Author Archive for Jeff White

Lessons from My Biggest Trading Loss

May 28, 2009 at 9:58 am

The trading has been really, really good lately.  I’ve been fortunate to nail some nice moves for both day trading and swing trading timeframes, which of course is always fun.

But in order to recognize and appreciate the good times, one must also go through some periods of poor performance.  You have to struggle, and fight through the pain.  Expensive lessons get learned, and thank goodness, they can stay with you for a while.

That’s what I’m here to tell you about in this post.

I want to show you some lessons I learned from the biggest trading loss I ever took, and hopefully you’ll benefit from my mistakes.  After all, standing on someone else’s shoulders is the best way to look forward.

Setting the Scene

With summertime having arrived in 2004, the usual conditions were present.  That means lighter trading volume – and whenever that’s the case, I tend to prefer short selling over buying.  (I view volume as the fuel needed to propel a stock higher, so when it’s present, I realize bidders can simply disappear and the stock can slide without needing high activity.)

Having noticed a deep correction in NVTL which shaved off about 1/2 its value in just a few weeks, I had the stock on the radar and was waiting for a good setup.  No harm so far.

It had begun a lazy, light-volume bounce off its correction low, which of course left me skeptical.  I watched for the pace of the bounce to slow, and once it did, I started a position.  That was on June 1 as it attemped to roll over slightly, but it was merely an attempt.

The following day, NVTL made a new recovery high, but I stayed in the position.  Mistake #1. As soon as the bounce resumed, that was grounds for dismissal, but I stuck around in a stubborn fashion.  A week later, NVTL was again on the move, and I found my P&L turning deeper red by the day.

I was wrong, and it hurt.  So I did what any trader in the midst of breaking trading rules would do – I added to my position.  Mistake #2. Now I’m in a bad trade and I have too much of it.  Why?  Because I needed to be right.  Mistake #3.

StockFinder Chart courtesy of Worden

Long story short, after adding a couple of times on the way up to improve my basis, I ultimately drew a line in the sand which was crossed 3 weeks after my entry.  I blew out of the trade… stunned, bruised, and yet relieved.

Ultimately NVTL corrected, but I would have had to hold the position for another month and endure another 10% against me before that happened.  Even then, I only would have been able to exit at breakeven.

It was a nasty loss, and it angered me to have allowed it.  Now 5 years later, I still shake my head at the series of mistakes I made, but it’s a great reminder to me of what can happen when I allow myself to break my rules.

Reminders & Takeaways

• “Paper” losses are very real. Many try to fool themselves into thinking that because a gain or loss hasn’t been realized, that it should be viewed differently.  Wrong.  If you’re underwater in a position, you’re losing whether it’s a closed or open position.
• Adding to losing trades is a recipe for pain. If you’re already in the hole and you’re already in the size of position you originally intended to be in, you stand to dig a deeper hole and cloud your judgment even more.  Don’t add to a losing position when it’s a hail-mary effort at escaping a bad trade.
• Accepting a big loss can bring about some needed relief. For one, you’re ending the loss – it can get no worse.  That’s a big reduction of stress and distractions from your other trading efforts, which is a huge benefit.  You’re also accepting that you were wrong, and creating some closure which mentally helps you move on.  There’s no substitute for a clear head when trading, so take it.  Further, there are few things worse than logging into your trading platform and staring at a giant loser day after day.
• Being early = being wrong. This trade ultimately moved back in the direction I thought it would, but not until it had far exceeded my “uncle” point.  Just goes to show that the market can continue moving against you for longer than you can handle it sometimes, so it’s never worth arguing with.

If I could get away with only talking about my great trades here, it might be more enjoyable for me, but you’d take less away from it as a reader.

And the reality is that I lose on plenty of trades.  But there is much to be gleaned from glancing in that rearview mirror, both for me and for you.  That’s how we get better!

Sometimes it comes with a grin and sometimes with a grimace, but it always offers valuable lessons to gain from.  I hope you’re willing to do the same with your own trades.

Are you watching the Trading Videos over at TheStockBandit.TV?

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]

Clues to Observe for a Market Correction

May 26, 2009 at 8:07 am

Is this market due for a correction?

That’s the million-dollar question right now for many, so why don’t we examine a few clues to watch for just in case.  After all, there could be some hints provided by the market before the heavy selling hits – that is, if it’s coming.

Here are 3 technical considerations I’m going to be on the lookout for…

1. Weak closes. These tend to signal that some distribution is taking place. We’re all familiar with the phrase “amateurs open the market and pro’s close it,” but I think there really is something to the way in which the market closes. If it’s limping across the finish line with any regularity, it’s usually a sign of at least some short-term fatigue and therefore ripe for some selling.
2. Watch key support and resistance levels. If key resistance is turning the averages away or if support levels are breaking, that’s ample proof of some underlying selling. (I highlight these weekly in the Market View videos over at TheStockBandit.TV.)
3. Watch for potential lower highs and/or lower lows to be created. While these may take some time to actually confirm, keeping tabs on stalling rallies and areas where bounces look to be failing is a telltale sign that the buyers aren’t in charge.

There are probably several more, but those are the ways I tend to gauge the underlying market strength and weakness. Some traders prefer to watch indicators or sentiment readings, but monitoring the price action and the character of market moves tends to provide enough clues for me.

One other thought… I do flip through several hundred individual stock charts nightly, and that also helps me gauge whether more stocks are acting strong, weak, or are just lethargic. It also helps me determine when to curb my buying.  So if you don’t currently use a charting program that enables you to keep watch lists, make notes, and draw trend lines, then get one!

And you know, even if this market does end up correcting a bit, what would be so bad about that?

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]

The Importance of Losing Small

April 7, 2009 at 2:05 pm

Losses are inevitable, but small losses are easily overcome.

I put that first because if you don’t read anything else here, I want you to be sure and see that.

In fact, that one statement could be considered the key to my trading.  I remind myself of it often, and when I’m staying disciplined, I am able to see it in action.

Take Monday for example.  I took several trades…7 to be exact.  I made money on only 2 of them (no, it wasn’t a great day), and yet my net P&L was only slightly red.  Just a little bit negative – that’s all.  It was a down day for me, and yet it was about as painless as they come.  A minor loss.  All because I was able to recognize quickly when I was wrong, and immediately focus on damage control.

The trading landscape has changed dramatically just in the past year.  The market is moving differently, the stocks which are in focus are a different group, and there are even some new fees and rules making their way into the fray.  Nonetheless, there is still one constant: the trader who is able to lose small is able to stay in the game.  He’s able to survive, which means he’s able to profit.  And that of course means he’s able to thrive.

Two Big Benefits

Keeping those inevitable losses at a minimum carries with it a pair of huge benefits…

First, when you’re wrong, the damage is far from devastating.  Falling off a pony compared to falling off a Clydesdale sure makes it easier to get up and get back on that horse.  And trading is all about getting back up.  It’s an attitude thing.  It’s important to stay in the game, and that means an occasional bump or bruise is far easier to overcome than the occasional amputation.  The point is this – protecting the downside offers you a safety net to fall into.  Why not use it?

Second, confidence stays high, and that’s a major factor for a successful trader.  Confidence should be protected just as vigilantly as one’s capital, for it can be considered your psychological capital.  Just as money isn’t easily replaced, confidence isn’t quickly replenished once it’s wrecked.  Looking out for yourself by way of small and limited losses means you’re taking no big hits to your trading account or your psyche.

So on those days when you’re just not feeling it and you feel a step or two behind, be quick to recognize it and live to fight another day.  Keep the damage minimized, and you’ll be able to return tomorrow fully prepared to erase that small deficit quickly.

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]

Focus on the Process Now, Results Later (Part 2)

March 27, 2009 at 11:21 am

In recently looking through some archived posts, one that caught my eye was Dave Mabe’s from last summer.  In that post, Dave covered some very important aspects to sticking with your trading plan.

Then in catching up on some reading, I saw where David from Trade-Ideas was just discussing this yesterday over on the Trade-Ideas blog.  He brings forth some very good points, and I’d encourage you to check it out.

All of this got me thinking about where should our focus be as traders?

I’ve discussed this subject before (in Part 1), but it’s certainly worth revisiting and expanding on.

The Game vs. The Score

One of the ideas that I’m continually reminding myself of is that how you play the game is absolutely crucial to success.  It’s about the process.  Today’s trading platforms tell us the “score” at any point in time as measured by our P&L, and while that’s pretty nifty, it isn’t always beneficial. I feel it’s generally more important to focus on the process rather than purely the results. Here’s why.

“There’ll be time enough for countin’
When the dealin’s done.”

With those lyrics, Kenny Rogers said it about as good as it can be stated, but I’m still going to try to build on it! I’ve had a Kenny poster on my office wall for several years, and while he may have been talking cards (or life), the same lesson applies to trading!

I’m sure you’d agree that the trader who is focused more on his method than on his P&L has a distinct advantage over the trader who lives and dies by the red and green numbers flickering in his position window. If you can get to the point as a trader where you’re confident enough in your approach to stick with it for even a single session without relapse, you’ll be in a great position to build on that as a habit.  And good habits pay off.

Driven By Numbers

The market dishes out regular lessons on this topic to me, so it’s something I’m continually working to improve on.  It’s not uncommon to start reacting to the P&L as the day progresses, backing off when mental thresholds for a “good” or “bad” day are approached.  That can be a 2-way street though.  It can allow you to retain profits or prevent additional losses, but how can you add to your bottom line if you’re in a constant dilemma of whether or not to take that next signal?

You’ve got to play in order to win.

Anytime I get too focused on the results (P&L) during the process (in the middle of trading), my decisions tend to be adversely affected, which in turn has led to a plethora of mistakes.  It happens when my attention is fixated on my P&L – when it begins to cloud my thinking and skew my view.

Sometimes striving to achieve some set level of profits for the day can result in overstaying my welcome in trades.  At other times, that desire to secure a good day has caused me to exit prematurely from good trades which were giving no reason to bail.  Both are cases in which my P&L was the driving force behind my decisions.  But the tape should serve that purpose.

Maybe you’ve been there too.

The Buzzer

Flexibility and a willingness to adjust your plan when conditions deem it necessary doesn’t have to mean going into shut-down mode. If there’s clearly a reason to call it a day or a week, then don’t force the issue.  Whether that means a lack of setups to play or just poor risk/reward conditions, submit to it.  And if you’ve hit a drawdown level that tells you it’s time to stop losing, then do it.

But barring that max-loss situation, when it comes to trading vs. not trading, the deciding factor shouldn’t solely be your P&L.  Commit to deciding on a per-trade basis, and see where it gets you. Take the good entries which come your way if you know they are suitable for your method and the overall conditions are in favor for your approach.  Otherwise, pass and continue waiting.

At the end of the day, add it all up.  Some days will be mediocre, some will be excellent, and some you’ll be eager to forget about.  But as long as you keep doing the things which you know will deliver success over time, there’s no reason to let the scoreboard distract you.  That’s just one of many ways to get beaten.

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]

Always Be Prepared

February 12, 2009 at 8:50 am

Over the holidays, I encountered a door to door salesman while visiting family.  He was 23 years old and his name was Mike.  He was selling a cleaning product, and I mean he sold it!

Every single rebuttal thrown at Mike was overcome with ease.  Sometimes those replies were educational, sometimes they were entertaining, but Mike was ready for anything.  With it being the holidays and therefore plenty of time to spare, it became sort of a fun challenge to banter with him and watch his skill.  He knew his product inside and out, and he proved it with confidence.

I was most impressed by Mike’s preparation.  Anything we threw at him, he had a solution for it.  He was great at his job, because he had made it his craft.

How Do You Treat Your Trading?

That encounter with Mike proved to be a valuable reminder to me that I’ve got to be prepared each and every day for whatever the market delivers.  You do too if you have plans to pull any money out of the market on a given day.

The prepared trader doesn’t know what he will face each day, but he doesn’t have to.  He can handle it.  Mike didn’t know which rebuttals his customers would offer, but he still knew how to work through the situation.  Hard work, persistence, and a refusal to quit when the road gets tough…these are all the ingredients for honing a skill that will pay you over and over.

Those frustrating losses, the weeks when you keep fighting and adapting – sometimes just to break even – that’s what strengthens you and becomes a tremendous source of confidence that you’ll feed on in the future.  It’s the long days when you grind it out, win or lose, and you still stay after the bell to review your results and keep searching for ways to improve.

Look In the Mirror

Success in this world does not come easy, and anyone who tells you otherwise is misleading you.  Whether it’s a great salesman, a world-class athlete, or a top trader, they all have one thing in common – they work for it.  Even if they’re naturally talented.

So as you reflect on your trading of late, have you been adapting?  Have you made an effort to determine what’s working best and what’s proving to be costly?  Are you hoping that success will find you, or are you preparing in a way that enables you to go get it?

The thing about day trading the markets is that every day is gut-check time.  We find out quickly whether or not we ‘have it’ on a given day or if instead we’re funding someone else’s efforts.  The latter is a huge motivating factor to show up with our best as often as possible.

The first 6 weeks of the year are coming to a close, and I hope you’re making great progress.  But if you aren’t, then sacrifice a little extra time to get back on top of your trading.  It’ll be worth it.  Put in the effort to get prepared, and commit to doing it day in and day out.  That alone will make the difference.

And in case you’re wondering, yes, I bought from Mike.

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 Attitude Goes a Long Way

January 27, 2009 at 12:39 pm

Recently I spoke with a trader who was really struggling.  Not only were his results not up to his standards, but more importantly, his attitude was pitiful.

One comment he made really stood out to me about how he was approaching his trading – and how he could alter it for better results. After taking a couple of small hits in failed trades, he remarked:

Accuracy is important to me. It means everything to how i look at the market the next day and how i look at myself in the mirror at night.

I think we all deal with that to a degree as traders, and especially us guys tend to equate recent trading results with how we think of ourselves. Not deep down inside – I don’t mean that, because many of us have values rooted elsewhere – but our day-to-day mood is often impacted by our trading results.

That’s common across many professions, but full-time traders probably have it even worse since we can keep score every second of the day and know where we are and where we want to be, and often times there’s that discrepancy which causes some frustration.

That’s where huge mistakes can creep in if we let them, as we increase size or trade frequency based on our desire for quick gains rather than when the charts necessitate it.

Two Solutions

I think zooming out on the timeframe of self-evaluation is key.  Instead of responding to every tick with an “I’m a genius” or “I’m an idiot” mentality (which can be so exhausting), why not look at your results from a week to week or month to month basis? The daily swings, particularly in this market, can just be too much of a roller coaster sometimes – both in an account and emotionally.

Another way to keep your attitude in check is to accept that you’ll be wrong, sometimes often.  That’s not to say that you need to expect failure at all.  However, as a trader, your job is to manage risk effectively first and foremost, and that means when you find yourself on the wrong side of a trade, it’s often wise to return to the sidelines to reevaluate it.  Getting back in is fast and inexpensive – if you deem it necessary.  Taking a string of small losses might reduce your accuracy percentage, yes, but the goal of trading is to be profitable.  Too many traders tend to quickly forget that.

Check It

The aforementioned trader has already come a very long way from when we first met, ridding himself of his former style of operating primarily on hunches.  Moving toward a more methodical approach has already shown him a huge improvement in his results, and it’s been fun to watch.  But as with most Type-A personalities, he’s in a hurry to reach lofty goals – and I can’t blame him.  He’ll get there if he will stay on track.

What’s most important at this juncture for him is that he checks his attitude on a regular basis.  Just as he defers to the charts when making decisions and periodically monitors his P&L, he’s got to get into the habit of objectively gauging his mentality.  When he’s patient and prepared, he’ll be far less-likely to allow his short-term results to dictate his mood.  But if he falls back into the mindset of living and dying by every trade he makes, the road will get a lot longer and much more difficult.

As with so many other things, in trading it’s your attitude which can make the biggest difference between success and failure.  When your attitude is in the right place is when you’re going to see the most growth – both personally and in your account.

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]

Market View Video – January 19, 2009

January 19, 2009 at 11:35 am

It’s always a good idea to start out the trading week by checking out the big-picture view and a look at the major averages.  After all, they do have the biggest influence on how individual stocks move!

So as you start to consider what and how to trade this week, be sure to stop by and check out the Market View video over at TheStockBandit.TV.

And as always, Trade Like A Bandit this week!

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