Archive for September, 2011
Can You Trade Full-Time? Part 1
September 30, 2011 at 7:57 am
One of the most common questions I am asked is whether someone is fit to trade full-time, and if they’re equipped with what it takes to make it. You might be wondering the same thing, and if so, this 4-part video series is for you.
A recent email exchange with a subscriber who had just reached a crossroads with his career path brought about the questions we’ll cover, so I wanted to share this exchange with you over the course of the next few posts.
Keep in mind that the things I’ll be sharing are my opinions of things I think are needed in order to trade full-time, but your unique situation may differ. Think of this series as a list of things to consider as you count the cost when weighing whether or not you’re ready or able to trade full-time.
Here in Part 1, we’ll discuss the question “Do I have what it takes to make it?”
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Trading Roadblocks
September 29, 2011 at 8:12 am
Few things are as frustrating in trading as seeing a position start to take off, only to stop or reverse. When a trade hits the proverbial wall, it stops moving according to plan and quickly becomes dead money.
Nevermind the fact that you were long in the midst of an uptrend in the stock, and in a generally strong market environment. It’s time to bail out.
What if you had seen it coming?
Looking a little farther to the left on the chart can at times enable you to do just that. Sometimes we just get so fixated on the here-and-now pattern that we fail to recognize what might lie beyond. Overhead resistance looms like a roadblock, but without zooming out on the chart, you may never see it until it’s too late.
Due Diligence
As a short-term trader, I’m all about the recent price action. I care a great deal about how a stock has moved over the past 2-3 weeks, and every day of late. I’m gauging the volume, I’m looking for clean patterns, I’m designating my trading timeframe, and from there I’m able to project where the stock can go next if those patterns are confirmed.
But I don’t stop there.
Once I’ve identified a pattern, and made the corresponding game plan, my work isn’t finished. I still need to look at the bigger picture and take note of anything that might stand in the way of this stock running further. And I’m not referring to news which might break (although that’s particularly important during earnings season). What I’m referring to is potential resistance which the stock may have to contend with shortly after confirming the short-term pattern.
Exhibit A
For example, I recently discovered a bull flag pattern. I can project, based upon the pattern, where the stock could head to next if that pattern gets confirmed. However, a look at the bigger picture showed me a glaring issue with the trade: it didn’t have far to run before the next resistance would be encountered.
That congestion zone from a few months back was a major potential roadblock for the play. Although the short-term pattern could confirm, the stock may still not get through the next resistance zone. So, this is the kind of setup I’d only consider for a day trade rather than a swing trade, because the risk I’d incur for a swing isn’t in proper relation to the limited profit I’d make if resistance holds.
Here’s a look at the stock I’ve been discussing. I’ve erased the company name and ticker symbol, because it doesn’t matter. Rather, this is an example of how I evaluate potential plays.
A month from now, this flag may have confirmed and the stock might blow through prior resistance as if it were never there, but that’s not for me to decide. My job is to evaluate risk, and only put my money at risk when the potential for reward outweighs that risk by a considerable amount.
Taking note of potential roadblocks like this is one way I can ensure my risk/reward on each trade remains suitable. Occasionally I might regret not taking the play, but over the long haul, I’m preserving my capital for far better opportunities.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
The Simplest Way to Trade
September 22, 2011 at 9:19 am
When it comes to trading, complicated does not equate to better. So with that said, here’s a quick checklist you can use to keep your trading simple.
Keep a core portfolio of positions you like.
Learn to locate new trades, identify patterns, and employ the best strategy given the conditions.
If the pattern confirms, enter the trade.
If the pattern fails, exit the trade.
If your target is met, reduce position (if momentum is still present) or exit completely.
Trading might not ever be EASY, but you can make it simple.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
When to Make Anticipatory Trades
September 21, 2011 at 9:19 am
I’m not an anticipatory trader, at least not in the establish-a-position-and-hope-i’m-proven-correct way. I really prefer confirmation of the patterns I’m seeing to trigger actual entries on trades.
But not all of us are that way all the time, and that’s alright. So I want to clarify which kinds of setups are usually worth anticipatory entries, vs. those where confirmation should be seen first.
A Step Ahead
Anyone can anticipate a move, and in the market, most try to at least once. The default starting point is flawed though, and is along the lines of “I think we’re headed higher” or “XYZ is going to $15 by the end of the year.” But those are nonsense predictions which should be left at home.
Worthwhile anticipations take into account not only current conditions, but also how they may continue to develop. They also allow for adjustments, which is a critical distinction for those who tend to get married to an opinion.
When it comes to making trades based upon anticipations, it’s imperative to stay flexible. If the plan you envision doesn’t pan out, be willing to modify it or ditch it completely. It’s also highly important to base your anticipation on the recent price action. If the recent moves give strong indications for another move, then you may have a good candidate on your hands.
These are the kinds of charts which would warrant an anticipatory play, and I’ve stripped the names from the charts so we can stay on point here with the overall idea:
Drawing The Line
As for confirmation plays, the whole key is to wait for price to make its move and then follow suit. For example, a stock churning just beneath key resistance for several weeks might get going again eventually, but jumping in arbitrarily is more likely to result in dead money for a little while.
The way I trade confirmation setups is to draw my lines in the proverbial sand, then act if price is able to cross those lines. My actions are a response to what price is actually doing, rather than what I think price will soon do.
These are the kinds of charts I’d consider for confirmation plays, again without details so you can focus on the general idea without bias:
Hopefully that gives you a little better framework for your next play as you decide whether to anticipate a move or wait for confirmation. Understanding the situations which call for an early entry can prevent added frustration in a game which already has enough.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Lasting S&P Rally Without Banks? Not Gaah Duht
September 16, 2011 at 9:45 am
The notion of the S&P 500 running higher without the participation of banks reminds me of Dana Carvey’s George Bush impression on SNL… “Not gaah duht.”
The financials make up roughly 14% of the weighting of the S&P 500, but they carry possibly more from a psychological standpoint. Traders are conditioned to check the fin’s when the Spoos are on the go, and lately, the participation has been downright pathetic.
Considering that the S&P has rallied within its recent trading range, we’ve seen virtually no lift from key financial names (which I’ll review shortly). With that being the case, an upside exit from the range which actually sticks (no failure) in my opinion is rather unlikely without the participation of at least most of the names below.
Let’s take a closer look at each with some notes on the individual charts, starting with a look at the S&P:
Here’s the deal…Financials need to pull their weight if this range is going to see a lasting resolution to the upside. It might happen without them, but it’s highly unlikely. Don’t take your eyes off the banks if you’re a bull.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Apply What You Learn or Stop Learning!
September 15, 2011 at 1:06 pm
For whatever reason, a theme hit me this week that I think is highly important to share with you here.
It all started when Tyler recently pointed out that many traders get caught in the nonstop cycle of learning, and he brought forth some excellent points. Most notably that many traders mistakenly aim for breadth of knowledge rather than depth. I think he’s dead right.
Then I ran across another article along the same exact lines, this time aimed at entrepreneurs, highlighting information bias as the tendency to seek information even when it cannot affect action.
After all, what good is information if it’s not altering or improving your actions?
As a trader, you can learn and learn and learn and not see improved results if all you’re doing is learning. Read that sentence again, I’ll wait. In fact, learning without practice will do you no practical good.
In other words, to find greater success as a trader, yes you need to learn, but you absolutely must incorporate that new knowledge into your approach. Without it, you’re wasting time learning!
Learning Isn’t Bad…
Now, don’t get me wrong. I’m passionate about traders learning more, which is why I’ve produced so much quality material through the trading courses, service membership, and the hundreds of free articles and videos for you here on the blog.
And I fully embrace the always-be-learning mentality, so long as it’s for the sake of (1) staying humble and teachable by the market, and (2) to keep growing so you’re equipped to adapt when necessary.
But It Can’t Stop There
Beyond the learning comes the application, so never leave that all-important step out of the mix.
Bella just brought up the highly valid point of how to learn from another trader by seeing their approach, internalizing their rules, “tweaking them, working on executing them, and then internalizing these improved rules” for better results. It’s one thing to learn what someone else did with a trade, but it’s much more to take elements from it to improve your next trade.
That’s what customized application looks like.
The whole idea of putting knowledge into practice is being in the habit of taking what you’re learning and then putting in the mental effort to decide how it fits with what you’re currently doing. It’s about considering ways to implement the new info rather than simply storing it away for a rainy day.
So by all means, keep learning, but only if you’re willing to apply it. Otherwise, spend your valuable time on something else.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
3 Signs You Have a Home Run Trade
September 7, 2011 at 10:21 am
Here’s 3 signs you have a home-run trade on your hands:
* Your initial target gets reached faster than expected. Ideally, this is also accompanied by heavy volume to confirm the move. Either way, this is a stock that’s getting quickly on the move, and you’re participating – congrats.
* You get runaway gaps in your favor. A runaway gap is an indication that emotions are heating up and traders are becoming impatient. With prices moving in your favor, you’re in good shape to capture additional momentum and be able to offer out stock at higher levels.
* Your stock has a historical propensity to make big moves. This factor alone isn’t enough to produce a home-run, but with either (or both) of the previous two at work, it only adds to the likelihood that the move getting underway is going to pay you well.
Momentum trading requires a different mindset, and momentum arrives when there’s more emotion present than logic. Keep this in mind the next time you have a trade performing better than expected, and see how much you can get out of it.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
