Archive for October, 2008

4 Trading Goals You Can Set Right Now

October 14, 2008 at 9:20 am

Goals are huge. They motivate you to get to another level, providing both incentive along the way and some satisfaction once achieved. I’ve spoken of them a few times here on the blog, but felt that a little more elaboration might be in order.

So today I want to cover 4 specific trading goals you can set that you might not already have. My purpose isn’t to tell you how high you should aim – only you can determine that, but rather to point you toward a few more concepts which could aid your trading process. Here we go…

1. Make ‘X’ Intuitive Trades Per Month.

Not everyone is systematic enough in their approach that they can automate their trading, and that’s perfectly alright. From time to time, any experienced trader (those using automation included) should allow gut feel to play a role in the decision-making process. Those of us who are purely discretionary traders aren’t strangers to acting on intuition, even if we go about it in a very methodical way.

Have you ever sensed an opportunity right in front of you, only to talk yourself out of it, thereby shutting down that gut feel which you’ve acquired through years of trading?

Well, what if you decided to make a handful of trades each month, in very small size, allowing yourself to capture a select few of those opportunities? As long as your risk remains defined, it just might help you to think outside the box a little and add some trades to your repertoire. Sticking with your game plan is a good thing, and I’m not suggesting frequent deviation from it. However, allowing a handful of ‘intuitive’ trades can add to your bottom line and enable some of that gut feel to assist in your overall profitability.

Consider making a defined number of “feel” trades next month – you might find yourself catching a few trades you may have otherwise missed out on. It’ll put your feel to the test, and provide you with yet another way to satisfy your craving for risk.

2. Set Your Max Loss Per Trade Weekly.

This is something every trader should be in the habit of doing on a regular basis. As account equity changes over time, so should the amounts that you’re risking per trade. Although you might select a constant value like R, it will still translate into different dollar amounts as your account levels change.

Making sure to update your thresholds either on the weekend or on Monday morning is the best way to stay on top of it. Doing so will ensure that you protect the downside during a tough stretch (as the R dollar-equivalent is reduced), while also maximizing profitability during good stretches of trading (as the R dollar-equivalent increases). The point is to trade smaller when doing poorly, and trade larger when doing well.

3. Consider Your ‘Options.’

Maybe you really prefer to trade stocks, which I certainly relate to, and that doesn’t have to change. In fact, owning (or short selling) the actual shares offers the most liquidity for getting into and out of trades as you seek to capture moves. But every now and then there comes along that trade which seems to offer a lot of potential, and yet inherently brings with it a lot more risk than you’re willing to take.

Whenever that’s the case, look at the options. Defining your risk through the purchase of calls or puts can limit your overall exposure, and yet still offer a ton of upside if you nail the trade. And since the options will never move to the exact same extent as the underlying shares, you’ll likely be far more able to endure some dips and rips along the way which may have otherwise spooked you out of the shares had you been holding them.

Even better, options offer a ton of flexibility when it comes to how you can use them and profit. Being long or short the shares offers you 2 directional choices, but there are many option strategies which really open the doors of possibility.

4. Trade More ETF’s.

With the explosion of ETF’s in recent years, there are now a ton of ways to participate in index-related or sector-based moves. You might be eyeing a particular group of stocks (such as Energy) and believe that a move is coming, but not be able to select 1 or 2 specific plays to make. In that case, turning to the XLE or a similar ETF would enable you to put on a single trade and participate in the movement of the overall group or sector.

Or perhaps you find yourself not long enough as a market rally begins to develop. It’s an awful feeling to feel under-exposed and not have that shopping list handy with some swing trades on it! Whenever that’s the case, consider turning to a product like index-related ETF’s. There are a ton to choose from which mimic the movement of the underlying index (such as NAZ 100, DJIA, SP 500, RUT, etc.).

Even better, there are now quite a few ‘leveraged’ ETF’s which provide you with more bang for the buck and yet require less exposure on your part, such as QLD which moves 2x the pace of the NAZ 100. Hitting the offer for some shares of these will get you quickly positioned for a continued move, knowing that you’ll participate in lock-step (or 2x lock-step!) with the index you most want exposure to.

So whatever goals you’re striving to achieve through your trading, be sure to set the bar high for yourself and work as hard as possible to reach them. Just like Phelps, you’ll be glad you did!

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 October 12, 2008

October 12, 2008 at 11:14 am

Lately we’ve been seeing an ongoing crash in the market as the major indexes continue to fall day after day. The streak of declines has been notable, but far more impressive (or ‘frightening’ if you’ve gotten caught on the long/wrong side of it) is the sheer distance this market has traveled to the downside. Staggering point losses have brought about swaggering bears as the waterfall decline brings about new multi-year lows.

There’s no shortage of movement out there, and it’s unlikely that the high volatility we’ve seen will disappear overnight. Given those circumstances, the week ahead is sure likely to be another lively one.

So before you even push a single button in your trading platform this week, be sure to check out the Market View video over at the main site for a closer look at the overall market as you begin to formulate your game plan.

(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]

First Can Hurt!

October 6, 2008 at 10:43 am

Sometimes you just know someone’s gonna get it. Between now and Halloween, it’s the last person of the group walking through a haunted house. During a scary movie, it’s usually the first one to go looking for trouble in an effort to prove their bravery, and it just doesn’t ever seem to end well for them.

In the market, it’s not much different – especially right now. The indexes have been correcting sharply, and there’s certainly some fear and panic in the air. Traders attempting to call the lows are becoming casualties on a regular basis, and it’s just too bad they lack the self control which could help them avoid that suffering.

When conditions get extremely volatile like they are at the moment, attempting to be first in line (buying in hopes of a turn) can be a very costly endeavor. Consider the perpetual bottom-callers within downtrends such as this. Or those who continually try to short sell the highs within uptrends, just dying to be a hero (yes, pun intended).

And it isn’t much different for those who simply allow themselves to get caught in the fray, unwilling to exit and take their medicine from a broken trade. The hope which initially grips them quickly turns to fear, paralyzing their decision-making as they watch their P&L get worse and worse.

Ouch!

Trying to call market turns can leave you strung up by your ankles like a jungle-walker caught in a booby trap. Keep your feet planted so you can keep moving, because if you get caught in a trap you can’t navigate the terrain… and that’ll mean some very bad news for your trading.

Most traders will agree that waiting for confirmation of a trend shift offers a higher-odds directional play, but there are still so many who want to time that turn and be the first one to place a trade in the new direction. Perhaps they want recognition or to feed their pride. Either way, it’s clear that profits aren’t what is driving their decision-making. And isn’t that why we trade?

So the next time you’re tempted to call a top or bottom, remember just how easy it is to encounter serious pain if your timing is off. Avoid getting strung up by an ankle! Have the maturity and the patience to wait for some confirmation of a higher low or a follow-through rally after a relief bounce. Doing so will allow you to continue walking through this jungle called the market in search of profits. Because truthfully, first in line just isn’t all it’s cracked up to be.

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 October 5, 2008

October 5, 2008 at 11:47 am

The bulls continue to suffer in this tape right now, and the major averages are struggling to show signs of stability, much less attempt to make some meaningful headway. Last week we saw new 52-week lows being reached, making it a good time to turn to the charts and see what’s going on.

Volatility continues to run very high, as emotions are heightened and uncertainties cause concern. The week ahead may prove to be yet another memorable one, requiring our full focus if we plan to participate.

So before you even push a single button in your trading platform this week, be sure to check out the Market View video over at the main site for a close look at the overall market and some things to consider in the week ahead.

(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]

Prevent Poundings, Part 2

October 2, 2008 at 9:45 am

Previously in Part 1, we took a look at some of the suffering caused by market meltdowns and the general idea that steps need to be taken to avoid getting flattened when you find yourself caught on the wrong side of such moves. In this post, we’ll take a look at some specific measures to take in order to not only recognize those moves as they begin, but also to avoid having a major setback to your trading account.

I’ve taken plenty of hits as a result of bad or mistimed trades, and I’ve also found myself poorly-positioned for some big moves over the years. However, I’ve yet to blow out a trading account after having been in the market for a decade. I’ve avoided really bad luck, yes, but I’ve also made a habit of doing several things which helped to ensure my survival as a trader. Here are 4 of them:

Monitor Key Levels

Whether you more closely watch the futures (NQ & ES) or the averages themselves, there is no substitute for keeping an eye on important support and resistance levels. Few things have the ability to influence individual stocks the way the overall market does, which is why it’s not something to be ignored. Keep in front of you levels like 52-week highs/lows, the high/low of the prior week and month, and of course those zones which keep being tested on both the upside and downside. As you see them get broken, it’s an excellent signal that the stocks you’re watching may soon follow.

Watch Chart Patterns

Gaining an understanding of even basic chart patterns will be of tremendous benefit to your trading. They will not always work without fail, but they can give you a very meaningful heads-up to what is taking place out there. Even respecting the price action itself, such as light-volume bounces after heavy distribution, will give you an edge which can be exploited to your benefit. Monitor not only the patterns found in your stocks, but also the major averages too. Patterns provide reliable signals across markets and timeframes, so they’re certainly worth watching.

Pay Attention to Psychology & Be Sensitive to Sentiment

Many people will tell you to always be fading the prevailing sentiment, but that’s not sound advice. After all, within a trend the crowd will be correct – for a while. It’s better stated that when sentiment reaches extremes, it might then be time to start considering a reversal (such as Monday’s highest close in the VIX – a measure of fear – since August 2002). Until then, recognizing frequent hints such as repeated failed bounces will afford you an added degree of awareness, helping to provide you with a useful directional bias (even if it’s a flexible one).

Take Clues From Trades

Although it has been said that nothing is new on Wall Street but the faces and pockets, the fact of the matter is that cycles do emerge and disappear periodically. Certain trade types will work great for a while, but then another method becomes more reliable. Taking notice of trade types and/or the patterns which are working best for plays will pay big dividends for the astute trader. Those who are continually on the lookout for which kinds of plays are ceasing to work will be miles ahead when it comes to knowing what setups to avoid, thereby helping to keep your account intact. If and when you begin to notice failed breakouts or breakdowns, it’s your clue to proceed with added caution.

Look Beyond the Spots on the Windshield

It’s inevitable that there will be losing trades, good trades which go bad, and there will be times when each of us will be caught on the wrong side of a trade or the market in general. During those times it’s easy for frustration to swell quickly, causing you to press harder until confusion reigns supreme. In the end, all you really want to do sometimes is throw up your hands and step away for a little while – and that can at times be the best solution.

I’ve witnessed traders who refused to move out of the way when they knew they should take cover, and it wasn’t pretty. The refusal to accept a small loss left them ever more committed to the trades which were costing them increasing amounts of money. The result was an added psychological attachment which did anything but help them.

The ‘storms’ which impact your trading in a negative way might be massive selloffs like we witnessed on Monday, or they might simply be those stretches of trading when you’re not at your best.

Either way, the idea is to avoid letting occasional bumps and bruises turn into irreversible harm. Taking those hits is never fun, but in order to be successful over the long haul you must learn to minimize the damage. Small mistakes are the key, so keep that in mind the next time a big move begins which you’re caught on the wrong side of.

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]