Archive for August, 2011
Don’t Discount Daily Charts When Day Trading
August 31, 2011 at 9:16 am
The daily charts are where nearly all my trades originate. Whether I’m looking for a single-day move or one that lasts several weeks, I always at least take the daily chart into consideration.
Day traders often forget the value that the daily chart can bring. The conclusion is that it’s only suitable for swing trading or position trading, but the truth is that the daily chart can offer some good signals for entry and exit as levels are cleared or reached. Even better, those same levels can often add to your confidence in a day trade and help you stay in it.
Let me offer 3 examples from Tuesday’s session where the daily charts played important roles. On Monday night in the member area, I listed only 3 plays for Tuesday’s session, with each of them being day trade candidates. I’ll break them down one at a time with the initial setup, and then a look at Tuesday’s intraday chart where the daily level played a significant role.
First up was QIHU, which looked poised for a push higher after establishing both a higher low and a higher high in recent weeks. The pullback over the previous several sessions provided a clean descending trend line which I used as a pivot for getting long at $23.60. Here was the original setup:
QIHU pushed past that trend line and never dealt with it again, running initially almost 3% higher before pulling back but still holding above that same trend line:
Next up was GLNG, which had corrected and then settled into a multi-week narrowing consolidation pattern in the form of a symmetrical triangle. These patterns can break either way, and with a strong market and the upper trend line being challenged, I was looking long on a trend line break through $32.15:
GLNG triggered an entry as it cleared the $32.15 level, showing a nice initial pop followed by a pullback to test the breakout zone. To heighten the validity of the $32.15 level, the low of the pullback was $32.18, just 3 cents above it. From there, it ran again in the afternoon to clear the morning highs and get 4% beyond the morning trigger. Not bad for a few hours and no pain:
Last but not least was FSL, a little stock which had huge potential. It had just pulled back to test and hold the early-August closing low, and in recent days had stabilized just above that level. On Monday it saw expanding volume but only minimal progress as it edged past a descending trend line. I set a trigger for $11.25, which would be a multi-day high, to get long. Here’s a look at the pre-trade setup:
FSL triggered late in the day with a massive thrust higher once it cleared the $11.25 level, vaulting straight up to $12 to offer a very fast 6.6%. The move was fast and furious, but a quick payoff once the level was cleared:
A couple lessons from these trades…
A level is a level. Doesn’t matter if you found it on the daily chart or some other timeframe, the odds are it’s going to be evident across multiple timeframes. Recognize and respect that, because it could pay quite well. All 3 of these trades were winners, and each of them respected the level originally found on the daily chart.
Keep an open mind. Perhaps your preference for day trades is a 15-minute chart or a 30 or a 5-minute chart. That’s great. But keep an open mind about how trades might originate. Don’t resign the daily charts to something only multi-day traders consider. You’re missing out on several great opportunities per day by ignoring the daily charts.
Hopefully you found this walk-through helpful. If you want to know what I’m trading tomorrow, stop by the site and begin your trial to our stock pick service.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Weighing Risk & Reward on Day Trades
August 30, 2011 at 8:48 am
A trader on the email list received a recent video I sent out on stops, and came back with these questions:
“Excellent video, please keep sending more. But how do you determine ‘risk reward ratio?’ Your day trading strategy points to a starting point for a stop loss at 1%, so how do you determine that it has 2-4% of upside potential?”
Great questions! Here’s how I responded…
For most stocks, a 2-4% intraday move is not out of the norm on any given day (especially lately). That’s well within the wheelhouse for most stocks I trade, whereas those without the propensity to move I simply ignore and don’t earmark as trade candidates.
When I do run across a stock that’s more volatile, I’ll cut my size in half and give it 2% from entry, and then expect a multiple of that on the top side (so I’m looking for 4-8% on the profit side to offset the risk).
As for knowing if a stock has that ability to move, for me it’s mostly a feel thing since I’ve traded so many stocks over the years and I watch the market every day, so I’m familiar with their movement to that extent. For anyone who isn’t, even applying a basic indicator such as the ATR (average true range) to a chart will give you an idea of how much that stock moves on a given day. It doesn’t have to get complicated, but that will allow you to structure your trade (or skip it entirely) based upon typical movement.
How do you determine your risk/reward?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Intelligence is Only Part of Trading Success
August 24, 2011 at 10:46 am
In a recent conversation with a trader who had just accepted some small but frequent losses, it came to light that his emotions were flaring. Taking a small loss here or there doesn’t affect him, but taking a few in a row does.
What’s interesting though, is that it wasn’t the money that bothered him so much. It was the fact that he came to doubt his intelligence after a string of losses.
Every one of us has been there, and it’s no fun. Losing is a part of trading, and each of us knows that, but how we cope with those losses will determine how quickly we rebound from those hits that inevitably come.
Here are 3 steps I suggested he take…
1. Trade smaller. If you’re getting frustrated and angry, it’s a sign you’re placing too much importance on each trade. The way to diminish that is by reducing your size for a little while so that trades take on much less importance and you’re simply focusing on managing them properly.
2. View losses differently. Losses aren’t fun, but when viewed in a different light, they can be seen as helpful. They will make you better, because you scrutinize your mistakes and either learn something new or get reminded of a lesson you’ve previously learned. Losses also free up your capital and attention to shift toward another trade which may quickly overcome that loss.
3. Expect losses to happen. This isn’t negative thinking, but rational thinking. Begin each day knowing you might take several trades, and some might be losses. That makes it easier to accept them when they happen and it allows you to keep moving without letting emotions take over. Expect winning trades as well. And be sure you’re stopping out for smaller losses than the winning trades are providing. That will keep you net profitable and that’s the aim.
Remember, being right every time is not the aim of trading, so get out of that mindset as soon as you find yourself in it. Intelligence is only a small part of trading. Trading is a numbers game, and it’s one that requires you to deal with emotions rather than allow them to flare. Those who have an edge and who can manage emotions (tied to both losses and gains) are the ones who will succeed in trading.
What else would you tell this trader?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
What if it Gets Worse?
August 12, 2011 at 9:02 am
It might.
What’s your plan if it does?
Over at the premium site, we went to cash on July 25th. Check your charts and you’ll see that was a minor decline day (the first of 7 straight losses in the S&P 50) ahead of all this mess we’ve seen since then. Coincidence? No. Did I see this meltdown coming? Not exactly.
What happened was that several positions had warranted tighter stops, and when the market began to turn lower (it literally began the 17% down move on that day), we were naturally taken out of those trades.
We’ve been in cash ever since, avoiding the crash. Can’t even describe the freedom that brings, psychologically right now and from a capital availability standpoint going forward.
Being the last to know is an uncomfortable place to be, no doubt about it, but clearly there were a TON of people who were late to the selling party. They didn’t recognize the potential for a lower high back on July 25th like we did. They didn’t realize the importance of key index levels getting undercut ignored time after time in the weeks since then.
Those folks are in big pain, and honestly, many of them will never learn how to avoid this from happening again. Will you?
Decisions, Decisions
You see, regardless of what happens next, regardless of whether you get bailed out of poor trades or have to eat the losses, you have a choice in how you’ll respond.
Maybe you’ll turn bitter like those who got kicked during the bear market of 2000-2002 or the one from 2007-2009. Many of them will never return to stocks. Maybe you’ll be spooked away for a little while, and you’ll regain confidence after you see another big run higher. (Not that that’s ideal).
Or…maybe you’ll do the right thing and take what you can learn from this experience. I’ve had to do that before, and I’m still in the game – still able to participate and profit. I’m glad I stuck it out.
If you’re passionate about trading and you want to improve, you can’t just hope it happens on its own. You have to work for it, you have to dig in and get your hands dirty. Study your moves, your mistakes, and your successes. Study those who have done well over time or who didn’t get crushed in the decline.
Commit to greatness, as only then can you come up with an adjustable game plan going forward. You’ll need it – especially if it gets worse.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Sitting Still
August 10, 2011 at 8:34 am
July 2, 1982 was a special day for Larry Walters. That’s the day the truck driver strapped 45 helium-filled weather balloons to a patio chair armed with a six pack, sandwiches, a camera, and a pellet gun to pop the balloons.
His intention was to go up and look around, but he quickly found himself terrified, having dropped his pellet gun, and over 15,000 feet in the sky in the primary approach path for Long Beach Airport.
When asked why he did it, he simply replied “A man can’t just sit around.”
Lawnchair Larry Wasn’t a Trader
There are multiple occasions when sitting still is the right thing to do in trading.
Sitting still with regard to open positions that are working is definitely a time to be less active. For instance, most of us are familiar with the quote attributed to legendary trader Jesse Livermore:
“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
Right now, we’re seeing yet another example of a time when sitting still is a worthwhile approach for traders having a timeframe outside of a couple hours. Volatility is extreme, indecision is running high, and prices are ripping back and forth ’round the clock.
Stated otherwise, it’s really hard to manage risk effectively in a tape like this. It’s a scalper’s dream, but if that’s not you, this is a time to sit still. Let the dust settle, and be patient. Big opportunities are going to result from this.
Do you just head for the couch and flip on the TV with a bag of Cheetos? No!
Work on your game. Clean out your watch lists. Study your trades. Read a great trading book. Get inspired for greatness. Practice Winning. Do anything that will make you better. But don’t just sit around.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
One For the Bloggers
August 8, 2011 at 9:43 am
Last week one of my favorite bloggers penned a post called The Bears Are in Serious Trouble. One who read that post and then saw the 512-pt DJIA decline the following day might have thought it was way off, and yet Eli was still right to publish that post.
You see, it wasn’t about making a prediction. The title’s operative word being ‘are,’ which was a present-tense fact. Stated otherwise, at the time it was still correct. To that point when his post went live, he was exactly right…the market had withstood considerable uncertainties and held inside the range, leaving the bears in apparent trouble.
Since then, we’ve tumbled considerably, to the tune of about 800 Dow points as I write this, and each of the indexes have broken down hard. That’s alright, I don’t think Eli’s post was about being correct about what would happen next.
That’s what it’s like to put out your ideas as a blogger. It’s not easy, and there are so many fine lines to walk…
You mention a good trade, you appear to be beating your chest and first in line for a big helping of humble pie. You come clean on your shortcomings too frequently and some think you aren’t worth reading any longer. You put out an idea which the market renders obsolete, and you sometimes wish you could withdraw the post. Maybe Eli felt that way, but he held his ground and I respect him for it. He stepped out to make an observation, and while it is no longer the case, he was sharing what he saw as a trader.
I personally know it’s not easy to be a blogger. I’ve been blogging since January 2005, and here at TheStockBandit.net since December 2005. Over the course of some 600 posts, I’ve made my share of good calls and complete whiffs. I’ve pointed out names which looked good right before great runs, and I’ve pointed out others which completely flopped. I’ve received many kind emails from readers expressing gratitude for my efforts, and the occasional knucklehead has told me how stupid or wrong I am (and yet they’re reading).
But you see, I’m not here to declare my ownership of a crystal ball – and neither are any of the great bloggers out there you’re reading. They’re sharing their thought processes as traders with you, putting their current opinions on the line, offering insights into their views of what’s taking place, or sharing a trade they recently made which netted them some dough or delivered some education. If the bloggers you read are writing in that light, then respect them for it!
As a reader, keep this in mind: a good blogger is putting out a flow of ideas for your benefit.
Learn from what you’re reading, and right or wrong, give them your appreciation for their effort. Shoot them an email, leave them a comment, share links on your favorite social platform (StockTwits, Twitter, Facebook, etc.), because if it’s worth your reading it, you probably know several others it will also benefit.
And to my homies puttin out quality content, keep on doin your thing!
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
A Good Market
August 6, 2011 at 7:15 am
Every trader is different from the next in our timeframe or directional bias or risk tolerance. That’s what makes a market, so it’s a good thing. We’re also each unique individuals, so it’s no surprise we might each have differing definitions of our favorite market conditions.
Regardless of what your ideal market looks like, it may only come around a couple of times per year. You’ll of course need to make the most of it when those conditions are present, but what about the rest of the time? Isn’t it important for us to capitalize on a good market?
Of course it is, but not everyone understands what that looks like.
Today I want to point out a post from the archives that’s every bit as pertinent to current market conditions as it was when it was first written. Check out this post for a few items to watch for that’ll improve the trading conditions when they arrive – and they will arrive.
Here’s the post: What Makes a Good Trading Market?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
