Author Archive for Jeff White

Trading Video – 3-26-2008

March 26, 2008 at 2:52 pm

I thought I’d mix things up a little bit and post a video of a trading lesson I learned in the market today.

If we’re open-minded and attentive, the market is always showing us ways to improve our trading results. Today’s video shows you a trade we just closed out today for a nice gain over at TheStockBandit.com, and I hope you find it useful!

Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.

Without further delay, here’s the clip:

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]

Practicing Technical Analysis

March 25, 2008 at 7:00 am

If you’ve ever watched the TV show House, you’ve no doubt seen the main character Dr. Gregory House assert his opinions and act on them. He’s an extremely good doctor (at least he plays one on TV 😉 ), but he sure isn’t always right. What I find so interesting is that he’s actually wrong quite often, and yet he saves the lives of his patients/actors.

Dr. House practices medicine. Sometimes he’s right and sometimes he makes mistakes, but he’s always working toward a solution and willing to try multiple methods if necessary to get there. The key is how closely he pays attention to the results he gets. Making a decision is one thing, but setting the ego aside with a willingness to modify the game plan is of utmost importance when striving toward a goal.

Should we be any different as traders? No way. I think as traders, and in particular those of us who use technical analysis, must take the same approach of making decisions, evaluating our results, and then modifying our approach as needed. Our objective is to turn a profit, and there are many ways to accomplish that.

Simply attempting to turn a profit in the market requires that we make choices and accept some level of risk, but that’s only the first portion of the plan. Once that step is completed, it’s time to monitor and evaluate how well our decisions are paying off. When things are progressing as anticipated, we simply have to stick with the plan and patiently let it play out. However, when we aren’t seeing the results we’re seeking, a willingness to go back to the drawing board is a requirement if we want to continue making forward progress.

Technical Analysis is by some considered to be hocus-pocus, but what’s so funny is that technicians will often give fundamentals a similar lack of credit. I view technical analysis as an interpretation of where supply and demand are concentrated, but it is not always an exact science.

A doctor will ‘practice’ medicine, interpreting symptoms to determine the best course of treatment in seek of a cure. Over time, new discoveries are made, experience is gained, and an open minded physician may alter their treatment habits as a result.

The technical trader operates in a similar way. The best methods for gauging momentum can evolve over time, and certain chart patterns which worked well a few years ago may not be yielding similar results right now. A breakout trader might need to start entering more trades on pullbacks to support if the market conditions warrant that. Certain technical aspects may deserve more attention than they used to if the trading environment suddenly changes, and the astute technician will know that if he’s doing his homework. After all, the market is always changing.

Become a student of the market. Commit to closely observing the results you’re getting, and be consistent in your approach long enough to decipher what’s working and what isn’t. Keep an open mind to what elements of your method might need adjusting, and remember that technical analysis is an ongoing practice. Mix it up when you know you should, and stay attentive to what your trades are telling you.

Trade well out there!

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]

Should You Be Trading BSC?

March 24, 2008 at 8:18 am

First BSC got a $2 bid from JPM and yet it continued to trade above that level.

Now JPM has raised its bid to $10/share and BSC is currently trading far from that level.

What is going on?

Because there are some great resources out there that can explain the details of the evolving deal far better than I, let’s focus on what it means for you as a trader. Observing the deal is one thing, but wanting in on the wild price action in the stock is a completely different matter.

You can find the complicated answer elsewhere, so I’ll give you the simple one here: if you don’t understand it, don’t hold it overnight.

The stock is ignoring any technical action on the daily chart, which is the timeframe you need to be watching if you’re swing trading. However, on an intraday chart, a pure day trader with a shortened timeframe can still find some plays in the stock. Given that the majority of news comes outside of market hours, the risk of overnight gap is omitted by day trading it. Furthermore, a day trader is simply responding to price action over the course of seconds, minutes or hours. That’s the only way to trade such a news-driven stock like BSC is right now.

If you’re a part-time trader or someone who prefers a little longer timeframe, stay away from BSC. It’s a nice side show, but it offers you far more risk than potential.

Trade well today!

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]

Don’t Be a Hero

March 13, 2008 at 1:37 pm

Every time the market gets volatile for a few weeks, the stories start to come out of the woodwork of traders who made it or lost it big….

“So-and-so made $150k in that last selloff.”

“What’s-his-name lost 80 grand on that reversal.”

They’re impressive stories and often eye-opening when the numbers are considered in terms of real dollars, but to some traders these kinds of rumors might do more harm than good. Occasionally, a guy might hear a story like that and decide it’s time to start swinging for the fences and step up his size.

And of course we all know how that story ends!

Wanna know the secret to good trading? It isn’t found in some flamboyant trading style, and it most likely doesn’t require a major change in your method or taking massive swings in your account equity. The secret to good trading is to trade like you know how. Trade the way you know you should. Don’t trade like someone else, and don’t go overnight from trading for a steady paycheck to trading for riches. Take the setups you do well with, and pass on anything that doesn’t fit that mold.

When the market gets volatile, suddenly the urge to go big and catch a major turning point hits traders of all kinds. Those who want to catch the falling knife or short the top will usually pay for it several times before they finally catch a meaningful turn. The funny thing is that by then they’ve either shrunk their account or they’ve damaged their confidence enough that they might only recoup what they gave back in their first few failed attempts.

Don’t be a hero in the market. Leave that to someone else.

The best trades tend to be planned in advance and then simply executed well when the right factors fall into place. Take what the market provides, but don’t force big trades out of your desire to get noticed by your trading peers. Remember, the good thing about trading from the charts is that we don’t have to know where stocks are going (what a relief!)! Just keep working the charts and take the setups as they come, and know that bullish and bearish plays will present themselves at the proper times. That’s all we have to do, and there’s no need to be a hero!

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]

Trading With Multiple Monitors

March 11, 2008 at 12:01 pm

In an age of falling prices on LCD monitors and computers, it’s becoming increasingly common among active traders to expand screen space through the use of multiple monitors. Split-screen displays are easy to come by with any dual-head video card, and I’ve seen arrays containing up to 16 screens – talk about information overload! But it is very important to remember that more isn’t always better.

So what is the best way to get started expanding your screen real estate? I think the first step to take is to take stock (pardon the pun) of what info you need in front of you throughout the trading day. Consider which charts, tickers, filters, and various windows of your trading platform (open positions, Level 2, orders, time & sales) are absolute necessities. That’s going to give you the bare minimum requirement for how much screen space you’ll need for your trading, but it’s never a bad idea to have a little space left over. Perhaps you’ll want to save some room for instant messenger or for your favorite website to keep open and read updates on during the day, so those should also be considered.

What’s important though is that you have only a little leftover space – not a bunch. What happens when there’s lots of empty screen space is that many traders tend to start to tinker with things they shouldn’t. They begin to add studies, extra charting timeframes, and basically just complicate an already good trading system by allowing too much info to clutter their thought process. The old phrase, “paralysis by analysis” comes to mind. Before long, they have a very impressive-looking setup, but they have lost their trading mojo and no longer know which way is up.

Here’s the thing about extra screens: you can always add more when you need them! My trading platform offers a huge amount of tools I could clutter up my screens with, but I try to stick with what’s important to me and let the rest be. There are only a certain number of tools which I can effectively use simultaneously.

Good trading doesn’t necessarily mean having more information at your fingertips – it’s about having the right information. Figure out what you need, gather enough screens to display it, and trade the way you know you should based on your own personal style. Just don’t add confusion to the mix in an effort to see everything at once!

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]

Formulating Your Market Opinion

February 27, 2008 at 2:38 pm

The Market Wizards books by Jack Schwager are in my opinion among the best trading books out there, as the interviews with top traders simply offer so much insight. I make it a habit to re-read these books semi-regularly because of the insights they offer, and it seems every time I read them I either pick up something new or am reminded of an important lesson.

One interview with Tom Baldwin contained a comment which I found interesting, especially given the clear lack of enthusiasm in Baldwin’s answers. Although Baldwin seemed to come across as stiff, arrogant, and basically anything but friendly to Schwager, he still offered some food for thought.

When asked how he learned to trade, Baldwin replied with this answer:

…All day long I stood there and developed an opinion. As I came to see that my opinion was right, I was reinforced, even if I didn’t make the trade. Then when I traded, I knew from standing there six hours a day, every day, that most of the time I was right. I would see scenarios develop over and over again.”

Baldwin’s comment is probably an oft-overlooked statement, and yet it carries some real value. “All day long I stood there and developed an opinion.” That answer isn’t anything flashy, but yet it’s so accurate. Your market opinion, your feel for the tape, your instinct….it all comes from those countless hours in front of the screens. Whether you’ve got 0 or 10 positions on at any given time, you are still soaking in the data and gathering important info which you’ll call upon sometime later.

Trading the market can be very exciting, don’t get me wrong. Pulling some fast money out of a stock and nailing a trade is a real thrill, and those of us who get to trade daily know that. However, newbie traders are often surprised at how boring the market can be at times and how much waiting is involved. Trading doesn’t mean constant motion and pure adrenaline from opening to closing bell. A lot of times it’s monotonous and dull, and yet it’s still wise to observe.

That trade you’ve been stalking might finally come around and trigger an entry, in which case you’re back on the wagon. And on the other hand, you might have days where you sit for hours on end without ever pressing a button. The best traders know this and are willing to wait when conditions warrant.

Observing the markets, watching stocks, gauging order flow and sticking close to the tape in general will help you tremendously. You’ll learn more about how particular stocks move. You’ll see where mistakes are made by others who bought or sold at the wrong times, and of course you’ll learn a lot about the role which volume plays in the action.

If you want to be a good trader, commit to putting in your hours each and every day. If you get tempted to overtrade and push buttons when you know you shouldn’t, then step away from the screen. Otherwise, formulate your market opinion by constantly staying close to the action. You won’t regret having a free ticket to the show.

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]

What If…

February 20, 2008 at 6:50 am

Do you ever find yourself asking, “what if..?”

Maybe you’ve done it in traffic when the lane you had been in is now moving faster than the one you’re currently in. (I hate when that happens.) What if you had stayed in that lane? What if you had taken an alternative route? Would you get to where you’re going any faster?

Well, trading offers unlimited opportunities to ask yourself exactly these kinds of questions, but are those thoughts worth exploring? It’s easy to beat yourself up over moves you did or did not make, so only look in that rear view mirror if there’s something you stand to gain. Let’s unpack this idea a little further.

The Plan

Over at TheStockBandit.com, I put out a nightly newsletter discussing the market averages and the individual trades I’m making. Some are swing trades with a multi-day timeframe, and some are purely day trades where I’m looking to rent a stock for up to a few hours to catch a smaller move. Regardless, every play has a designated trigger price which the stock needs to trade through before I’ll enter the trade, because I want to buy stocks on the way up and short stocks on the way down.

That concept is nice until we get a price gap. We all know that stocks don’t have to open tomorrow at the same level they close at today, so that can sometimes throw a kink into my plans. Sometimes a day trade candidate I’ve listed the previous night gaps through the trigger level. When that’s the case, I don’t chase them, at least not on the open. For day trades, my risk is kept tight and a gap represents a change in the risk/reward profile of that trade.

Every now and then, a day trade candidate will gap through my trigger price and never even look back. They just cruise higher while I sit there and watch, not participating. When that happens, my initial response is inevitably to kick myself, but that doesn’t serve a purpose. Instead, I need to review the stock and see if missing a great move is cause for concern.

Let’s look at an example and I’ll show you what I mean.

Monday night, I listed CLF as a day trade candidate for Tuesday if it could trade up through $118.30. On Tuesday morning though, CLF gapped through that price by nearly $2, so I skipped the trade not wanting to chase the upside gap. I’ve seen a ton of them fill, especially on the first trading session of the week. Nonetheless, CLF proceeded to run another $6 rather quickly after gapping up $2, and it wasn’t easy to watch! Here’s a look at the move it made after gapping above the trend line:

(Click for full-size image, courtesy of TeleChart)

The Evaluation

After passing on a trade and seeing a move like that, it’s time to evaluate what happened. Sometimes a distraction can be the cause for missing a move. Other times perhaps it’s diminished confidence after sub-par trading, or maybe it’s even due to a stock moving so fast that we simply choose to cancel an order.

What we’re wanting to determine is whether what happened was the exception or the rule. If it’s the rule, then there had better be a good reason for skipping the trade! However, if it’s the exception, then there’s no need to beat ourselves up over not catching it.

In this case, there were a couple of logical reasons why I chose not to take the trade. First was the frequency with which gaps have been getting filled lately. I don’t want to buy into what is typically a great opportunity for selling. Second is the shift in the risk profile of the trade. With a closer target on my day trades, I absolutely have to keep my risk in check, and that means a tight leash on such trades. I can’t make a habit of paying up by $2 above a trend line when my timeframe for the trade is minutes or hours, as that’s rarely acceptable when my timeframe is weeks. With CLF set to report earnings this week, I had to have an abbreviated holding timeframe for the trade (as per my trading rule of avoiding earnings).

So upon further review, this time I get a pass. It can be a helpful habit to run through this thought process after the fact in stocks which are in your trading plan, whether you took the trades or not. But when you do so, limit the time you spend looking backward. Take what you can from each experience, and if you find something useful, apply it going forward. Stick with your plan and take the trades which you feel have the highest probability of working for you. All else can be ignored.

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Investing[/tags]