All Entries in the "Trading Tips" Category
Trend Line Entries: Tilted or Flat?
April 5, 2011 at 2:00 pm
I take a lot of trend line trades, as they give me a clear indication that price is either clearing an important level, or that it’s making a meaningful turn.
Recently I was asked why some of those trend lines are flat (lateral), and others are tilted. Additionally, I was asked how I determine my entries on each. Here’s what I said:
Whenever a trend line is slanted, I go with a break of the trend line itself. In the case of a bullish trend line break (a move above a descending trend line), I’ll place a buy stop just above the line itself, perhaps only a couple of pennies above it. These tilted trend lines are themselves the resistance for a stock, so once they’re broken, the stock tends to be free to move higher.
Whenever there’s a flat trend line of support or resistance, it’s evident that price is bumping up against a key zone which remains constant. Sometimes this is at a round number, like $100, but it doesn’t have to be. The way I trade these flat trend lines is to set a buy stop 10-15 cents past the resistance zone, as that will help to confirm I’m entering upon a true breakout that’s taking place rather than a brief penetration of only 1-5 cents which could prove to be a head fake.
When you’re drawing your trend lines, consider the overall situation. Is price struggling to clear a constant level? Use a flat trend line if so. If price is simply seeing a counter-trend pullback, then the pace of the pullback is better seen with a tilted trend line .
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Reminder: Webinar Tonight!
December 7, 2010 at 2:07 pm
Here’s a quick reminder about tonight’s free trading webinar, as I would love to see you there if possible.
Update: here’s a link to the webinar recording – enjoy!
Weighing Risk & Reward with TheStockBandit
I’m excited to run through a number of interesting chart setups, from both the bullish and bearish sides, in order to teach you some concepts and of course put some quality plays on your radar.
I also plan to share with you the most powerful pattern I’ve been trading in recent weeks.
The webinar is scheduled to run 45 minutes, with 15 of those minutes set aside at the end for Q&A and a look at your favorite charts.
Visit this link for registration to the 8pm ET webinar:
Weighing Risk & Reward with TheStockBandit
See you tonight!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Webinar Tuesday December 7
December 6, 2010 at 10:38 pm
I wanted to be sure to post a quick announcement here that I’ll be presenting a Free Webinar on Tuesday (December 7th) with the folks from Worden, and I hope you can join us!
Update: here’s a link to the webinar recording – enjoy!
Weighing Risk and Reward with TheStockBandit
It’s scheduled to be a 45 minute webinar, the first 30 minutes of which I’ll be going through my watch lists, pointing out to you what I’m seeing in the charts for both the overall market and individual stocks.
There will be 15 minutes of Q&A time at the end where you might want to bring forth your favorite stock and we can take a look at those too.
I certainly do not have all the answers, but it’s going to be a chance for me to convey what I’m seeing out there and hopefully not only teach you a few things, but also put many stocks on your radar which you may find of interest.
Oh, and the best part about it is that this event will be FREE, so be sure to register at this link for details (and access to the recorded version if you can’t attend live):
Chart Reading with TheStockBandit
Remember, free webinar this Tuesday night, 45 minutes of charting reading with you and me – I can’t wait!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Options vs. Common Stock
November 17, 2010 at 11:13 am
Traders face many hard decisions every day…buy or sell, add or lighten, stand aside or get involved. Among them is the choice between trading options or common stock.
There are no doubt benefits and shortcomings of both choices, as everything literally is a trade-off.
Common is usually much more liquid, it can be traded in the after hours or premarket, and it’s by definition 100% exposure to the company. However, it is more capital-intensive since it’s not a leveraged position, which means less room for other positions in an account. Common alone is also going to carry with it greater dollar risk, as a major headline can bring tremendous gap potential.
Options are leveraged, they offer lots of versatility and possibilities (speculation, hedging, income, etc.), and they are less capital-intensive. However, liquidity is often inferior compared to common, they can’t be traded as many hours of the day as stock, and they offer only fractional exposure to the underlying stock.
The Case for Options
Options can be an excellent vehicle for trading, provided the situation is well-suited to them. The biggest 3 considerations for options are (1) the time expectation for the trade, (2) the liquidity of the options being traded, and (3) the risk involved in the trade. Let’s break those down.
Timeframe
First things first… The time you expect to be in the play is important because options will carry a bid/ask spread often times up to maybe .10-15 cents. For a stock that’s not a huge deal, but for an option which might only be trading at say $2 or lower, that’s a big percentage if you pay the spread both ways (market order getting in & out). So if you’re looking at being in a trade for at least a couple of days, that’s usually much better for an options trade than if you’re just looking to scalp it over the next half hour.
Liquidity
Second, there are quite a few stocks which have high trading volume, but for whatever reason their options are just not heavily traded. For any trade I take, whether a stock or an option, I want to feel confident there will be buyers when I go to sell, and sellers when I go to buy. Sufficient liquidity is a requirement for any trade, whether in options or common. So taking a look at the open interest, the volume, and the bid/ask spread is important in gauging the liquidity of the options. When in doubt, take a look at the highly liquid options like QQQQ, SPY, or mega-cap stocks like MSFT or INTC. That will help you get a feel for how tight the market is in the options you’re considering. You don’t ever want to be the ‘big player’ in any contract.
Risk
Third, limited risk is an advantage which options carry, such as buying put options vs. being short stock. Risk is defined with the puts, and theoretically unlimited with the short stock. Options are a great choice in particular when the stock has the potential to gap big, whether due to news coming out or simply based upon recent price history of the stock. Always consider the risk involved when weighing options vs. common, as that’s an important element of the decision-making process.
Finally, here are a few occasions to consider options rather than the common shares:
1. In front of big news (earnings, conference calls, or anything else scheduled).
2. When limited on capital (the leverage of options helps offset a limited amount of funds).
3. When the stock moves are too shaky to sit through (when a really wide stop is necessary).
4. Trade timeframe is between a couple days and a few weeks.
** If you’ve got something else to add, please share it in the comments.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Uptrend Aside, Trading Scene Set to Improve
November 1, 2010 at 10:45 am
August seems so long ago, doesn’t it? Stocks had rebounded from their July lows, briefly, and had turned back down hard for a test. The test passed, as an important higher low was established.
From there, we all know the story of how the seasonally-weak September and October stood conventional wisdom on its head to post big gains. What’s not been spoken of much, however, is the way this 2-month rally has changed in recent weeks.
What began as a rip-roaring rise ripe with short-covering has evolved into a slower, more steady uptrend channel. The pace has cooled off a bit, while still continuing to make upward progress. In fact, new intraday highs were posted multiple times last week, despite the indecision we saw between the opening and closing bells each day. Today we’re seeing more of the same, as early strength has delivered new highs while modest profit-taking has caused the indexes to back down from their best levels.
To put it another way, the “dumb money” has had great success in recent weeks. Those who waited for strength to return before becoming confident enough to join in have been fortunate enough to chase extended markets and stocks and still profit. But for those of us who prefer to see some kind of rhythm associated with market moves, it’s been a one-way street without many ways to play the long side while still protecting the downside.
Astute traders have instead found it a bit more difficult to navigate the current environment, as anyone with an ounce of discipline has felt the uneasiness of adding long-sided exposure for overnights while simultaneously recognizing the limited opportunity of trading intraday. It has left many of us to do more scalping while waiting for more lively day-to-day price action and higher-quality bases to come along. Those bases often rely on some back-and-forth price action, which we simply haven’t seen of late.
Watch The Horizon
Any trader worth his salt knows that conditions will shift. Maybe not immediately, but eventually.
That doesn’t mean prediction is necessary, because it isn’t, but it does mean staying alert.
When trading well, keep doing what works but be on the lookout for signs the setup may be changing. When trading poorly, it’s imperative to employ some other methods which are more suitable to the conditions. At the same time, hope can be had that a shake-up in the price action will bring more opportunities.
Right now, the market is in an interesting spot. The rally has brought the spring highs into play as we’re essentially testing them in this area. That’s a logical resistance area that could prompt some selling, depending upon the news flow. The uptrend channels seen in the averages could easily be penetrated to the downside, heightening concerns of whether that’s the end of the run. The other side of the coin is that the trend is still up, and no evidence has surfaced to suggest it’s changing.
So as a trader, here’s how I’m dealing with all this. The trend is up, so I’m favoring the long side while keeping timeframes short in order to offset the risk of walking the highwire here. I’m also mindful of potential shifts which could emerge anytime. We’re in the midst of earnings season, and that could easily sour the mood. We have the November elections tomorrow and the political implications of that, which is a major event. And then mid-week we have the FOMC, and with all eyes on the economy, the attention of traders will definitely be on Wednesday’s announcement and policy statement.
We could ramp from here and take out the spring highs before a pullback begins. It’s possible. We could break the uptrend channels and see some selling accelerate as traders recognize the trend line break and move quickly to lock in profits. Several scenarios are possible, and it’s important to keep an open mind here for that very reason.
I will say this: I’m expecting volatility to pick up sooner than later, and that means more opportunities for trading multiple timeframes. That’s where the real money is made, as you can have capital working for multi-day moves while still maneuvering to catch intraday moves for profits. Look alive out there, this is no time to get lulled to sleep.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Something Special in GSM
October 29, 2010 at 11:38 am
Globe Specialty Metals has shown some special characteristics in the past 2 months (pardon the pun), and it may not be done yet.
Yahoo! Finance is showing an earnings reporting date of November 8, and that event could certainly prove meaningful – one way or the other. However, as a technical trader, I’m only interested in avoiding the stock on that date given the impact which such major fundamental news can have on a stock. This may not be a long-haul type of stock anyway, but with the price action of the past several weeks it deserves to be on the radar for a possible trade.
Watching for Movement
GSM is acting quite well from a technical standpoint. First, the stock has rallied big over the past two months, adding more than 50% to its value during that stretch. Second, and perhaps more importantly, it has put in some well-deserved and needed rest over the past two weeks, pulling back quietly and churning to digest its recent run.
That dip has allowed weak holders to dump shares while others have stepped in with bids to offer support. Shallow pullbacks and coiling price action also prevents the stock from becoming too extended to the upside. Momentum is good until it gets out of hand, at which point pullbacks tend to become all-out reversals. Healthy trends need rest, and this one is doing just that.
I’m looking at this one for a trade on the long side if it’s able to break out through the trend line at $15.50, and would expect a quick push up to new highs. I’ll of course look to be out of it ahead of the earnings report, as holding anything into such news is merely a gamble. On a technical basis, support has been found in the $14.50 area, and we could see momentum return if the trend line gets cleared.
Here’s a closer look at the chart of GSM for you:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Narrow Your Scope With Basic Stock Filters
October 27, 2010 at 11:09 am
Each night I work through literally hundreds of charts, aiming to find those setups with an edge. They’re the ones which allow me to not only clearly define my risks, but also offer potential profits which greatly outweigh those initial risks.
I’m asked quite frequently by traders how I narrow down the universe of stocks to a more manageable list. The short answer is to start with price and volume filters in order to eliminate the low-dollar stocks, as well as those with poor liquidity. That alone will give you stocks to consider which aren’t as highly-speculative as penny stocks, as well as stocks which are liquid enough that there should be a buyer when you go to sell and a seller when you go to buy.
Beyond those basic filters though, you may still wish to narrow the list. In the charting program I use, dozens and dozens of additional filters are available. Among them are things such as Beta, Trade Range, Average True Range, Expanding Trade Range, Contracting Trade Range, and a lot more.
Just that brief list is enough to help locate stocks which move faster than the broad market, or to eliminate names which simply don’t move enough.
Base Filters on Broad Market Movement
When dealing with ‘trade range’ types of filters, you can accomplish a lot. For example, you might generally use Average True Range to knock out stocks which don’t fluctuate much, helping you to eliminate the ultra-quiet stocks. When the market is starting to break out, look for Expanding Trade Range to help you locate stocks which are likely participating in the move or gaining momentum. When the market has made a big move already and is beginning to rest, use Contracting Trade Range to locate more stocks which are basing and may be starting to create patterns.
Don’t seek a one-size-fits-all filter, because it doesn’t exist. Keep an open mind, and put some thought into what it is you’re wanting to find. Stay flexible in your approach, and you’ll continually be able to avoid wasting time sifting through stocks which aren’t worth a second look.
The key to effective filtering is to learn over time how and when to vary the filter you’re using based on general market conditions. As you develop that skill, you’ll get really efficient at narrowing down the universe of stocks to a more manageable, appropriate list, depending upon whatever conditions you find yourself trading in.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
