Archive for July, 2007
Showdown Shaping Up
July 29, 2007 at 7:38 pm
The bulls took another beating last week as they shed between 4 and 7% in the major averages. This puts the sellers in the driver’s seat right now, which means the bears are licking their chops. On the other hand, the bulls have their backs against the wall for the first time since the late-February tank-job, so they have their work cut out for them if they want to regain their edge. It should be quite a showdown if the buyers look to take a stand, as emotions are running high and bears are feeling good for the first time in a while.
It’s a tough time to initiate new shorts after last week’s carnage, but a relief rally could be a short-lived event if bulls become sellers at higher levels. Be sure to check out this week’s Market View page over at TheStockBandit.com before you start your trading week for a closer look at the indexes along with more of my comments. We moved to cash last Tuesday morning to let the market correct without us, but once the volatility settles down a bit in the coming days we’ll be looking to catch some great opportunities.
Trade well this week and stick to your plan!
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]
Trading Discipline
July 26, 2007 at 10:59 am
There’s a lot of talk about the D-word when it comes to trading, but what does it mean to put it into practice?
We all know that disciplined eaters are usually slim and trim. Everyone knows that disciplined savers don’t fret about retirement. And traders should know that disciplined traders are profitable over time.
Leave the Ego Behind
Good trading discipline means taking no action when you don’t know which action to take. Traders tied to their egos are afraid to admit when they don’t have a feel, so they keep pressing their bets, staying active and overtrading when conditions aren’t conducive to being active. They’ll trade anything that moves, just hoping to get something going and try to generate a feel for the tape.
Ironically, every good trader I’ve ever been around has been able to freely admit it when those times come along that they don’t have a feel for where things are going. They don’t let their ego drive their decisions. They keep their heads on straight and stay objective, only acting when the right conditions are present for their style. When those conditions are not present, it’s no shot to the ego to sit on their hands and remain passive. They’re in it for the money, not the thrill of the action.
Predicting is a Waste of Time
There are going to be plenty of times when you’ll be unsure of what your next move should be. Good news – that doesn’t at all have to be tied to your profitability! I have felt that way numerous times in the past week, and yet I’ve been able to make several profitable trades and grow my account during that same stretch. Predicting didn’t get me there, discipline did. Good traders know that perfection isn’t required, which means they don’t have to predict with accuracy what may happen next. Instead, it’s about selectivity and offsetting small losses with big winners.
Patience Pays
If you’re like me, you know very quickly when a setup comes along whether you like it or not. Some kinds of plays will just fit your eye, and you’ll know the timing is right to take action. Seize those moments as they come and use the opportunities to profit. BUT, when you’re not seeing the setups that just jump out at you, be willing to wait. If your watch list is providing no imminent entries even though the market may be running, sit on those hands instead of forcing trades!
Why be aggressive just for the sake of activity? I mean, I like my broker and everything, but I always want to be making more money than they are from my trades! I have no idea where this market will go tomorrow, but I know that I can still be profitable if I am disciplined. Improve your odds of success by exercising good discipline, and don’t just buy something for the sake of activity….only trade when the conditions you like are present. Everything else is just noise and a chance to give back those hard-earned profits!
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Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Save Money & Confusion by Avoiding Earnings Trades
July 23, 2007 at 10:37 am
If you’re an active trader, it’s likely that you take a similar approach to me when it comes to earnings reports. Because I have no problem moving to cash quickly, I refuse to hold stocks into earnings announcements. Not only do I have no idea what the reports are going to be, I also don’t know how the market will respond once the report is out. I don’t have a crystal ball, plus the playing field isn’t level when it comes to information, which is why I’m a technical trader.
A key reason why I avoid earnings is that once an earnings report is released, the stock will almost always produce a breakaway gap after the news is out. That can shift the risk/reward profile significantly for a trade, so I tend to just let the stocks settle down later and revisit them at that point to see if a good chart pattern is developing. If it does, I will take it for a trade and manage it accordingly.
We’re right in the thick of earnings season, and it’s important to pay close attention to the calendar and know when your stock is due to report, whether it’s just a stock on your watch list or one you already hold a position in. This can save you money and confusion!
Over the weekend, a great example occurred of how watching the earnings calendar before a trade helped prevent confusion for me. I have had CALM on my radar for a few days for a potential buy, but before I actually set up my order for the stock I checked the earnings calendar first. I soon realized the report was coming out this morning in the pre-market, so I didn’t set up the trade. Here’s a look at how CALM looked prior to today:
(Click for full-size image, courtesy of TeleChart)
CALM gapped higher this morning but instantly came under pressure, falling 6.8% from its best level of the day in less than 40 minutes. Had I bought the stock, I’d have found my trade quickly underwater, which would have added some confusion on just what to do…(Wait for a rebound? Take the loss?). Here’s a look at CALM after the gap up and the way it left the daily chart looking:
(Click for full-size image, courtesy of TeleChart)
Just remember, earnings are tricky all around. Whether it’s a stock you already own or are merely considering an entry in, watch the earnings dates closely and be willing to avoid the stock around that time. There is a sea of stocks to choose from, so let the news-related excitement dwindle so that you can make a better-informed trading decision.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Round Numbers
July 18, 2007 at 10:28 am
Lots of traders (myself included) notice that stocks behave differently as they approach round numbers, like $20 for example. That’s probably due to many stops being set around those levels, both on the buy and sell side. Once a stock gets through the large buildup of orders at those whole numbers, they often see a nice pop because the resistance (of sellers, or of buyers on the downside) is now behind the stock and it’s now able to move more freely.
But have you noticed the same thing in your trading account? As your account nears a nice round number (whether it’s $10,000 or $3,000,000), do you notice some “resistance” in clearing those zones? I sure have.
Of course, once they are cleared, things seem to cruise along nicely again. The trades tend to keep producing, and the account balance climbs.
I finally realized why that is….it’s because as my account approaches a nice round number, my attention gravitates to that number rather than focusing as I should on my trades. I get to thinking about how a particular trade might impact “the number”, but that’s not what got me there to begin with.
Fortunately, my broker has a great tool which allows me to hide “the number” with a single click, and that helps a lot. It makes me turn my attention back to my open positions so that I can manage them the best way I know how. That’s what good trading is all about – managing each position well.
If you’re finding it difficult to get over the hump in your account as you reach a certain number or account highs, HIDE THE NUMBER! I’ll bet it helps you focus on your trades much better, and that alone should get you back on the right track in growing your trading account.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Just Buy Something!
July 12, 2007 at 7:42 pm
Huge up days in the market like today have amazing power. Ordinary investors love them, because everything they own goes up. Traders sometimes hate them though, because underperformance can be common.
It almost never fails that on days when the market makes a giant move, my friends or family will inquire about how great my day was. It isn’t always what they might think. Maybe you’ve had similar experiences. Some of the best days even come when “the market” does very little, which is funny. But back to the topic….
Days of big point gains leave underperforming traders feeling like they need to JUST BUY SOMETHING so that they can participate in the move. That’s not always the solution, because if you’re a disciplined trader there are certainly days when the stocks you look at for possible trades simply don’t fit your criteria. So if you happen to underperform on a day like today, consider a couple of concepts which may help you get beyond the frustration of “missing out.”
* Walk away. It’s a choice each of us have as traders. Just shut down the PC and get out of your chair. Some days you don’t have it, so don’t force it if that’s the case. Maybe it’s you, or maybe it’s the market, but either way the bottom line is you’re not making bank. Come back and fight another day.
* Trade ETF’s. Sure they move slower than many of the high-beta names you might prefer to trade, but they are a definite solution that allows you to participate directly in large market moves. You can leverage up to offset the slower percentage moves, plus they’re liquid as can be so that makes them easy to jump into and out of.
* Be confident in tomorrow. I’ve had some great days right after major market advances like today. It’s funny, but I don’t really trade the mega-cap Dow components like many of which were leaders today. I like to trade lots of secondary stocks, and on days like today those are often an afterthought. Often times the following day, the mega-caps will cool off but traders are still just as eager to buy something. They turn to the secondary stocks, and that’s when you can knock out some nice gains.
Trade well Friday and enjoy your weekend!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
I Wear T-Shirts to Work
July 10, 2007 at 10:05 am
The trading lifestyle can at times be demanding, but man…I sure love it. There are obvious perks of course, like unlimited potential income, but I also thoroughly enjoy some of the more subtle perks.
Like my wardrobe, for instance. Who am I trying to impress, seriously? I see these guys on CNBC sporting $2500 suits, but ironically their type is a dime a dozen. My label is Old Navy – don’t knock it. I’d rather have a unique t-shirt for a couple bucks than a big-name tailor for my imported silk suit. The other day I went into Chipotle wearing a t-shirt I bought off a clearance rack like 3 years ago with a faded iron-on decal of a 70’s muscle car on the front and I got a compliment! I don’t remember the last time I saw Dylan Ratigan tell a guest on the show that his pinstripes are sweet. Try to catch me on a day when I’m not in cargo shorts, I dare ya.
The speakers are usually on blast when I’m doing my “research.” I have no boss, and I get to call my own shots. I have no set hours. The smarter I work, the more I can get paid. My dog is next to my desk every day. I can make a fast food run anytime or go get a 44oz. Diet Coke whenever I need my caffeine fix. Shoes are optional!
You get the picture.
What I Get To Do
Don’t let the unusual perks fool you though, I work very hard. I’ve never been called lazy by anyone, probably because I didn’t give them a reason to. I am passionate about my work, and I thrive on the challenge of ongoing achievement. I get bored otherwise.
On an average day, you might find me performing a variety of tasks. I’m always stalking some trades, but due to the nature of the market, some days I am more market-focused than others. On those days when my trades don’t need as much babysitting, I’ll I focus more on my business and the educational side of what I do in the trading world.
My email inbox never seems to quit dinging at me, but I like it that way. Members and friends email me about the market, individual stocks or with funny stories. I feel no guilt when I take 2 minutes to laugh at an email loaded with pictures of redneck inventions. I post tons of messages on the forum in the member area of my site, interacting with traders, sharing insights and exchanging trading ideas. I tinker with software tools, write articles like this one you’re reading, and occasionally IM with trading buddies. I discuss ideas with my web developer.
And did I mention that I’m constantly on the lookout for trades? It is the trades that I’m most interested in during the course of the day since they’re at the heart of why I’m not under someone else’s employment to begin with.
Why I Do It
I’m an entrepreneur. I loathe the idea of working for someone else. I don’t want to be told what to do, so I work my tail off in order to keep working for myself. I don’t want a boss! Of course there are plenty of challenges and lean times, but it’s those times that really force me to grow. There’s something about putting your nose down and battling it out, whether it’s a stretch of tough trading or a lengthy to-do list which demands my attention. Once I get through it, I feel empowered and confident. I sleep better and walk a little taller. (But I don’t sleepwalk.)
When it comes to the main site at TheStockBandit.com, I started it as a hobby since the market closes at 3pm here in Texas, but I quickly realized how helpful it was to my routine to post my trading ideas each day, much like a journal of how I’m viewing and trading the market day after day. I also missed trading in an office full of traders with ideas flowing back and forth. After all, there are lots of lessons to be learned (and reminded of) when you’re interacting with other traders regularly. That’s the selfish part.
The unselfish part really boils down to the fact that I like to help other traders. I had a few very good traders help me out in my early days, and passing along some of the things I’ve learned is a good thing to do. I’ve written about 250 of these free articles for the same reason – to share insights. There’s some fulfillment in doing so.
Along the way, I have of course seen the opinions of some people who generally believe that newsletter writers are snake oil salesmen who don’t know how to trade and are just out for the money. People will think as they wish, but my response to it is that if you saw how little the website generated in terms of revenue back in the early days, you’d know that I wouldn’t have continued doing it if I wasn’t passionate about the underlying premise, which is helping traders. And these days I’m 100% confident that if you were to ask any of our subscribers about it that they would quickly verify that I’m in this to provide help as much as trade ideas for them. I don’t reply to the complex questions of members with 1-line emails or generic answers. I provide thorough help so that they “get it” by the end of a conversation.
I enjoy providing encouragement – we all need some from time to time, don’t we? And I know I’m helping traders when I point out blind spots to someone who’s unsure of what is plaguing them. Every one of us have blind spots, which means somebody’s gotta help us if we are to improve. That “Aha!” moment is great to experience. That’s why I camp out in our members-only forum every trading day. I like to share ideas and help traders who are seeking it. If that weren’t the case, I certainly wouldn’t devote the time I do to providing assistance, because nobody is forcing me to do it. I truly enjoy it and find it more fulfilling than just executing my own trades.
So there it is. Wonder no more about what I do or why I do it! To some, my routine would seem like total chaos. Every day is different, exciting and new (kinda like the Love Boat), but that’s exactly how I want it. I get to make decisions that impact both my personal wealth as well as the health of my business. I have flexibilities and freedoms that “regular” people don’t, and it suits me perfectly. It may not be for everyone, but I do my best to share it with others. Yes, I work hard, but it’s on my terms and that’s why I love my job.
Plus I get to wear t-shirts.
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]
Real Rally or Just Bull Ticks?
July 8, 2007 at 8:01 pm
The bulls managed a nice gain last week and they only had 70% of the usual time to accomplish it. Nonetheless, it was a solid advance with several of the indexes going 4-for-4. Impressive stuff! Of course there will be lots of skeptics who argue that the volume wasn’t good enough to justify the move, but the volume is widely expected to be light every year during the July 4th week. Not to mention that price is always far more important.
Be sure to check out this week’s Market View page over at TheStockBandit.com for a closer look at the indexes for more of my comments. And don’t forget to sign up for the the Free Trading Newsletter to catch tomorrow’s issue before you start your trading week.
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]
