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.
Trading on Margin
January 3, 2006 at 5:07 pm
The Apprentice finale ended recently, and I was reminded that Donald Trump’s wealth was amassed through the use of leverage in real estate. Borrowing money to make money isn’t just done in real estate, however. Day traders have additional buying power on hand every day in the form of margin, and using it properly can mean significant gains.
Possibly more impressive than Trump's ability to leverage is his ability to balance a dead animal on his head.
Margin is the ability to borrow against cash and/or securities in your trading account in order to purchase more. Day trading margin accounts allow for 4-to-1 leverage intraday, and 2-to-1 leverage overnight against the cash held in the account. This gives the active trader access to the double-edged sword of leverage, generating profits and losses at a much faster pace. Although swing trading stocks and holding overnight on borrowed funds costs interest, day trading on margin doesn’t cost a thing.
Margin trading isn’t for the faint-of-heart. Knowing that you can lose money up to 4 times as fast as a cash account can be scary to a trader, but it’s important to note that it shouldn’t be used at all times. While a designated day trading account inherently comes with the increased leverage, the trader is the one making a decision on just how much of that buying power is to be used.
Consider these 3 ideas when it comes to margin trading:
Margin is for experienced traders only. Beginning traders can be more susceptible to emotional swings that come with trading. The urge to “make it back” after a loss can easily be compounded into a major error when trading on margin. Consider trading on a cash account for a while until you feel comfortable with the added leverage that a margin account can provide you.
Margin doesn’t have to be used every day. On a day trading basis, I use margin more frequently than I do when I’m holding overnight positions. Market conditions and the stocks you’re trading will determine whether you need or should be using margin regularly. If you’re day trading several thousand shares of QQQQ and SPY simultaneously, you may need the additional buying power that a margin account can offer you. A liquid issue like QQQQ or SPY which are index-based will move far less than a headline-driven stock like RIMM, making them prime candidates for trading on margin.
Margin demands your respect. Any veteran trader would agree that only on occasions will market conditions be ripe for going “all in.” Putting the pedal to the metal with regularity will at times no doubt leave you leveraged in choppy markets, digging a hole which will take you some time to get out of. Don’t let the scary stories of margin trading spook you away from using it as an instrument to your trading, just be sure you respect what it can do – both for you and to you!
Trading on margin can offer tremendous benefits to the trader who knows what he’s doing. If the market has momentum and you’re in sync with it, you can make much more money when you’re right and boost your returns significantly.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
2006 In The House
January 2, 2006 at 5:38 pm
It’s been nice to have a break from the market the past 10 days or so, and now I’m ready to get back to the action. Hope your holidays were as great as mine! Market chatter will resume tomorrow, but for now here’s a handful of links I ran across since my last post that I found interesting.
When can I catch this on MTV Cribs?
There’s a joke in this headline somewhere I am sure
Great reality check just in time for the new year
Talk about STYLE – gotta love it!
Sure, it must have been the medication
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Patience
December 22, 2005 at 11:22 pm
Sometimes it’s good to take a break from trading. I’ve called it a year already and can now relax and take it easy until January 3rd when the market reopens. In the meantime, I can spend time with family, do some traveling, and get clear on my trading goals for 2006. I love to trade, but it will be good for me to patiently wait for the New Year.
Perhaps you plan to trade the remaining market sessions for 2005, and if so, it’ll likely pay to be picky. With year-end crosscurrents affecting the market and the light volume that accompanies holiday trading, consider watching and waiting for the very best opportunities. This might mean you prepare each day and fire up your trading screens but never even place a trade. If so, that’s fine too.
One of my favorite trading books is Market Wizards by Jack Schwager. Jim Rogers, the famous hedge fund trader and partner of George Soros in the Quantum Fund, is quoted in the book as saying,
“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”
This is excellent advice for trading at all times, but particularly right now at the end of a choppy year. Be picky if you’re trading this final week of the year. Don’t overtrade this market, so wait for the right conditions and follow your trading strategy.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
GOOG – Big Move Potential
December 22, 2005 at 12:20 am
I’ve day traded GOOG a lot in the past week. It’s got great volume and moves a lot every day. The beauty of it is that I can be wrong several times in it, taking small losses each time, and then catch one move and make back much more than I may have lost, even trading the same share size.
What I’m wondering, though, is after this huge run, can GOOG make more giant intraday moves like the high-flyers of ’99 and 2000? Having traded actively back in 1999 and 2000, I remember plenty of the triple-digit stocks which made $25 moves or more on a regular basis. Stocks like NSOL, SDLI, BRCD, QCOM and many others all made tremendous moves. Some more volatile days in GOOG like Monday’s reversal would leave me feeling a little nostalgic while the market chops around in this high trading range.
Is a 10% move in GOOG intraday out of the question? GOOG‘s biggest gain of the year came in October following earnings, but it was all gap. GOOG has only posted 5 days this year with a 5% gain or more. Perhaps it’s just a different animal than the high flyers 5 & 6 years ago, but I’m still on the lookout for more monster moves someday soon from the top dog of the NAZ.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Do Your Homework
December 20, 2005 at 9:08 am
Having a trading routine is essential. It doesn’t even have to include a lot of steps, just as long as you have a routine in place which allows you to gauge market strength or weakness and formulate some trading ideas to capitalize on your market view.
Doing my homework includes screening for chart patterns, staying aware of scheduled news events (Fed meetings, earnings, economic releases, etc.), and monitoring my trading performance in case my trading strategy needs an adjustment. Staying on top of these things gives me a game plan for my trading each day. I get a feel for the market by seeing how many stocks or sectors are strong, weak, or just flat. It lets me feel prepared, knowing that I’m starting the day with more confidence than had I just walked into my office and started buying and selling stocks randomly.
While I cannot predict what the market will do, I can certainly outline a plan of trading actions to implement once the conditions are right. Being wrong is one thing, but indecision is unacceptable in this job. Trying to locate trades only after the market is already on the move is often futile. Even when I do find stocks to trade on quick notice, many times I feel as if I’m chasing them, which means inferior risk/reward setups and increased slippage. No good!
So find what works best for you and make a habit of doing your homework. You’ll trade more decisively and reap the benefits of daily preparation!
Make the Bandit Broadcast stock newsletter part of your daily routine – we do the homework so you don’t have to! Sign up for your free trial today and see what the buzz is all about!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
The Learning Curve
December 19, 2005 at 9:09 am
I had traded for a while on a part-time basis before I walked into my first day trading office at Protrader. I was amazed how much money people were making in there! Two guys my age on that day had each cleared $40k for the day in profits. WOW – how soon can I get up and running?!
I started out looking over a few different traders’ shoulders, watching their moves, mistakes, and profitable trades play out. I learned a lot for several weeks, mostly from their mistakes. I was emotionally detached from their trades, and I came to realize that my situation allowed me to think more clearly than they did in the heat of their battle.
After the first few weeks, my learning rate slowed. The next few months, I continued to learn, but it wasn’t brand-new to me anymore. I was getting a feel for things and able to recognize many conditions which I would have previously overlooked.
It’s now been over 5 years since that first day I walked into the Protrader office, and I’m still learning! The lessons are different now, and the market is my teacher rather than another trader. I’m still learning though, and I’m still in the game (there are 2 of us still trading out of about 35 in that office). I’ve learned a lot about the market and myself since that first day.
The learning curve for trading doesn’t happen overnight! Perhaps you know yourself very well but have some learning to do about the market and trading. Maybe you understand how to trade, but have some learning to do about yourself, your tendencies, and how to deal with them effectively. As you progress down the timeline as a trader, be patient and make learning a priority!
Check out the trading education page, where you’ll find links to trading topics of all kinds to help you in your quest for profits!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Trading Goals – 5 Steps Toward Reaching Them
December 16, 2005 at 8:52 am
With New Year’s rapidly approaching, most of us will take the time to review 2005 and make at least a mental list of what we’d like to accomplish in 2006. It might be your waistline that you choose to focus on, but if it’s trading, here are 5 ideas for making them happen.
Be realistic. When setting goals for anything, it’s important to be realistic. You want to set the bar high enough that you’re challenged to meet them, but not so high that they seem unattainable. Setting reasonable goals will keep you motivated and won’t have you feeling “behind” if you don’t meet your objective. If you’re trading with a $10,000 account, it would be unrealistic to expect to make $100,000 by the end of the year if you’re only trading stocks.
Measure your progress. Periodically measuring your progress will keep you on your toes to alert you of possible needs to adapt your strategy. You may want to do a weekly review of your progress, with more intensive check-ups monthly and quarterly. A day-to-day approach would likely be looking too closely under the microscope, causing your stress level to fluctuate more than your account balance.
Consider both process and results. Striking a blend between process-related and results-related goals will help you determine your goal AND a way to get there. Process goals may include a commitment to finding chart patterns each night for the following day’s session, or monitoring your win/loss percentage. Result-based goals would include the profit you expect to make each month, or a percentage return you hope to post by the end of 2006. Think of your results goals as destinations, with process goals being the road maps to get there.
Be willing to revise your goals. As time progresses, your goals may need adjustment. If you prefer short selling and the market is strong, then you’ll need to adjust your expectations. If you prefer the long side and sentiment shifts, it may require that you make a change to your trading strategy or your goals. On the other hand, a fast start might mean that this is finally your year and you are poised for greatness. Embrace that success and expect more from your trading than you had initially planned.
Finally, write down your goals. Just like the way mental stops tend to get blown, an unwritten goal can easily be forgotten. A written goal can be like a binding contract, motivating you to uphold your commitment. Place your goals where you’ll see them frequently, and it will greatly increase your odds of reaching the goals you’ve set.
I hope that 2006 is a breakthrough year for you in every aspect of your life – including trading! Sign up for your free trial to our stock newsletter and see if you aren’t closer to reaching your goals in 2006!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
