Archive for April, 2007
Day Trading: When to Take Profit
April 19, 2007 at 8:00 am
Day trading candidates are often listed in the Bandit Broadcast stock newsletter for the more active traders at TheStockBandit.com, offering some additional opportunities to grab some gains on an intraday basis. With earnings season underway, we’re still swing trading some, but right now is a good time to shorten timeframes a bit until the scheduled news passes.
While most day traders pay close attention to the price action, one of the most important indicators for short-term momentum can be found in the volume levels, particularly in relative volume. I keep a close eye on relative volume via Trade-Ideas Pro, a real-time scanner. Relative volume is the comparison between current volume levels in a stock and what the volume levels typically are for the same time of day. So for example, if XYZ is hitting highs on 2x relative volume, it is seeing twice the volume today as it typically sees for this exact time of day.
On Monday night, GROW was provided for our members as a day trade candidate in the Bandit Broadcast with a $31.50 buy point. The stock had pulled back slightly on the daily chart, but the pattern wasn’t quite clean enough to warrant a swing entry. There was a small descending trend line just overhead which was acting as resistance, and a push up through that level ($31.50) was likely to generate a quick pop to the upside. Here’s the original chart that was shown with the trade:
(Click for full size.) Chart Courtesy of TeleChart.
On Tuesday, GROW cleared the $31.50 buy point not long after the market opened, and quickly shot higher as momentum players jumped into the stock. However, the relative volume was only running right at 1 in my Trade-Ideas filter, which meant it was merely average volume. With the stock up $1.20 past my buy point (a 3.8% move) in less than 45 minutes, I decided it was time to ring the register. I posted my exit on the Bandit Bulletin trading blog for members, and moved to the sidelines with a nice chunk of change. The comment I made at the time of my exit was that it was “too good of a move not to book when volume is only average.”
That proved to be true, and I was relieved to have pocketed the profits as the day progressed, with GROW slowly fading all the way back to the trend line area by the end of the day. Timing really is everything in trading. Here’s a look at the intraday chart which shows all of Tuesday’s trading, including the gradual slide back down after our exit:
(Click for full size.) Chart Courtesy of TeleChart.
Sometimes the simplest things can be the most beneficial to watch. Trade-Ideas offers some amazing tools for day traders, and yet I seem to find ample value in the Relative Volume feature (they have several new features in the works as well). So the next time you’re catching a nice move in a short-term trade, be sure the volume is strong enough to support it. If it isn’t, you’re probably looking at the perfect time to book that gain and move back to the sidelines.
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, Trade-Ideas[/tags]
Beware The Mid-Day Mess
April 18, 2007 at 1:23 pm
Experienced traders know that a huge amount of the volume on a given trading day is seen in the first hour and the final hour. This isn’t too surprising, especially considering the buildup of buy and sell orders which start to pile up after the market closes and continues through the night and into the morning ahead of the opening bell. Some even refer to it as “amateur hour” while these orders get flushed out. And if the old adage is true that “professionals close the market,” then it makes equal sense that the latter portion of the day also sees a flurry of activity with institutional money making moves ahead of the closing bell.
Dr. Brett put up an interesting post today which reminded me of this topic, and although he is referring to e-mini S&P futures (ES), the early and late-day volume surges are common across the board in the market.
Clearly the most liquid times of the day come early and late, which means there’s ample opportunity for traders to get hurt during the mid-day mess. The smile-pattern that Brett refers to leaves a lull during the central portion of the day, which is worth commenting on. Not only does the lack of volume make it easier for a big player to push things around, but it also is frequently characterized by choppy trading and narrow ranges. That makes it extra tough to initiate new positions and find traction, so if you choose to stay active in the middle of the day, keep a couple of things in mind. Be sure that if you’re initiating trades during the mid-day lull that your timeframe is a bit longer than just a couple of hours, or that the relative volume is strong enough in the issue you’re watching that the mid-day mess won’t take away your smile!
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, Brett Steenbarger[/tags]
Honor Thy Stop
April 17, 2007 at 11:57 am
There are a handful of trading books which I have read many times and keep returning to on occasion, including Reminiscences of a Stock Operator, and the Market Wizards series by Jack Schwager. I would also recommend one other book which is written by a Market Wizard, Marty Schwartz, which is called Pit Bull.
Schwartz writes candidly about his history as a trader, including the struggles he went through for many years before becoming one of the biggest and most successful S&P 500 futures traders that has been seen. One portion of Pit Bull is called “Honor Thy Stop,” and it contains some excellent thoughts regarding the use of these safety nets in trading. Here are several of his comments on the topic of stopping out of trades. I found these very useful, so you might relate to them as well. I have a few comments thrown in there too:
“You’re the only one who’s emotionally involved in your position.”
How true! The market really doesn’t care about what we’re feeling, which is all the more reason to approach trades with more logic than emotion.
“Taking a loss is hard to do because it’s an admission that you’ve been wrong. But in the market, being wrong some of the time is part of the game.”
It’s how we manage our wrong trades that will keep us on track.
“That’s the problem with amateurs, they only have half a plan, the easy half. They know how much of a profit they’re willing to take, but they don’t have the foggiest idea how much they’re willing to lose……Their plan for a position that goes south is, “Please God, let me out of this and I’ll never do it again,” but that’s (false), because if by chance the position turns around, they’ll soon forget about God. They’ll go back to thinking that they’re geniuses…”
It is amazing how being on the wrong side makes us repent for all of our trading mistakes, but when we’re right we want all the credit.
“What most people fail to realize is that while you’re losing your money, you’re also losing your objectivity. The market…..doesn’t care about you. That’s why you have to put aside your ego and get out.”
“…a stop is an investment in self-preservation because if you’re wrong, it saves you those extra dollars that you’d lose by hanging on to a losing position. It keeps you from digging the hole deeper and it makes it easier for you to climb back out.”
This is a great way to view the use of stops. They are safety nets for our well-being as traders, so why not use them.
“The more you lose in a trade, the less objective you become. EXITING A LOSING TRADE QUICKLY CLEARS YOUR HEAD AND RESTORES YOUR OBJECTIVITY….. By preserving your capital through the use of a stop, you make it possible to wait patiently for a high-probability trade with a low-risk entry point.”
Of course the market is always there to remind us, but it’s still good to have Schwartz’s input on the subject to remind us that a big part of what made him great was his ability to contain losses when they occurred. In fact, Schwartz even states in the book, “I can tell you how I became a winner – I learned how to lose.”
So the next time you’re faced with the opportunity to honor thy stop, remember the success of Schwartz and know that while you’re admitting defeat on that one trade, you’re simultaneously adding objectivity to your next entry.
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]
What to Avoid During Earnings Season
April 16, 2007 at 5:17 pm
This week’s Free Newsletter over at TheStockBandit.com discusses the topic of how What to Avoid During Earnings Season.
With the allure of big gaps in price following news, many traders have the urge to game earnings announcements in hopes of a quick score. However, it rarely works out though for those without an edge. So for a few ideas and thoughts on what to avoid as earnings season gets underway this week, stop by and check it out.
By the way, you can sign up for the free newsletter on the Free Newsletter page at TheStockBandit.com and we’ll notify you every time one is published. An opt-in form is provided at the top of the page which puts you in full control of your email subscription at all times.
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]
A Critical Juncture for the Market
April 15, 2007 at 6:04 pm
The market’s getting close to a critical juncture here with the late-February gap zone now getting tested and the 52-week highs in the major indexes not far overhead.
Will this be the week that things get moving in a quicker fashion? Will the rising wedge patterns be confirmed or negated? Can the indexes reclaim new recovery highs since the bear market ended in 2002, or will the bulls have to wait a little longer?
With earnings season really getting underway this week, it should be interesting to say the least! The technical situation is shaping up for a pretty good battle here, and it might happen sooner than later. Check out this week’s Market View page over at TheStockBandit.com for a rundown of the indexes as they currently stand.
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]
One Year Ago This Week – April 2006
April 14, 2007 at 4:56 pm
Here’s a handful of posts in case you missed them from one year ago this week:
Don’t say these 5 Expensive Words! They rarely pay off, and yet we’ve all said them at times…
Is it time to Check Your Rolex? Deciding which kind of trader you should be depends on your timeframe as much as it does your personality.
At TheStockBandit.com, we’re still honored to have Received This Award. While S&C magazine will not award it twice to the same service, it was sure nice to be recognized as the #1 Advisory Service by a leading publication.
Enjoy your weekend!
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]
Recovering From Losing Trades
April 13, 2007 at 10:02 am
As traders, we all go through stretches which are not-so-fun! But as they say in other realms of life, it’s not how you fall down that counts – it’s how you get back up.
One of my biggest losing trades came in EPIC a few years ago. The stock had some good momentum and lots of activity one particular day, so I bought some for a day trade. I went pretty big to begin with, and the more I watched it the more I liked it. It was moving my direction and I was feeling pretty good, so I added some more. Well, out of nowhere about an hour after my entry the thing went into freefall. Too late to check the news, the damage had been done!
I decided not to panic, and I also decided not to add….2 things I’m very glad about. Anyway, the downside slowed and the stock bounced back slightly, but I still closed it out for what was a big loss to me at the time. I went home that day from the trading office pretty disappointed that the previous couple of weeks’ gains had been wiped away with that one loss. It bruised my ego, dinged my account, and most importantly, it confused me.
Choosing How to Respond
As traders, we can’t control the news flow or what happens to the stocks we’re trading – only how we respond to it. I had gotten into a trade in size which I was confident in, and I got blindsided by an avalanche of selling. Sometimes it’s a headline, sometimes it’s a downgrade or a warning, but it’ll happen from time to time if you trade long enough.
Using Pain As A Positive
After mulling it over for the evening, I finally decided it was an isolated event and out of my control. I also decided the next day to pick up where I had left off 2 days ahead…making money. By the end of that month I had recovered fully and put my account back to new highs, which put my confidence even higher. What had felt like a major negative in the short term, ultimately turned into a great positive and a source of strength going forward. I became a better trader because of it.
So the next time you take a hit that isn’t the result of a poor decision or blowing your stop, don’t freak out. Don’t add just because you’re down. And don’t decide you’re a bad trader! DO look for a good spot to exit, take your medicine and clear your screen. It’ll help you clear your head, and you can come back when you’re ready to resume with the right mentality.
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]
