All Entries in the "Trading Psychology" Category
“Knight” Writer
February 13, 2007 at 7:11 pm
I am humbled and honored to now be a member of Don Worden’s Roundtable of Knights Who Think for Themselves. Tonight when I made my final TeleChart download, I saw that I have been dubbed “Sir Psychological Capital” by Mr. Worden!
As I’ve noted before, Mr. Worden often presents submitted notes from TeleChart Users along a variety of topics, and they always seem to get my wheels turning. A few recent Worden Reports prompted me to send him a few thoughts of my own, and I’m hopeful it will in turn help some other traders. Here is the note I sent to him:
Mr. Worden,
I am a long-time user of TeleChart and feel that your nightly report alone is worth the price. It’s great to have your insights to blend with my own ideas, so thank you for always sharing your hard-won experience of the past several decades.
I also enjoy reading the nightly Worden Report for the submissions of other TeleChart users. While many of them are more detailed than I may prefer to use, some of them are surprisingly simple and therefore easy to put to use. They also add to the user experience and value of your product, so thank you for sharing those as well!
Sir Smalltiger’s submission on January 3rd was an excellent example of how one should implement a trading plan, and I am in full agreement that each of us should have such a plan in place which fits our needs – whatever those may be. He touched on a number of topics which each trading plan should include, and in that regard his submission was very thorough.
I do feel that an added layer to the topic of exits would be of benefit to any trading plan, and that is the concept of managing positions in a scaling fashion to “peel off” profits on the way up.
Why not include in a trading plan a method for reducing risk and paying oneself along the way as a profit builds? When we catch a good move, we often battle our inner demons to either “let it all ride” or “swipe the winner off the table,” neither of which are ideal. This all-in-or-all-out approach rarely results in satisfaction! Inevitably, the trades which we press will pull back and cause regret, as does the alternative of jumping ship too early, only to see the stock continue higher without us. It’s the ever-present conundrum we face as traders.
I have found that my own solution to this ongoing battle is to book partial profits along the way. I prefer to pay myself when I catch a good move, but retain some portion of my position in order to participate in continued upside should the momentum carry forward. I then raise my stop for remaining shares to reduce risk while maintaining some exposure.
This accomplishes two goals, the first is financial and the second is mostly psychological:
First, I free up more trading capital to allocate toward a new idea. I am a trader, and that means I like to keep the money funneling into areas with the best (perceived) potential.
Second, I sleep easier because I don’t have as much (psychologically) riding on the big winning trade – I’ve paid myself and now have a win/win scenario – barring a gap – in that my raised stop will result in a net gain or that my trade will continue higher and add to my previously booked profits. This also addresses the preservation of “psychological capital” which I believe we each have a limited amount of.
The current market has been good for this approach as numerous times strength has been sold as prices migrate back toward trading ranges. Booking some gains into such advances has provided me with some good profits as well as opportunities to reload my favorite positions on pullbacks.
Every trader should have a plan that suits their own needs, and Sir Smalltiger’s plan is an excellent foundation from which to build. It can be adapted as conditions or situations change, but having some profit-taking method in place is better than the all-or-nothing approach which so many traders employ with limited success.
Thank you again for such an excellent product,
Jeff
Obviously money management is crucial to the success of any trader, but as I write here so frequently, a trader must also protect his psychological capital. Keep that in mind when formulating your trading plan, and you’ll always be on the right track!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Proper Positioning for Traders
February 7, 2007 at 9:26 am
Toddo wrote a great article over at MarketWatch that I highly recommend reading. His 5 points of proactive thoughts on how to position yourself properly in today’s market is a quick read that we all stand to benefit from. Check it out, even if you only skim!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Trading on the Winning Team
January 16, 2007 at 12:16 am
I’m an independent person and I love to do things my way. Many of us do! But when trying to make our way in the market, we can’t ignore the importance of being on the right side of things, and that means going with the flow.
Trading on the winning team is far and away the most important way to not only locate trading ideas, but also the easiest (or least-difficult) way to extract profits.
Check out my thoughts on the topic in the Free Newsletter this week. There’s also a free trade idea you might be interested in.
And by the way, you can sign up for the free newsletter on the Free Newsletter page at TheStockBandit.com. An opt-in form is provided at the top of the page which puts you in full control of your email subscription at all times.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Getting Ready for 2007
December 27, 2006 at 11:12 pm
You may be trading the holiday market this week, but I am not. It’s been a great time to get away from the screens and spend time with family and gear up for next year (next week I guess I could say). As you and I get ready for 2007 to begin, we’ve got a few things to keep in mind.
We need to set lofty trading goals because we’ll be starting over again. It’s also important to keep in mind that the market could very well shift gears and throw us a few curves, so anything could certainly happen once January arrives.
Whatever your plans are for trading in 2007, remember that small mistakes add up slowly, keep Goal Number 1 at the top of your list, and honor those stops at all times!
I’ll see you on the other side,
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
The Day After
December 9, 2006 at 12:10 pm
Secondary stocks can often make huge moves if you know what to look for.
Tuesday was a great trading day for us at TheStockBandit.com. You wouldn’t know it by glancing at the market. The NAZ was up 3 points, the S&P was up 5, and the RUT was up 1. In fact, you’d probably think that Monday was a big day and Tuesday was rather quiet.
It’s funny how that often works, but it’s just a function of the kinds of stocks we trade. We like to trade the names which are a little more obscure. Occasionally we’ll trade the biggies like AAPL and GOOG, but they are so dominated by the big funds that it’s harder to know what’s really going on with those stocks on a given day, not to mention they rarely make big percentage moves (which is the best measure of a move). Furthermore, options play a huge role in how the big names move, and you can never be sure if a lasting move is taking place or if it’s just part of the aftermath from the shifting or unloading of a large position held by institutions. They make for good day trading stocks, but they’re not ideal for swing trading.
A Different Breed
The stocks we tend to play are a little more secondary. Yes, they move well and have plenty of volume (our minimum volume cutoff is around 200k/day avg.), but the moves tend to be cleaner (and usually much larger) than the bigger names and that means a huge difference to the bottom line by the end of the month!
These secondary stocks often catch some nice follow through moves on days after the market averages make a jump, which means that some of our best days actually come after a big market move. When other traders are looking to play “follow the leader” the day after a big surge, it brings more activity into the stocks we are often already positioned in. This makes for some nice account growth on days when the broader market may be pulling back or just catching its breath.
So, the next time you feel like you’re missing out on a big market move, don’t discount the possibilities for the next session! There are a ton of stocks out there poised to move if you will do your homework and just find them. Believe me, they are out there!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Pressing the Big Button
December 7, 2006 at 9:20 am
Every now and then, that ideal trade comes along and you just can’t shake the urge to go big.
Now most of the time, I size my positions pretty consistently, only varying them when either (1) the market necessitates it, or (2) my recent performance necessitates it. But occasionally, I will see a culmination of several factors which leave me with that urge to “press the big button.”
Usually for me, this is an index-based trade done via ETF’s (like QQQQ, SPY, or IWM). That is by design, because I don’t want to jump out there with too much exposure to one particular name. Laying down the big trade in an ETF will greatly reduce and limit my gap risk, which is something that’s critical to do in order to manage risk.
Of course, there are times when going big is
The 2nd Worst Feeling in Trading
November 15, 2006 at 2:04 pm
It’s no big secret that psychology plays a massive role in how the market moves. Fear and greed are driving forces which are always at play. How fast and which direction the market is moving is simply determined by the amount of these 2 equally powerful emotions.
In recent weeks, the bulls have gotten flat-out greedy! They have been unwilling to sell, and with the market pointing sharply higher off the summer lows, it’s no big surprise that they are feeling this way. Momentum is clearly on their side. Every dip is being bought, and that only perpetuates the cycle as traders get more confident with every dip that they can put cash to work and catch a ride higher.
During the same time, the bears (and underinvested bulls) have been fearful. With every uptick there comes a concern that the market may never look back. As a result, there has been steady buying pressure with underinvested bulls throwing cash at the market while the bears run to cover their shorts every time a pullback ends and things again turn green.
So how does this all tie in with the 2nd-Worst Feeling in Trading? Well, it’s pretty simple. We’re all in agreement that the worst feeling in trading is losing. Losing is no fun and downright painful! But when it comes to the 2nd worst feeling, I’d have to say it’s missing out.
When the market blasts higher and you’re sitting on a pile of cash, it’s a frustrating feeling. You see stocks on the move which aren’t on your screen, and the continual question you ask yourself is “why am I not in that?”
The move in EFUT this past week has been a perfect example, but honestly it’s pretty difficult to buy anything after say, a 200% move in a few days! So why beat yourself up over not catching it?
Trading leaves none of us immune to these feelings of missing out, but keep 2 things in mind going forward:
1) If you’re not catching a big move, the 2nd-BEST thing is to not be losing. Basically, it could be worse if you were actually fighting this uptrend.
2) Opportunities are FAR easier to make up than losses. If you aren’t seeing what you want to see, don’t sweat it. Take a break. WAIT for the setups you love before committing capital to the market.
I’m staying pretty selective right now with new entries. I am jumping into trades as I see them emerge and booking profits on the way up in pieces. Hitting singles can definitely get you into the Hall of Fame! But when no trades really “jump” out at me from the charts, I’m sure not forcing any new entries.
If you’re interested in seeing how I’m trading this market right now, stop by today to start your free trial. Our trading community has exploded this year as more and more traders realize the value they get from a membership at TheStockBandit.com, so why not come see for yourself?
After all, missing out is no fun!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
