Archive for June, 2010
Making it Back
June 29, 2010 at 7:01 am
Anytime the market makes as big and consistent of a run as it did from March 2009 to the April peak, there’s a growing confidence that invites new money to the game. Those who were completely spooked in early 2009 saw an impressive rebound, not only in prices but in their willingness to participate.
Of course, the longer in the tooth a rally becomes, the closer the end of it naturally gets. That’s unfortunate for some, but it’s simply the nature of risk in the market. After all, those who step out on a limb first will stand to make the most if they’re proven right, while others who wait for more of a sure thing may be among the last to the party right before it ends.
It’s natural for someone who buys at or near the peak to quickly find themselves underwater, and at this point just a short time removed from the April highs, there are no doubt many folks who were late to the party now feeling serious pain.
That feeling of panic has set in for them, and in most cases, there’s no exit plan. The failure to designate a safety net prevents level-headed execution of a game plan, so now they’re forced to think fast in the heat of the moment, sparking a slew of potential mistakes. Making it back now becomes the primary goal, as if there’s something magical about getting out unscathed. Nevermind the fact that the entry was made in hopes of turning an actual profit.
Exaggerating Errors
Traders face this dilemma on every timeframe when in a bad trade. With a negative P&L on the day, week, month, or year, the focus turns from sticking with a strategy to doing anything that might get them out of the hole – and fast.
Along with this mindset comes an urgency factor which may not have been present before – uh oh! The sudden recognition that they might be perceived as having been wrong strikes fear in their hearts and now the race is on to erase the losses.
I’ve been there plenty of times, and it’s no fun. But over the years, I’ve found several ways to reduce the impact of my errors. Here are a few things I try to do when I find myself underwater:
- Slow down. Often times the desire to just get into anything that might be moving means it’s also easy to overtrade. Spinning my wheels won’t help my P&L, and it sure won’t help my objectivity.
- Get selective. Rather than jumping quickly on anything that comes along, I’m going to be much more effective if I wait for the cream of the crop to surface. Waiting for the best risk/reward opportunities to arrive means passing up many other plays along the way, and returning to holding a high standard for where my capital is allocated.
- Trust your method. Some stretches of trading are better than others, absolutely. At times it’s extremely frustrating, while other times it feels almost easy. So there will be ups and downs, but over time my method has served me very well. When I find myself with the wrong color P&L, I remind myself that I’ll eventually get my groove back, so long as I don’t stray far from my style. As they say here in Texas, “dance with the one that brung ya.”
Translation for Timeframes
On a day trading timeframe, it can be tough to take a few hits early in the session. Your confidence gets quickly shaken, and you wonder whether it’s just a tough start from which you can recover, or if instead it just isn’t your day. The key is to avoid emotion-based decisions, which will lower your standard for trades and shift your attention to the money rather than the price action. Never do you want your losses to cause you to force trades, so if that’s your primary motivator, get away and return another day. If instead there are still ample opportunities for good trades, patiently wait for the best risk/reward setups and then make the most of them.
For a swing trading timeframe, streaks will happen where at times it seems you’re on the wrong side in every trade you place. Making it back will take a little longer, but it can be done if you’re methodical about it. Cut down your size immediately while you wait to find your groove, as that will slow the pace of your losses if you continue to time trades poorly. Become selective, because confusion can set in quickly if you aren’t following a clear strategy with a known objective. Patience will be crucial, but it can pay quite well, too.
Finding yourself down in a hole is no fun, but it’s a reality of trading that each of us will face from time to time. So take a long-term view with your trading career, even if your timeframe for each trade is quite short-term. Doing so will keep you level-headed when it’s the hardest, and it’ll make you tougher and better as you find your way back on the right side – and you will!
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Be Patient Buying Dips
June 23, 2010 at 6:56 am
Novice traders are equipped with very little useful information, as even your grandmother knows to “buy low and sell high.”
With the recent correction, many stocks now are starting to appear ‘low’ on the scale, and that’s enticing – but dangerous – to those who have been waiting for a shot at getting in. The trouble is, that age-old “wisdom” doesn’t tell the whole story.
Cause for Caution
Merely buying a stock on the basis that it’s cheaper now than it used to be is no formula for success. The goal is to be buying when there’s an expectation of higher prices. When prices are declining, the trend is of course down, which means it’s best to wait for some technical proof that the correction has ended before aggressively buying.
Think of it this way. At the department store, escalators come in pairs. There’s an up escalator, and a down escalator. Buying stocks on the slide in expectation that they’re going to go right back up is like getting on the down escalator in hopes of it rising. It makes no sense. Eventually, the down escalator will end at a level floor, which in the world of technical analysis will be support. Only once that’s found can you step onto the up escalator with a realistic expectation of a ride back up. Wait for stocks to do the same thing.
Proof of Change is Needed
After a long-lasting bull market like we saw from March 2009 to April 2010, there’s going to be new money attracted to the game. So we know right now there are some new traders in the mix who are aiming to buy low, and it’s no surprise many are getting hurt with the recent ‘discounts’ we’ve seen in prices. The market has been in a correction phase for several weeks now, and it hasn’t been pretty. More importantly, it might not be done yet.
The real key here is to wait for the technicals to shift, and that will come in the form of a higher low on the daily chart. We’ve already seen higher highs get established in the NAZ, S&P 500, and DJIA, but they have yet to create higher lows. That may happen soon, or it might be a while, but that’s the next element to watch for before committing to the long side for anything but quick trades. On the premium site, that’s the stance I’m taking for now, and June’s been good so far because of it.
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Technical Grade: F
June 22, 2010 at 7:09 am
Every chart should be given a grade, if for no other reason than it’ll require you to evaluate the entire situation and make a decision. Should it be traded? Should it be watched? Should it be avoided?
Looking at the chart of F below, this one earns an ‘F’ on recent behavior as well.
Have a MENT
June 21, 2010 at 6:49 am
Quick trades can be among the best kind, keeping capital tied up for a limited time and offering fast gains when they do their thing.
MENT is one I’m eyeing for such a trade. The stock has been quite active of late, moving all over the map within a $2 range for the past several months. Key resistance is now just overhead, and is being tested on the current bounce. Even better, volume has been spiking with advances of late, pointing to solid participation on the buy side.
We may see a breakout occur in MENT any day now, so I’ve got it on my radar for a trade if it can push through the $9.75 resistance area. This one hasn’t shown a lot of recent continuation, so it isn’t one I’m planning to keep a long time… Just long enough to get paid and move on to the next idea.
Here’s a closer look for you:
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Video Review of the Indexes 6-20-2010
June 20, 2010 at 12:03 pm
The major averages finally put in a few days of rest last week after some lively action on Monday and Tuesday, holding onto some nice recent gains.
Key resistance zones have for the most part been cleared (with the RUT being the exception), and currently are serving as short-term support. Even if we see those levels given up in the days ahead on a dip, it wouldn’t be such a bad thing. That’s based on the potential for a higher low to form on the next pullback, so as always, it’ll be the character of the next dip that will hold valuable information for us.
As we head into a brand new week of trading, let’s examine some important levels to keep an eye on in the days ahead. That will have the greatest influence on how individual stocks are going to move, so it’s where the trading week begins.
This clip was also posted over on the Trading Videos site (as always), and perhaps you’ve seen it there – but in case you didn’t, I wanted to put it here on the blog for you.
Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.
Thanks for stopping by and I’ll see you here soon with more.
Until then… Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Disgusted
June 18, 2010 at 10:54 am
Disgusted…
It’s a word you probably learned in junior high when someone paid that kid $5 to eat frito pie from the cafeteria trash can.
But it’s a word you still experience.
You hate the way you feel, so you start eating better. You hate how your yard looks, so you get more diligent at mowing, fertilizing, and watering it. You’re sick of that relationship being on bad terms, so you make amends and try harder going forward.
Trading can be the same way. It can leave you wondering what you’re missing. The market acts or moves a certain way for so long, then shifts on a dime. You’re left feeling clueless and out of sync. You’re hemorrhaging capital, and you have no idea how to stop it. You’re completely disgusted with it.
Disgust isn’t necessarily a bad thing though. Mind you, it sure isn’t a good way to feel, but it can produce some incredible results – if you know how to use it.
Channeling Disgust into Diversity
What you’re about to read may disturb you, but here goes…
Embrace it.
Disgust is usually the rock-bottom spot where you’re finally ready to do some changing…of your attitude, of your expectations, of your approach. Most of us have to get to that place before we’re willing to make a change.
Until we’re there, it’s just too easy to tell ourselves “I’m just out of rhythm” or “this market is just acting strange” or “things will get back on track any day now.” Uh huh. What if the market stays strange for a while, or what if you don’t find your ‘rhythm’ quickly? You’re in big trouble, right?
Perhaps the greatest opportunity born out of disgust is that of diversity. When we hate the results we’re getting, we either continue to get them (by not changing), or we expand our horizons and learn some new approaches. Those are the 2 choices we have.
When it comes to trading, those new approaches might include different trading methods we’ve heard about or considered, but have not yet committed to. Or it might involve different timeframes for trades. When day trading isn’t offering much, shifting out to a swing trading timeframe can often make all the difference in the world. That’s why it’s so important for us to diversify as traders.
Dual Benefits
When you shift your approach from one which isn’t working to another method, you’re going to see some short-term changes in your results. Often times that’s going to mean instant improvement, which is quite refreshing. It brings you out of your funk almost immediately, so your attitude is also likely to be better.
But what’s even better is that as you learn another method, you’re that much more equipped down the road to make a shift when conditions call for it. Because you’ve now recognized what isn’t working, and which conditions prompted a change, you’ll be able to identify similar shifts the next time around, and you’ll now know better how to adapt. Win/win.
So if you’re currently feeling rather disgusted with your trading, I’m aware that it’s no fun – I’ve been there too. But if you want out of that mode, then don’t wallow in your sorrows any longer. Get on the move and start finding and employing some new styles and strategies – the ones you’re using are costing you too much in capital and confidence to continue using them right now. Keep them in the bag for later, but channel your disgust into a desire to develop new approaches, and you’ll be glad you did.
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Video Review of the Indexes 6-13-2010
June 13, 2010 at 8:14 am
Those who are prone to motion sickness are finding this market to be unsettling, but such is the case when corrections are running their course.
At the moment, the indexes are trying to establish some support, but the upside hasn’t been easy to come by for the bulls. Instead, we’ve seen some sharp rallies which have likely been exaggerated by short-covering, but overall the market has settled into a short-term trading range. That’s not so bad though, especially considering how wide it is.
As we head into a brand new week of trading, let’s examine some important levels to keep an eye on in the days ahead. That will have the greatest influence on how individual stocks are going to move, so it’s where the trading week begins.
This clip was also posted over on the Trading Videos site (as always), and perhaps you’ve seen it there – but in case you didn’t, I wanted to put it here on the blog for you.
Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.
Thanks for stopping by and I’ll see you here soon with more.
Until then… Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
