idea of doing that might be exciting if you were to be right, but that’s a 2-way street and you absolutely must limit your downside if you’re going to stay in this game and survive.

Trade well out there!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

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Trading has so many similarities to sports that I can’t help but occasionally mention it. A few years ago I did a series on Trading and Golf, which drew a number of parallels between the two endeavors. It was well-received by you as readers, so to mix things up a little for a few days I’m going to do a mini-series here on baseball and trading analogies to overlap with the World Series, which of course starts tonight.

I don’t know how many games we’ll see this Series go, but I’ll have new posts on game days right here so check back often. Now let’s get right to it with Part 1…

Think Like A Batter

Every batter in the World Series has a skill which has been acquired over time - he anticipates what pitch is coming. He’s played the game long enough, studied each pitcher extensively, and has been coached on the habits of the guy on the mound. So he knows to watch for that slider or change-up.

Now, it’s important to note that there’s a big difference between anticipating and predicting, because remember, predictions don’t do anything for us. However, anticipating makes us sharper. It forces us to watch for some specific clues, which can in turn accelerate the speed at which we’re processing information.

Wait For Your Pitch

As traders, whether we’re monitoring the overall market or a specific stock, it benefits us to anticipate what we might see next. That doesn’t mean we take action before it’s time, because like the batter, he’ll still wait for the pitch before he decides whether or not to act. What it does mean is that we are always attentive to the conditions and on the lookout for certain reactions in the market. That way, when we see them, we’re more prepared to act quickly - and speed is everything in trading (just as it is when swinging at a 90mph fastball).

So think like a batter and start to anticipate what may happen next. Then wait for your pitch before you take action. It will speed up your response when your anticipations are confirmed, but at the very least it will sharpen your attention.

Trade well out there!

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

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In the market, it’s not much different - especially right now. The indexes have been correcting sharply, and there’s certainly some fear and panic in the air. Traders attempting to call the lows are becoming casualties on a regular basis, and it’s just too bad they lack the self control which could help them avoid that suffering.

When conditions get extremely volatile like they are at the moment, attempting to be first in line (buying in hopes of a turn) can be a very costly endeavor. Consider the perpetual bottom-callers within downtrends such as this. Or those who continually try to short sell the highs within uptrends, just dying to be a hero (yes, pun intended).

And it isn’t much different for those who simply allow themselves to get caught in the fray, unwilling to exit and take their medicine from a broken trade. The hope which initially grips them quickly turns to fear, paralyzing their decision-making as they watch their P&L get worse and worse.

Ouch!

Trying to call market turns can leave you strung up by your ankles like a jungle-walker caught in a booby trap. Keep your feet planted so you can keep moving, because if you get caught in a trap you can’t navigate the terrain… and that’ll mean some very bad news for your trading.

Most traders will agree that waiting for confirmation of a trend shift offers a higher-odds directional play, but there are still so many who want to time that turn and be the first one to place a trade in the new direction. Perhaps they want recognition or to feed their pride. Either way, it’s clear that profits aren’t what is driving their decision-making. And isn’t that why we trade?

So the next time you’re tempted to call a top or bottom, remember just how easy it is to encounter serious pain if your timing is off. Avoid getting strung up by an ankle! Have the maturity and the patience to wait for some confirmation of a higher low or a follow-through rally after a relief bounce. Doing so will allow you to continue walking through this jungle called the market in search of profits. Because truthfully, first in line just isn’t all it’s cracked up to be.

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

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