Author Archive for Jeff White
Jeff White is the founder of www.TheStockBandit.com, a nightly newsletter for active traders. He has been trading his own account for over a decade and currently trades full time in Texas.
5 Rookie Trader Mistakes & How to Avoid Them
October 4, 2010 at 8:50 am
In trading, as in life, lessons can be learned out of inspiration or desperation. It’s hard to say which is better, but I know that regret is quite a teacher.
For example, I’m in the process of buying a house right now, which will be the second for my wife and me. Eight years ago, I made several mistakes as a first-time buyer, some of which I’ve wished I could go back and change. Experience educates each of us, fortunately, and needless to say this time around (I think) I’m doing it right.
A lack of experience is responsible for many mistakes newer traders make as well. Those errors not only prove costly the first time around, but they can also ingrain some bad habits if not corrected quickly.
Over the years, I’ve been fortunate to work with hundreds of traders around the globe, of all trading styles and timeframes. And yet as diverse as these traders seem to be, a handful of common issues continue to surface. Coincidence? No. Just human nature, which the market preys upon.
So, to help you stay on the right path with your trading, let’s take a look at 5 common mistakes rookie (or struggling) traders make, and how to avoid them.
1. Adding to Losing Positions. This is a biggie, and it addresses perhaps the most common lapses in judgment among traders of all experience levels. Gartman says to “do more of what is working, and less of what isn’t working.” By definition, a losing position is not working. And unless you originally planned to scale into the trade, adding to a loss is a big no-no. Take note of your P&L, and if you’re wrong, avoid throwing good money after bad.
2. Forcing Trades Out of Boredom. Boredom is one of the biggest enemies of today’s trader, because it leads to so many bad decisions (like overtrading). Transaction costs are so low and it’s so easy to place trades that one can easily forget just how costly boredom trades can become. So if you’ve done your homework and come up with very little, place no pressure on yourself to be active. There are times where sitting tight is exactly what you should be doing, so have the courage and discipline to do nothing when that’s the case.
3. Switching Strategies By the Day. I’m all for trading with multiple strategies, and as your experience increases, your trading toolbelt will begin to fill. However, each of us during times of struggle has encountered the losing streak. That’s perhaps the biggest cause for traders to throw the proverbial spaghetti at a wall to see what sticks. While experimenting can yield some clarity, doing it in either the wrong fashion or too frequently can prove counterproductive. Get some trader training, put some strategies to work across multiple timeframes, and give them enough time to prove their effectiveness. Trying something for a day, losing money with it, and shifting quickly to something else isn’t responsible, so avoid that limited mindset.
4. Putting Everything on the Line for one ‘Idea’ Trade. I was once warned by a more-experienced trader, “don’t get any ideas!” He was right. A longer-term thesis takes time to play out, so leave that to the fundamentalists who don’t mind tying up their capital for months on end – for better or for worse. Stick with what the price action is telling you, and determine the best opportunities to get on board for the next move. Ideas are only useful when they relate to technical discoveries, so don’t bank on guessing right for one big recovery play – it may instead prove to be the final nail in the coffin.
5. Hoping a Stock Will Recover. Each of us has been trapped by a bad trade, and we’ve wondered if sitting motionless and simply hoping to be let out of the trap is the best solution. Marty Schwartz, of Pit Bull fame, mentioned how as a soldier, he was trained to do something when under attack…either fight back or retreat, but don’t just sit there. Hope truly is a 4-letter word in the trading realm, and relying solely on hope will provide plenty of damage to your trading account. Stops are available for good reason. Game plans offer if/then scenarios to follow under the gun so that big decisions need not be made in times of stress or volatility.
Avoid making these mistakes, and your money will be much harder for the pro’s to take.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Video Review of the Indexes 10-3-2010
October 3, 2010 at 8:30 am
The major averages put in some much-needed rest last week as they were able to hold above key levels while consolidating. The dips have remained shallow and short-lived since the August lows were set. Although we’re short-term range-bound, it’s difficult to expect that to stay the same given all the movement we’ve witnessed over the past month.
The week ahead is likely to bring a resolution to this short-term indecision, so it’s time once again to check out the big picture for clues of where momentum might return in either direction.
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.
This clip was also posted over on the Trading Videos site (as always), and perhaps you’ve seen it there – but in case you didn’t, I wanted to put it here on the blog for you.
Let me suggest going full-screen for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
One Intraday Setup That’s Working
September 28, 2010 at 9:38 am
In a world dominated by algo’s and machines, the astute trader can still turn a profit. It’s true, despite what many losing traders might tell you.
It takes adaptation, some ingenuity, imagination, and of course, thinking outside the box. For the creative trader though, new patterns will emerge from which profitable trades can be made.
So today, I wanted to point out to you one such example. I won’t name the stock, because it doesn’t matter, but here’s the chart from the opening 50 minutes or so:
As you can see, this stock gapped higher, ran a little more initially, and then began to roll over. The selling intensified as new lows were made on the session, and the gap began to fill before a brief period of rest set in. But that wasn’t the end of the story. Conventional day trading wisdom says this gap keeps getting filled, but only if another new low is made with a break of that intraday support.
Lately I’ve noticed this kind of setup – and you can reverse it with a downside gap if you’d like – offering some good plays. I had one finger on the trigger to short sell this one upon a break of that support, but it held just above the whole number. As the stock started to catch a bid, I went long with a very tight stop – only $0.06 from my long entry. And only 10 minutes later I was flipping out my shares for a quick $0.50 winner.
** For those wondering, that’s a reward-to-risk ratio of better than 8:1.
This setup offers two things I really like…
First, it offers very minimal, defined risk. If support (or resistance in the case of a morning gap down) gives way, I’m out quick for a small loss.
Second, it offers a great pivot area where emotion is building. The battle that took place at support was really something, and once one side began to win out (in this case the buyers), it sparked a quick move away from that level.
So, keep an eye out for this setup – it’s been a great one to trade. Gaps which only partially fill before hesitating at a level just might offer you a quick, profitable reversal play like this one.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Eyeing GDP for a Breakout
September 27, 2010 at 8:04 am
There’s no shortage of bullish charts out there right now, but not all of them are in position for new buys.
One name I’m watching right now, GDP, is in pretty good technical shape here and looks like it may be gearing up for a move soon. It’s nowhere near short-term extended like so many other stocks at the moment, and in fact is knocking on the door of a breakout from a multi-month trading range.
The Plan
With GDP threatening resistance right here, it’s on my radar for a play.
I’m looking to buy this one if it’s able to break out through the $14.10 level, and would expect a quick push up to the $15.20 area. That level has proven to be both support and resistance in the past, which makes it a logical spot for a rest if the next move carries that far.
Here’s a closer look at the chart of GDP for you:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Video Review of the Indexes 9-26-2010
September 26, 2010 at 12:38 pm
Last week new highs were made as the indexes put more distance between current prices and former resistance zones. The bulls have some exceptional momentum, but how long will it last?
That’s the question on everyone’s mind right now. No signs of weakness have arrived yet, so it’s still not time to expect weakness to set in. However, at some point a good rest or some profit-taking will arrive, and it will be after that occurs that we’ll be able to better assess the technical situation. For now, it’s a one-way street and stocks are still headed north.
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.
This clip was also posted over on the Trading Videos site (as always), and perhaps you’ve seen it there – but in case you didn’t, I wanted to put it here on the blog for you.
Let me suggest going full-screen for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Don’t Dismiss This Scenario
September 24, 2010 at 11:45 am
It’s been a big run off the August lows, there’s no doubt about it. September, as a seasonally weak month historically, has caught many off guard with this relentless ramp.
And while the market has conditioned us in recent months to expect harsh reversals rather than continuation, this time may be different.
In other words, don’t dismiss the notion of a secondary advance into the end of the year.
There are a lot of factors at play, but one of them in particular is worth taking a closer look at. I put out an article earlier today that discusses The Case for a Year-End Rally, and wanted to be sure to let you know about it.
A pressing motivation for some is fast approaching, and it could prove to be a game-changer for what has been a range-bound market. Keep an open mind…
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are Sellers Looking for a Catalyst?
September 21, 2010 at 8:44 am
Anytime we see market streaks emerge, we know someone’s been caught on the wrong side.
Monday’s session marked the 12th advance in the previous 13 trading sessions for the NAZ, including nine straight. Breakouts happened across the board, with the summer highs being cleared on solid volume. It almost feels like stocks may never decline again – and that’s a dangerous way to think.
The market will humble traders of all kinds, including bulls who become overconfident. It may not be a life-altering lesson, but in a tape like this, it could be one slip that brings a sudden pullback – even if it’s a brief one.
The technical picture is positive, there’s no doubt about it. We just established higher lows in August relative to July, and we just made higher highs. That’s a shift of trend, not only in the short term of the past couple weeks, but in the intermediate term of the past few months. The bulls are sitting pretty.
Things start to get really tricky though when momentum begins to run a little too hot, which is where we are right now. All news has been good news of late, and the buyers have dumped cash into this market relentlessly since the start of September. It’s been an impressive run, no matter how you slice it.
For a reality check, however, it’s safe to say that all the easy money has been made for this run. The pace is unsustainable, plain and simple. We could push higher from here, there’s no rule to prevent that from happening, but it’s far more likely that we’ll see some profit-taking kick in sooner rather than later. Those who are sitting on profits will be quick to lock them in at the first sign of weakness.
When it comes to excuses, the market is excellent at finding them. Right now, my hunch is that the bulls are needing an excuse to satisfy their urge to lock in at least some of their gains. And with a few key events on the horizon, it’s important that you and I stay on our toes.
Today’s FOMC meeting may be the first possible excuse for some profit-taking. It may not even matter what the Fed does or says – what matters is how the market responds to the news. And if it isn’t today, then there’s plenty of economic news slated for this week which could prove to be a market-mover.
So, I’m on the watch for a possible pullback. If I were predicting, I’d already be short – and I’m not. Instead, I’m watching carefully to see if some selling kicks in, which would then set up a favorable risk/reward scenario for a little round of selling. Here’s my game plan:
The QQQQ has rallied big, not only in recent weeks, but on the intraday chart as well. We have steep uptrend lines on both the daily and intraday charts, and I’m watching them both for downside breaks. First, let’s take a look at the intraday chart. Monday’s advance was smooth, and a break of the rising trend line at $48.70 would likely spark some selling. I’ll go short there with a stop in the $49 area, just above yesterday’s high.
On the daily chart, there’s also a steep rising trend line. A break of that wouldn’t necessarily mean price goes straight down, but it may be a worthwhile short for the nimble to catch the first move. The rising trend line currently stands around $48.30, and a break of that level could bring into play a multi-day pullback. Traders watching the daily chart should keep that level front and center today, and it will climb daily should this market happen to continue advancing. Once it’s broken though, the move could be a swift one to the downside for a quick trade.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
