Blending Trading Plans & Flexibility
August 6, 2008 at 11:49 am
In my previous post, I discussed the biggest enemy of traders. Among other things, I mentioned “formulating a flexible but well-defined trading plan.” Let’s unpack the ‘flexible’ portion of that comment today.
Sidestep Risk & Stupidity
If I plan to stop out of a long position in XYZ below $25, and the stock falls through that level and I hang on in hopes of a recovery, I’m not being flexible – I’m being stupid.
However, let’s say news surfaces from XYZ that they’ve modified their earnings announcement date to tomorrow afternoon as opposed to a week from now as had been planned. For me to be flexible means I roll with the punches and modify an exit strategy accordingly so that I’m not holding the stock when that major news is announced (as per my Trading Rules).
See the difference? Flexibility is crucial in today’s environment, but it must be implemented with some discretion.
‘Outline’ Your Plan
How about another comparison? What if we thought of a trading plan in the way a public speaker uses an outline. The speaker knows what he needs to say and when to say it, but just in case he gets distracted he’s got an outline right in front of him to bring him back on course at a glance without missing a beat.
Similarly, a good trading plan lets us know at any point in time what move we need to be making – whether entering a position, standing pat on an existing trade, or closing out a position at an appropriate level. At times we’ll be distracted by the price action, so the trading plan prevents us from becoming panic-prone.
The ability to pair flexibility with that trading plan comes with experience, but it does come. Just as a polished speaker can read his audience and recognize when certain topics may need additional time and attention based on the response (or lack of) of his listeners, an experienced trader can read his position and gather some feedback from it in order to determine when stop or target levels may need to be modified. But just as a first-time public speaker should stick with his outline, new traders should stick with their game plan.
Cater to Your Account, Not Your Feelings
Many traders think of a trading plan as something which is too rigid to allow for modifications which might be warranted, but that simply isn’t the case. A trading plan should be implemented to benefit you. Only allow it to hinder your poor habits. If you find yourself in a situation where it isn’t accomplishing that, or if the landscape has changed in a way that your original plan did not account for, then don’t think twice about making an adjustment.
The key is that you don’t want to go about making changes in order to accommodate your feelings. Because remember, great traders control emotion by trading without it. So get a grip and utilize your trading plan purely for functional reasons.
As you begin to gather the experience which builds ‘gut feel,’ you’ll come to recognize situations which warrant a modification to your trading plan. But until that comes along, don’t rush it! Stick with your plan like a speaker watching his outline, knowing that it will keep you focused and on the right track.
Trade well out there!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
P.S. Have you signed up for the Free Video Newsletter yet? It’s a new feature with regularly-updated video posts which are brief but beneficial. Check it out!
The Biggest Enemy of Traders
August 4, 2008 at 7:05 am
The day stands out in my memory quite vividly, but only because it wasn’t all that long ago. I had dug myself into a hole early in the day, and while I wasn’t too deep to get out of it, I was definitely frustrated. Let’s just say the guys taking the other sides of my trades were doing alright on this particular day. 😉 I had seen no swing trading plays to initiate, and the day trades were acting fickle. Shorts would break down with no conviction and bounce immediately back up, and the only stocks showing strength were doing so on poor volume, which meant they couldn’t be trusted as buys.
I had taken several losing trades in succession, and was having a dilemma of whether to take a break, call it a day, or stay and battle it out in an effort to recover. At about that same time, a thought crossed my mind as to why I was in this position, and I recognized it instantly. I had allowed myself to fall victim to the biggest enemy of today’s traders: overtrading.
While the shorts and longs I had traded were clearly not moving with conviction, the real reason I was underwater was due to my taking trades which were merely mediocre. I wasn’t waiting for my pitch, and rarely does that kind of impatience pay off in trading.
The Temptation of Convenience
It’s so incredibly easy to do these days. In fact it’s downright convenient to buy and sell stocks. With lightning-fast executions and dirt-cheap commissions, those unplanned trades tend to come along frequently and easily if we allow them. And yet, have you ever noticed how few of those impulsive trades yield great profits?
My work ethic has never been questioned by those around me. I never want to be still, so I’m always striving to move toward some kind of goal in several areas of life. Many of us face that internal pressure to stay ‘busy,’ but let me make one very important distinction: in trading, hard work does not equate to high activity. Just because you might be busy placing continual trades doesn’t mean you’re being effective or efficient.
Exercising Some Self-Control
At times we all have to remember that there’s serious value in simply concentrating on the correct things. Believe it or not, that means there will be occasions when not trading is best! Most of the time though, it’s going to mean that we formulate a flexible but well-defined trading plan, and then stick with it. Hunt continually for the setups you love, but don’t ever lower your standards out of boredom or for the sake of activity – that’s never worth it. Discipline plays a major role, so if you don’t have it, you’re in no place to be trading until that’s under control.
As you become a better trader and gain more experience at the screens, you’ll also find ways to stay away from those market conditions which prompt you to overtrade. Keep the phone handy. Have a stack of books to browse if the market isn’t moving. Go run some errands or catch a movie.
But by all means, when your ideal conditions do emerge in the market, get busy!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Market View Video 8-3-2008
August 3, 2008 at 12:18 pm
The major averages have been bound by short-term trading ranges recently, but fortunately for us as traders, that won’t always be the case! With all eyes on the FOMC this week, a potential catalyst lurks on the horizon for this market. We’re also in the midst of earnings season, so it’s certainly a time to stay sharp while waiting to see which way we go next.
Before you go pushing buttons this week, make sure to check out this week’s Market View video over at the main site for a closer look at the averages and some things to consider if you’re trading.
Trade well this week!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Day Trading Community Loses Pioneer Harvey Houtkin
July 31, 2008 at 11:40 am
Harvey Houtkin, a.k.a., “the father of day trading” has died at 59. The original SOES Bandit was a controversial figure on the Street, but like him or not, it is undeniable that the man paved some early roads for early day traders which ultimately brought us to where we are today.
Some may argue that Wall Street was years ago destined to become more self-directed with the internet gaining popularity and online brokerages coming available, but Houtkin is credited with discovering some of the earliest methods which scalpers used to turn quick profits in the markets via the NASDAQ’s Small Order Execution System (SOES).
Harvey Houtkin was one who helped make the term ‘direct access’ an everyday phrase for those involved in the markets. He also undoubtedly helped start the shift in the commission structure which Wall Street used to utilize. Can you imagine having to phone your broker today to jump in and out of some biotechs, and pay $1 per share in commissions? Ouch – no thanks!
He was a pioneer who started a revolution, and as a Bandit myself I am sure glad he shared his methods with the world and got people thinking in a different way about trading the markets.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Discipline is a Habit
July 30, 2008 at 7:47 am
Discipline means being willing to wait. Wait for your setup. Wait for choppy conditions to pass. Wait to increase your trade size until your recent results warrant it. Trading requires that ability from us, and if we don’t have it… well, the market will teach it to us!
As traders, we have to let conditions emerge which are most favorable for our trading. Our failure to do that can result in numerous outcomes, none of which are good!
Discipline means we close out a trade when our line in the sand is crossed, but it also means we stick with a winning trade while waiting for the move to develop. It means we don’t get bored out of trades – we stick with our game plan and avoid micro-managing positions.
But there’s one thing about discipline which few stop to recognize: it’s a habit.
Decisions, Decisions
That word, habit, has several connotations. There are good habits, such as trading responsibly or brushing your teeth before bedtime 😉 . And there are also bad habits, like losing control of your trading or biting your nails. So while “good” and “bad” might be relative phrases, it’s important to note that both of them are cultivated over time to become second-nature.
If given the choice, who would take bad habits over good when it comes to your trading? Nobody, right? Well here’s the thing: you do have a choice. You’re reinforcing some kind of habits every day – but which kind?
Look Both Ways Before Crossing ‘The Street’
This market has been a little wild lately, and while some traders love the chaos, others may not find it ideal. Whichever group you fall into, be honest about it with yourself. If you fall into the latter category (not lovin’ it), this is for you!
Many of us want to push buttons all the time and live up to our “active trader” reputation, but that’s not always good. If you’re struggling to find your way in this tape, be willing to take a wait-and-see approach…there’s nothing wrong with that. It’s far better than just making trades to see what happens, that is for sure.
The Road to Recovery
Making discipline a habit means a willingness to do the hard thing when you need to because you know it’s right. In your personal life that may mean diet, exercise, and just taking care of things which need doing even though they are no fun!
And while those kinds of things may be purely personal (not trading), you’d better believe they will carry over into other areas of your life – like trading. Remember, discipline is a habit. So start making it a habit in all that you do.
Begin with a little discipline and keep building on it. There’s momentum there. As habits start to take hold, you’ll find that your discipline improves in your trading, allowing you to better follow your intended game plan without having that internal struggle as often as you used to.
Staying disciplined might not ever become easy, but that just reiterates the fact that it’s worthwhile. Making the choice to be disciplined in every aspect of our lives will definitely carry over into trading, making you a better protector of your capital when you’re wrong and a more profitable trader when you’re right.
Now that’s one habit with some appeal!
Trade well today,
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Earnings Expectations vs. Trader Expectations
July 28, 2008 at 11:55 pm
Around earnings time, the word “expectation” brings a dual meaning. There’s the Street’s “expectation” for EPS and other estimates on what the fundamental news will be when companies report, but there’s also the expectation of traders.
I put together a video for Free Newsletter subscribers over at TheStockBandit.com discussing this very topic (which will go out mid-day Tuesday), and in it I take a look at an excellent example of how those 2 kinds of expectations can collide – and which one typically wins out.
If you aren’t on the free newsletter mailing list, sign up here and you’ll have access to these kinds of videos whenever they are produced. But you gotta be on the list to get ’em!
Trade well out there!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Market View Video 7-28-2008
July 28, 2008 at 6:30 am
We’ve seen a nice rally unfold since the July 15th low, and now the million-dollar question is, “does it continue?”
There’s certainly room for further upside, and yet last Thursday’s decline serves as a nice reminder that even if we do climb higher it won’t happen in a straight line. Can you say trader’s market? That’s what we’re in, so stay on your toes out there because there will be some good opportunities.
Before you go pushing buttons this week, make sure to check out this week’s Market View video over at the main site for a closer look at the averages and some things to consider if you’re trading.
Trade well this week!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
