Archive for April, 2008
The Complete Turtle Trader
April 24, 2008 at 7:35 am
As much as I love trading, it’s no coincidence that I frequently have my nose in a trading-related book. I stay away from the how-to books these days, sticking primarily to interview-style books, conceptual trading books, or just ones which tend to tell a good story.
One benefit of writing a blog is the occasional opportunity to check out a book straight from the author, so when Michael Covel offered to send me a copy of The Complete Turtle Trader, it was an easy decision to respond with a resounding “yes.” Now, I’m ashamed to say that it has taken me some time to get to this book (my apologies, Michael!), but once I was able to start reading it, it didn’t take me long at all to finish it.
I quickly realized that The Complete Turtle Trader contained a little bit of everything I like in a trading book. There are numerous quotes from turtle traders and others surrounding the famed experiment which give portions of it an interview feel, there’s plenty of discussion on the concept of the turtle trading method and objectives, and to see the puzzle pieces get put together the way Michael did it certainly tells a good trading story!
About The Turtle Traders
The great turtle trading experiment began in 1983 when Richard Dennis and William Eckhardt decided to take a friendly wager to the next level: they recruited and trained non-traders to see if they could become successful traders using their system. People from many walks of life ultimately joined the team, and the legend began. Dennis and Eckhardt combined for quite a team, with Dennis being described as a pure trader with an incredible feel for market psychology, while Eckhardt was a mathematician who calculated the formulas behind the turtle method. Their decision to hire trainees proved to be extremely successful, and the tale has been told in various ways since then.
Reader Benefits & Impressions
As a full-time trader, I’d certainly heard of the experiment, so I was eager to see what The Complete Turtle Trader had to say. As I progressed through the book, I learned a great deal more about the entire process than I had ever realized before. Amounts made and lost, drop-outs and primadonnas, just what the turtles were doing and trading, and oddly, how much time they spent just letting their positions run.
Here are a few parts of the book which stood out to me:
* Richard Dennis, who funded the experiment, felt that money was purely a way to keep score in the game, which is likely a big part of why he was so successful – his emotions didn’t interfere with his trading process. Interestingly, Dennis was able to successfully blend his bold approach with a healthy dose of respect for the market – two traits which nearly oppose each other but offer the trader two invaluable tools for success.
* The initial training actually began with managing risk. That’s not what one might expect from this famous bet/experiment known for making huge amounts of money, and yet it supports the notion that great traders know how to lose properly.
* Aggressive trading can pay off big, but knowing when to stomp on the gas is the part that many traders miss. Covel mentions that Dennis would go big when he sensed he had an edge, implying that he not only varied his position sizing depending on conditions but also that perhaps he traded much smaller when he lacked conviction. How much difference would it make to your trading results if you hit your favorite setups hard?
* Staying in the present tense and making the best decision “now” will lead to long-term success. Eckhardt knew that how you arrived at your current situation and what you choose to do going forward were separate variables, and he wanted every trader to make the proper decision at all times based on what their rules specified. Covel mentions that Eckhardt “wanted the turtles to literally trade as though they didn’t know what their entry price was.” That speaks volumes to trading your plan and having the discipline to stick with it while ignoring your recent results.
* No guts, no glory. Those who succeeded in the program had undeniable confidence and conviction in their trades, yet balanced that perfectly with a respect for risk. At the end of the day though, the best traders were those who took every opportunity which came along to turn a profit, setting aside any concerns for failure. Courage and determination were far bigger than the rules when it came down to being successful. I’m left with the distinct impression that those who were right frequently with their trades did not make as much as those who nailed the occasional trade with size and held onto it until the trend ended. Much has been made of the Turtle Trading Rules, and yet following them was only a part of how the turtles stayed in the program. Covel states that “if they did not exhibit…a ‘walk-off home run’ mentality every day, they would fail.” Each of them had to have a huge amount of confidence and a major drive to succeed in order to prevail, yet possess the ability to keep their ego in check.
Bottom line: The Complete Turtle Trader is an excellent book which offers loads of wisdom while keeping your interest. The market requires that we’re constantly learning, and this book provided me with a few new lessons while serving to remind me of numerous other valuable trading insights.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Turtle Trader, Investing[/tags]
Good Trades vs. Good Results
April 22, 2008 at 6:24 am
What constitutes a “good trade?” Is it a profitable trade? Is it one that works quickly and provides you with a gain? Those are certainly nice!
But I’m not so sure that we can define our trades solely by our results. In fact, I’ll go ahead and say that a truly “good trade” can be declared regardless of your results – so long as certain conditions apply.
I recently had this discussion with a member over at TheStockBandit.com. A trader had commented that he was concerned about a day trade he had just made. Although he closed the position for a profit, he said “(his) only concern was (his) stop loss was greater than his profit…the risk reward wasn’t there when the trade was all over.” He followed with the question, “was it still a good trade?”
Interesting topic, to say the least! Here’s the reply I offered:
“I’d say that if before the trade you saw a risk/reward which fit your preference, that it was still a good trade. We have to roll with the punches after we are in (a trade), and sometimes we make a gain which is less than what we originally planned for. I think the measure of a good trade is whether the risk/reward was there from the beginning.”
We’ve all faced this issue as traders. We enter a trade with a certain game plan, do our best to follow it along the way, but when conditions change and we adjust, sometimes we’re left with a smaller gain than what originally would have offset the risk we took in the very beginning.
Seeing every twist and turn before they happen isn’t a requirement for good trading (fortunately!), so we don’t have to attempt to. What we have to do is evaluate the situation as it unfolds, and make the necessary adjustments to our stop loss levels or price targets, managing the trade to the best of our ability.
It’s like a pilot after takeoff, he keeps navigating toward the goal but a safe landing is of utmost importance. If that means he chooses an alternate spot to set it down, so be it. Exiting a trade at a spot not originally planned is sometimes necessary, but that doesn’t mean our choice was flawed to take the trade initially.
It’s important to remember that if the risk/reward profile of the setup was appealing from the outset, then taking the trade was the right thing to do. That means regardless of if you get stopped out for a loss or if you realize a huge gain. Taking high-quality setups with proper risk-reward profiles is at the core of how we manage our risk as traders. If you’re doing that, then you’re making good trades regardless of the results.
When it comes to results, we all want good ones and it’s important to review them from time to time and make sure we’re on track (as I’ve discussed before), so I’m certainly not diminishing the importance of that aspect.
However, making good decisions with not only which trades we choose to enter, but also taking logical steps along the way to manage each trade accordingly is what keeps us trading with a level head. So long as that’s the case, you’re protecting your objectivity and therefore able to keep making good decisions.
Trade well out there!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Stop Loss Discussion
April 20, 2008 at 1:52 pm
Thanks to Jonathan Burton of MarketWatch for including some quotes from me in today’s WSJ article on stop losses. Jonathan brings forth some interesting discussion regarding the use of stop loss orders, so be sure to check out his article.
Click to visit WSJ articleI’ve discussed the subject of using the stop loss order here before, and it’s one habit that I think is imperative for traders who care anything about consistent results and capital preservation.
Some additional comments on stops:
* A stop loss is your emergency exit, your safety net, your plan B when things don’t work out quite like you had planned.
* Even if you’ve never been taught how to set stops or an approach to determining which levels could serve as locations for your stops, choosing an arbitrary price to set your stop is better than not having one at all. Deciding on stop loss levels will largely depend on a couple of factors: the individual stock in question’s personality, and the overall market’s behavior at that time. Taking those into consideration should help you gauge an appropriate spot for an exit, which also is related to position sizing.
* Capital preservation is a priority to traders, but even longer-term investors would be better off incorporating some risk management elements into their plan. It all boils down to respecting the market and setting that ego aside. Your need to be “correct” can become costly if you allow it. So respect the market, or it will force you to respect it! We have to accept some level of risk in order to profit in the market, but even a small measure of humility should be a part of the plan because your timing may be off.
* Consider setting multiple stops for a longer-term position so that you won’t get shaken out on a small dip but at worst you’ll be reducing your position size as the stock moves against you. Your final stop would be in an area that on the chart it’s clear the entire trade has reversed course. Partial sales offer a lot of freedom, so remember that you don’t have to be “all in” or “all out” of a position. Scale out appropriately to reduce risk when you see fit.
* You don’t have to win on every trade, so look at stop loss orders as a way to protect your long term odds of success. Give yourself the best chance of profiting over time by preventing big hits to your account. You want to avoid ever going from stockholder to STUCKholder! Getting deep in the hole on any trade or investment costs you opportunity elsewhere, along with costing you your objectivity. All of us are wrong from time to time in the market, but the best traders know how to limit the damage done when they are wrong. The stop loss allows you to emulate that trait.
* Today’s commission rates are low enough that it’s sensible to use stops and then re-enter the stock later if you see fit. Stated otherwise, it’s easy to reverse that sale and quite inexpensive to do so.
* Every broker offers at least a basic stop loss order, with many brokers (including mine) now offering advanced order types which let you specify multiple conditions that must be met before your stop order gets triggered. That’s a huge tool for today’s traders and investors, so use conditional orders if they’re available to you.
The bottom line is this: small losses are the key to long-term success, whether you’re an investor or a trader. The stop loss order exists for the very purpose of limiting your “wrongs,” so use them!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Stop Loss, Investing[/tags]
Trading Video – Tips on Trading Breakouts
April 17, 2008 at 12:36 pm
Here’s another video of a trading lesson I learned in the market today.
Trading breakouts can give us some nice, quick gains if done correctly, but there’s a key element involved in consistently and successfully playing breakout setups. Today’s video discuses exactly that.
Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.
Without further delay, here’s today’s video. Enjoy the show!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]
Trading Video – Trading Price Gaps
April 15, 2008 at 1:30 pm
Here’s another video of a trading lesson I learned in the market today.
The market doesn’t always cooperate with our trading plans, and one way that it often interferes is by way of the common gap. Today’s lesson takes a look at how to deal with those price gaps. (Check out this page for more info on stock gaps.) The main idea though is to stick with your plan, so when conditions are not conducive to following your plan, it’s usually best to scratch it.
Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.
Without further delay, here’s today’s video. Enjoy the show!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]
Trading Video – Making Money from Mediocre Trades
April 7, 2008 at 4:19 pm
Here’s another video of a trading lesson I learned in the market today.
Not every trade is stellar, so naturally there are some poor and mediocre trades. Today’s lesson discusses the latter. This one has a simple solution and yet I’m surprised how so few traders actually do this.
Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.
Without further delay, here’s today’s video. Enjoy the show!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]
Trading Video – Booking Partial Profits
April 2, 2008 at 2:39 pm
Here’s another video of a trading lesson I learned in the market today.
There are always lessons being taught to us by the market…some of them are new, while others are reminders of lessons past. Every one of them are important, so let’s examine one today regarding booking partial profits.
The aim of every trader should be to minimize risk, maximize reward, and seek out every opportunity to increase the odds of success for each trade. Today’s video shows one way I do that by taking a look at a trade we initiated on Tuesday over at TheStockBandit.com.
Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.
Without further delay, here’s today’s video. Enjoy the show!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]
