Archive for December, 2011
Always Look to the Left
December 28, 2011 at 2:46 pm
A friend of mine recently mentioned that the area to the right of price is the only place on a chart where you make money. He’s absolutely right. But I’d add that by also looking to the left, you can save money as well.
Take for instance CXO. Right now the stock is sitting in a short-term bearish formation. The stock recently declined for a couple of weeks, then has attempted to bounce – without success. That has created a small rising channel, or bear flag, which is quite likely to be resolved to the downside when taken at face value.
So am I going aggressively short here? No, and here’s why:
Short-term, this looks like it wants lower. But by looking to the left, I see more than just the selloff and feeble bounce attempt. I see that just about $3 lower is a major level which has served as both support and resistance in recent months. That could again provide buyers with a spot to take a stand, and it poses a threat to this setup as a bearish play – a roadblock for the trade.
Here’s a closer look at the chart:
Always take the short-term pattern you’re seeing in context. With that in mind, this bear flag isn’t a high-probability trade given support isn’t far below. Furthermore, the overall trend in recent months hasn’t changed, as this is really just a range-bound stock heading back toward key support. It might not hold, but trading is about probabilities, and they aren’t real favorable in this case for a move of more than about 3%.
In other words, always look to the left.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
I Don’t Care How Fresh Your Fundies Are
December 20, 2011 at 1:28 pm
I’m a trader, so what I care about is catching short-term moves in price. I’m not an investor who’s looking for long-haul appreciation or locating the next ORCL. For that reason, the health of a business doesn’t matter to me. It’s unlikely to change during the course of a trade that lasts anywhere from a few hours up to a couple of weeks (barring scheduled earnings reports or conference calls).
Some traders fixate on fundamentals. They might use the fundies as a starting point for trade ideas, which is alright, but is not necessary for short-term positions. They might use the fundamentals as a logic crutch to defend their losing trade, telling themselves “it’ll come back” because of the business. We know how that usually ends for them when opinions are allowed to interfere.
If you haven’t already done so, make this all-important distinction: there are good companies and there are good stocks, and they do not necessarily overlap. Sorry if that bursts your bubble, but many great businesses have a stock that’s going nowhere. Some stocks are making excellent, clean moves even though their business may not endure the test of time. The correlation between good company and trade-worthy stock is not at all guaranteed.
Here’s the point in case you’ve missed it so far… If you are a trader, focus on the price action and place importance on it alone. Trading is about compounding money by turning capital over frequently. It’s not committing to a long-term relationship with a stock…that’s investing and it’s an entirely different topic (not found here).
So if you are a trader, and if your timeframe is less than a few weeks, consider the likelihood that the health (or lack thereof) of the company behind the ticker symbol you’re trading just isn’t going to change that quickly. Business growth or attrition takes time. With that in mind, all you’re left with is the price action – right where we began.
Simple and straightforward.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Video Review of the Indexes 12-18-2011
December 18, 2011 at 2:36 pm
The indexes gave up some ground last week, placing them lower within their respective intermediate-term wedges. Bounce attempts on Thursday & Friday saw poor closes, indicating the buyers still are lacking the enthusiasm needed to regain short-term control.
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.
(Direct video link is here for those interested in embedding it elsewhere to share).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Hoping to See You in 2012
December 16, 2011 at 9:07 am
This past weekend I had the pleasure of doing some live training in conjunction with Worden, and I thoroughly enjoyed it. Getting to teach a couple hundred traders in a seminar setting was a treat (I’m standing in the front of the room in this pic), and it was fun to cover a lot of ground on all things trading.
We discussed key principles of trade selection, a trader’s mindset, and how to prepare like a professional on a regular basis. Then we built a watch list together with attendees offering up their favorite tickers, spouting them off popcorn-style as I added them to the list. From there, we just analyzed the price action to see what the charts were telling us. When you listen, the charts tend to have a lot to say!
Anyway, I’m slated to teach and/or speak live in several more cities in 2012, and I hope to see you at some point. Houston in Feb, NYC Trader’s Expo in Feb, Atlanta in March, and Denver in June are currently on the calendar. Make plans to attend one of these cities and I will do my best to make it worth your while.
To those who were in Dallas last weekend, I hope you enjoyed it as much as I did!
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
People of Wal-Mart: Still Spendin’
December 15, 2011 at 9:17 pm
While the People of Wal-Mart website is always an entertaining bookmark, the stock itself is no joke. Sporting nearly a 20% return since its August low, this slow mover has outpaced the S&P’s return by about 2 1/2 times.
Checking out the recent price action, the stock is a bit range-bound, but a closer examination reveals an often misunderstood pattern: the cup & handle pattern. The look of the pattern is easily identifiable to even novice chart readers, but they usually fail to take it in context. Here, it’s right where it should be found – within an uptrend.
Here’s a closer look at the chart:
A confirmation of this pattern with an upside exit would put this one in the mid-60’s in short order, so it’s worth keeping on the radar even though it’s far from a momentum name. If anything, this is simply an example worth pointing out. The handle may need a bit more work and it needs to threaten the upper trend line to indicate a move is imminent, but it belongs on the radar no less.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Getting Over the Consistency Hump in Trading
December 15, 2011 at 9:03 am
I heard from a trader over the weekend who has gone through a number of changes in recent months, both personally and in their trading. The result was a big lack of consistency in their trading.
This particular trader has endured a stretch of personal changes, including relationship stress, family changes, financial pressures tied to it, and a move. That’s a lot to take!
In terms of their trading, they went from being a retail trader to a prop trader and found some distinct, challenging differences which impacted their results (and trading process) adversely. It wasn’t that prop vs. retail was the issue, but rather this particular trader’s surprise and perhaps their lack of understanding of what those differences would be from the front end.
For example, this particular trader did not realize they would not be allowed to hold overnights at their firm. They got caught up in the ECN rebate game and started focusing on minimizing transaction costs rather than getting into and out of trades in a timely fashion. And there were several other issues they hadn’t fixated on previously (like platform fees). These changes added considerable pressure to the trader.
It left them asking me, how do you gain consistency in trading? They asked me specifically “what got you over the hump to consistent profits in your trading?”
Here was my response…
Sounds like you have been through a ton, and I’m sure you’re drained emotionally as a result. Once the dust settles for you though, your self-honesty will serve you quite well as you get back on a track that’s right for you.
In terms of what I did to achieve consistency, I had been making money part-time before going full-time. When I made the switch from part-time to full-time, there was a period of about 2 months in between where I was assisting another experienced full-time trader by placing orders for him and helping manage his account. This was due to a very different style of trading (managing many positions simultaneously), and it was new software, so I needed to get accustomed to it. Once I was comfortable with it, I went live, and from my first day I was profitable.
A year or two later, I went through a tough stretch and got really frustrated. The way I responded actually led to my longest streak of consecutive profitable months, and it was all due to one single commitment: limit losses. By taking little paper cuts, I got out of bad trades with minor damage but kept finding winners along the way too (it’s a numbers game), and that just created a ton of consistency for me.
I think if you can simplify the effects of what’s taking place personally with you, then your trading will be calmer as well. Life goes on, and periodically it gets hectic in a way that’s not under our control, but if you detect that then just get more passive with your trading. When personal things are clear and you’re more focused on the market, you can get more aggressive with your trading. Becoming consistently profitable goes hand-in-hand with taking a long-haul approach for consistency over time.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Trading Timeframe Influences Position Size
December 13, 2011 at 8:58 pm
Equally important to locating entries and exits is the matter of sizing your positions. Too much and you can’t stick with the trade plan, aborting in favor of diminishing emotions (whether greed or fear). Too little and you don’t maximize the use of your capital.
While some traders prefer a standard lot size, in this video I’ll discuss the notion that your timeframe for the trade should influence your position size.
Yes, the chart itself will help determine your exits, but that’s also a function of how long you’ll expect to be in the trade.
Check out the video for a quick 5-minute explanation and you’ll see exactly what I mean.
(Direct video link is here for those interested in sharing).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
