Archive for September, 2008
Beware of Traps!
September 9, 2008 at 6:45 am
A relative of mine runs a ranch and occasionally has to capture animals which don’t belong there. So in order to rid the place of persistent pests, he sets out traps with intriguing lures. Most of the time, the offending critter simply can’t resist what appears to be a risk-free, tasty meal, and they fall for it – to their demise.
Some things just look too good to be true, and at times in the market that’s certainly the case.
Watch Where You Step
Take Monday’s huge gap higher, for example. Overnight news related to one of the biggest problems this market has faced (housing and foreclosures) produced some early fireworks as shorts ran for cover and many traders on the sidelines reacted to hopes that a significant turning point had finally arrived. However, the session highs were set in the opening minutes and before the morning was over, the bulk of those gains had been erased – trapping all who bought into the hype as prices rapidly returned to much lower levels.
Few stop to consider the psychology at work in the market, on both sides, leaving them vulnerable to become victims of such traps. The news isn’t everything, so the failure to recognize that it’s how the market responds and adjusts to that news can invite some significant pain. After all, even good news which isn’t good enough can bring about selling.
An overnight gift in the form of a gap like we saw Monday can also invite heavy selling, as can a timid breakout. Also, if you determine that the easy money has been made in the short-term, then you’re staring right in the face of a possible reversal situation.
Look At Every Angle
Remember, the market is a forward-looking mechanism, so whenever the majority has already benefited from a move, there’s not enough power to push stocks much further. As a result, stocks can easily head the other direction…usually quite fast!
Bulls and bears alike get trapped on occasion in the market, and every time it happens emotions are sure to run high. It’s obvious that pain is in store for one camp while profits are banked for the other, so in order to place yourself in the right camp you must learn to recognize situations which have potential for big short-term reversals. Developing that skill will help you avoid falling victim to these traps.
So whether you’re eyeing new entries or evaluating current positions after some big overnight news, always consider the flip side of the trade and what your opponents are thinking. If you sense their case is better than the arguments you might pose, then there’s no reason to put yourself in harm’s way for getting trapped. Back down or pass up the trade completely – that way you can still roam freely. 😉
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 September 7, 2008
September 7, 2008 at 3:07 pm
The post-Labor Day volume kicked in last week as we had hoped, and we saw a big jump in volatility along with it. The major averages made some big moves, and fortunately for us, it looks like it’ll continue to be a trader’s market for the foreseeable future.
But what happens next? What levels will be important in the coming week? What factors could be at play?
Before you start making trades this week, be 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 in the coming days.
(Click image to view video)
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]
Hit Singles for Satisfaction
September 4, 2008 at 7:10 am
The allure of swinging for the fence is common in the trading world, and it appeals to each of us from time to time. However, that sure doesn’t mean it’s the thing to aim for in our trading from week to week or month to month.
Rather than gunning for home runs at every at-bat, I’m content to hit singles, knowing that getting on base is the biggest key in this game. There are a few advantages and motivating factors to this mentality, so let’s take a quick look at them.
- I do my best to avoid the “I don’t want to miss anything” mindset of a longer-term position trader by placing zero pressure on myself to participate in every move that comes along. For me, good trading doesn’t require that I catch the entire trend.
- I don’t enjoy letting good profits evaporate, so I’d rather Take the Money & Run and ring the register in most cases. I might miss out on the occasional double or triple, but I’ve found that when strong trends are present, multiple entries will set up along the way. That enables me to trade the same stock a few times profitably even if I don’t sit in for the entire move.
- I feel no obligation to stay with a position for the long haul. Ideally, I’m participating in the best portions of the move while having either zero risk (cash) or limited risk (tight stop) during those times when a rest phase or pullback comes along.
- For most of my swing trades, I tend to set an entry, stop, and usually 2 profit targets. That lets me book some gains along the way to ring the register while staying on for a continued move should it come. It also helps me offset the urge to take a good trade off the table, so partial sales are definitely helpful for leaving on less and less exposure particularly when a move begins to get a bit extended.
You don’t have to be a hero every day with your trading, so take some heat off yourself and do what you can to get on base. There are a lot of Hall-of-Fame members who weren’t big-time sluggers.
Aim for consistent success in your trading – you don’t have to trade big to find it. Patient progress goes a long way not only for your account, but also for your emotional stability along the way.
Plus, those base hits add up quite nicely.
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]
Quick-Hit Trading
September 2, 2008 at 7:18 am
Say a friend offered to give you a penny today and then double the money every day for a month. “Gee, thanks” you might say, expecting that to add up to maybe $25 or so.
But that response would make you rather ungrateful considering that you’re looking at more than $10,737,418 by the end of that month. You have a better friend than you thought! As Gary B. Smith once noted, constantly compounding money can bring truly amazing results.
I’m a short-term trader, and I don’t at all mind getting into and out of most positions over the course of just a few days. As a result, it’s only natural that Bandit is the word I use to describe my style. Rather than let long-term themes try to develop, I’m far more interested in compounding my money at a faster rate, making sure it’s doing its job whenever I put it to work. I love to catch the quick-hit moves.
Short or Long (Term)?
My swing trading approach necessitates that I use pretty tight stops to keep my risk in check at all times, so it’s typical that I’m shooting for moves more like 10% than 50 in my trades. I also scale the risk side properly as well, limiting losses on average to 3-4%, as opposed to the 15-25% a longer-term trader might allow.
A true hands-off trend follower might be looking to call the top or the bottom in the overall market or a given sector, but they’re also going to have to endure some difficult times along the way. Whenever their trades go stagnant, they stay with them in hopes they’ll get back on the move. Painful pullbacks and drawdowns must all be endured for the purpose of letting a larger move unfold, and those can often be of the gut-wrenching variety!
Some very successful traders have been longer-term trend followers, and I won’t argue with some of the advantages of that approach. It just isn’t best for me.
Get In, Get Out, Getaway
I don’t mind booking smaller but more frequent gains over the course of a few days. Quick money is fine with me – it adds up more rapidly and I rarely have the patience of a Turtle to stay long or short a stock for more than about 2-3 weeks. I want my money turning over more rapidly, so the tighter stops and narrower targets I tend to use help me to accomplish that.
As traders, every one of us must determine what we want out of the market, and then employ the best approach to get there. Take a closer look at your trading and consider what you want out of it. Consider the holding periods which suit you best – that’s how you’ll know the kind of trading style you ought to have.
From there, continually look to improve your approach over time, getting more and more efficient with your timing, entries and exits. Evaluating your trading for the sake of growth will pay off big, because even the occasional minor change can make a big difference. Review your results regularly, and you’ll start to make out like a Bandit!
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 September 1, 2008
September 1, 2008 at 12:18 pm
Now that Labor Day is going to be behind us, the moment of truth arrives for this market. Specifically, can volume finally perk back up to respectable levels?
We’re probably going to need it if we want to get out of these trading ranges in the major indexes, but historically we do see volume begin to pick back up post-Labor Day, so the odds are in our favor.
Before you get active this week, be 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.
(Click image to view video)
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]
