Search Results for 'traders'
World Series Series, Part 1 – Think Like A Batter
Trading has so many similarities to sports that I can’t help but occasionally mention it. A few years ago I did a series on Trading and Golf, which drew a number of parallels between the two endeavors. It was well-received by you as readers, so to mix things up a little for a few days I’m going to do a mini-series here on baseball and trading analogies to overlap with the World Series, which of course starts tonight.
I don’t know how many games we’ll see this Series go, but I’ll have new posts on game days right here so check back often. Now let’s get right to it with Part 1…
Think Like A Batter
Every batter in the World Series has a skill which has been acquired over time – he anticipates what pitch is coming. He’s played the game long enough, studied each pitcher extensively, and has been coached on the habits of the guy on the mound. So he knows to watch for that slider or change-up.
Now, it’s important to note that there’s a big difference between anticipating and predicting, because remember, predictions don’t do anything for us. However, anticipating makes us sharper. It forces us to watch for some specific clues, which can in turn accelerate the speed at which we’re processing information.
Wait For Your Pitch
As traders, whether we’re monitoring the overall market or a specific stock, it benefits us to anticipate what we might see next. That doesn’t mean we take action before it’s time, because like the batter, he’ll still wait for the pitch before he decides whether or not to act. What it does mean is that we are always attentive to the conditions and on the lookout for certain reactions in the market. That way, when we see them, we’re more prepared to act quickly – and speed is everything in trading (just as it is when swinging at a 90mph fastball).
So think like a batter and start to anticipate what may happen next. Then wait for your pitch before you take action. It will speed up your response when your anticipations are confirmed, but at the very least it will sharpen your attention.
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]
4 Trading Goals You Can Set Right Now
The power of goals is undeniable, just as Phelps said after going 8-for-8: "That was my goal."
Goals are huge. They motivate you to get to another level, providing both incentive along the way and some satisfaction once achieved. I’ve spoken of them a few times here on the blog, but felt that a little more elaboration might be in order.
So today I want to cover 4 specific trading goals you can set that you might not already have. My purpose isn’t to tell you how high you should aim – only you can determine that, but rather to point you toward a few more concepts which could aid your trading process. Here we go…
1. Make ‘X’ Intuitive Trades Per Month.
Not everyone is systematic enough in their approach that they can automate their trading, and that’s perfectly alright. From time to time, any experienced trader (those using automation included) should allow gut feel to play a role in the decision-making process. Those of us who are purely discretionary traders aren’t strangers to acting on intuition, even if we go about it in a very methodical way.
Have you ever sensed an opportunity right in front of you, only to talk yourself out of it, thereby shutting down that gut feel which you’ve acquired through years of trading?
Well, what if you decided to make a handful of trades each month, in very small size, allowing yourself to capture a select few of those opportunities? As long as your risk remains defined, it just might help you to think outside the box a little and add some trades to your repertoire. Sticking with your game plan is a good thing, and I’m not suggesting frequent deviation from it. However, allowing a handful of ‘intuitive’ trades can add to your bottom line and enable some of that gut feel to assist in your overall profitability.
Consider making a defined number of “feel” trades next month – you might find yourself catching a few trades you may have otherwise missed out on. It’ll put your feel to the test, and provide you with yet another way to satisfy your craving for risk.
2. Set Your Max Loss Per Trade Weekly.
This is something every trader should be in the habit of doing on a regular basis. As account equity changes over time, so should the amounts that you’re risking per trade. Although you might select a constant value like R, it will still translate into different dollar amounts as your account levels change.
Making sure to update your thresholds either on the weekend or on Monday morning is the best way to stay on top of it. Doing so will ensure that you protect the downside during a tough stretch (as the R dollar-equivalent is reduced), while also maximizing profitability during good stretches of trading (as the R dollar-equivalent increases). The point is to trade smaller when doing poorly, and trade larger when doing well.
3. Consider Your ‘Options.’
Maybe you really prefer to trade stocks, which I certainly relate to, and that doesn’t have to change. In fact, owning (or short selling) the actual shares offers the most liquidity for getting into and out of trades as you seek to capture moves. But every now and then there comes along that trade which seems to offer a lot of potential, and yet inherently brings with it a lot more risk than you’re willing to take.
Whenever that’s the case, look at the options. Defining your risk through the purchase of calls or puts can limit your overall exposure, and yet still offer a ton of upside if you nail the trade. And since the options will never move to the exact same extent as the underlying shares, you’ll likely be far more able to endure some dips and rips along the way which may have otherwise spooked you out of the shares had you been holding them.
Even better, options offer a ton of flexibility when it comes to how you can use them and profit. Being long or short the shares offers you 2 directional choices, but there are many option strategies which really open the doors of possibility.
4. Trade More ETF’s.
With the explosion of ETF’s in recent years, there are now a ton of ways to participate in index-related or sector-based moves. You might be eyeing a particular group of stocks (such as Energy) and believe that a move is coming, but not be able to select 1 or 2 specific plays to make. In that case, turning to the XLE or a similar ETF would enable you to put on a single trade and participate in the movement of the overall group or sector.
Or perhaps you find yourself not long enough as a market rally begins to develop. It’s an awful feeling to feel under-exposed and not have that shopping list handy with some swing trades on it! Whenever that’s the case, consider turning to a product like index-related ETF’s. There are a ton to choose from which mimic the movement of the underlying index (such as NAZ 100, DJIA, SP 500, RUT, etc.).
Even better, there are now quite a few ‘leveraged’ ETF’s which provide you with more bang for the buck and yet require less exposure on your part, such as QLD which moves 2x the pace of the NAZ 100. Hitting the offer for some shares of these will get you quickly positioned for a continued move, knowing that you’ll participate in lock-step (or 2x lock-step!) with the index you most want exposure to.
So whatever goals you’re striving to achieve through your trading, be sure to set the bar high for yourself and work as hard as possible to reach them. Just like Phelps, you’ll be glad you did!
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]
First Can Hurt!
Sometimes you just know someone’s gonna get it. Between now and Halloween, it’s the last person of the group walking through a haunted house. During a scary movie, it’s usually the first one to go looking for trouble in an effort to prove their bravery, and it just doesn’t ever seem to end well for them.
In the market, it’s not much different – especially right now. The indexes have been correcting sharply, and there’s certainly some fear and panic in the air. Traders attempting to call the lows are becoming casualties on a regular basis, and it’s just too bad they lack the self control which could help them avoid that suffering.
When conditions get extremely volatile like they are at the moment, attempting to be first in line (buying in hopes of a turn) can be a very costly endeavor. Consider the perpetual bottom-callers within downtrends such as this. Or those who continually try to short sell the highs within uptrends, just dying to be a hero (yes, pun intended).
And it isn’t much different for those who simply allow themselves to get caught in the fray, unwilling to exit and take their medicine from a broken trade. The hope which initially grips them quickly turns to fear, paralyzing their decision-making as they watch their P&L get worse and worse.
Ouch!
Trying to call market turns can leave you strung up by your ankles like a jungle-walker caught in a booby trap. Keep your feet planted so you can keep moving, because if you get caught in a trap you can’t navigate the terrain… and that’ll mean some very bad news for your trading.
Most traders will agree that waiting for confirmation of a trend shift offers a higher-odds directional play, but there are still so many who want to time that turn and be the first one to place a trade in the new direction. Perhaps they want recognition or to feed their pride. Either way, it’s clear that profits aren’t what is driving their decision-making. And isn’t that why we trade?
So the next time you’re tempted to call a top or bottom, remember just how easy it is to encounter serious pain if your timing is off. Avoid getting strung up by an ankle! Have the maturity and the patience to wait for some confirmation of a higher low or a follow-through rally after a relief bounce. Doing so will allow you to continue walking through this jungle called the market in search of profits. Because truthfully, first in line just isn’t all it’s cracked up to be.
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]
Prevent Poundings, Part 2
Previously in Part 1, we took a look at some of the suffering caused by market meltdowns and the general idea that steps need to be taken to avoid getting flattened when you find yourself caught on the wrong side of such moves. In this post, we’ll take a look at some specific measures to take in order to not only recognize those moves as they begin, but also to avoid having a major setback to your trading account.
I’ve taken plenty of hits as a result of bad or mistimed trades, and I’ve also found myself poorly-positioned for some big moves over the years. However, I’ve yet to blow out a trading account after having been in the market for a decade. I’ve avoided really bad luck, yes, but I’ve also made a habit of doing several things which helped to ensure my survival as a trader. Here are 4 of them:
Monitor Key Levels
Whether you more closely watch the futures (NQ & ES) or the averages themselves, there is no substitute for keeping an eye on important support and resistance levels. Few things have the ability to influence individual stocks the way the overall market does, which is why it’s not something to be ignored. Keep in front of you levels like 52-week highs/lows, the high/low of the prior week and month, and of course those zones which keep being tested on both the upside and downside. As you see them get broken, it’s an excellent signal that the stocks you’re watching may soon follow.
Watch Chart Patterns
Gaining an understanding of even basic chart patterns will be of tremendous benefit to your trading. They will not always work without fail, but they can give you a very meaningful heads-up to what is taking place out there. Even respecting the price action itself, such as light-volume bounces after heavy distribution, will give you an edge which can be exploited to your benefit. Monitor not only the patterns found in your stocks, but also the major averages too. Patterns provide reliable signals across markets and timeframes, so they’re certainly worth watching.
Pay Attention to Psychology & Be Sensitive to Sentiment
Many people will tell you to always be fading the prevailing sentiment, but that’s not sound advice. After all, within a trend the crowd will be correct – for a while. It’s better stated that when sentiment reaches extremes, it might then be time to start considering a reversal (such as Monday’s highest close in the VIX – a measure of fear – since August 2002). Until then, recognizing frequent hints such as repeated failed bounces will afford you an added degree of awareness, helping to provide you with a useful directional bias (even if it’s a flexible one).
Take Clues From Trades
Although it has been said that nothing is new on Wall Street but the faces and pockets, the fact of the matter is that cycles do emerge and disappear periodically. Certain trade types will work great for a while, but then another method becomes more reliable. Taking notice of trade types and/or the patterns which are working best for plays will pay big dividends for the astute trader. Those who are continually on the lookout for which kinds of plays are ceasing to work will be miles ahead when it comes to knowing what setups to avoid, thereby helping to keep your account intact. If and when you begin to notice failed breakouts or breakdowns, it’s your clue to proceed with added caution.
Look Beyond the Spots on the Windshield
It’s inevitable that there will be losing trades, good trades which go bad, and there will be times when each of us will be caught on the wrong side of a trade or the market in general. During those times it’s easy for frustration to swell quickly, causing you to press harder until confusion reigns supreme. In the end, all you really want to do sometimes is throw up your hands and step away for a little while – and that can at times be the best solution.
I’ve witnessed traders who refused to move out of the way when they knew they should take cover, and it wasn’t pretty. The refusal to accept a small loss left them ever more committed to the trades which were costing them increasing amounts of money. The result was an added psychological attachment which did anything but help them.
The ‘storms’ which impact your trading in a negative way might be massive selloffs like we witnessed on Monday, or they might simply be those stretches of trading when you’re not at your best.
Either way, the idea is to avoid letting occasional bumps and bruises turn into irreversible harm. Taking those hits is never fun, but in order to be successful over the long haul you must learn to minimize the damage. Small mistakes are the key, so keep that in mind the next time a big move begins which you’re caught on the wrong side of.
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]
Prevent Poundings
Yesterday we saw a historic decline in the market as the major averages posted some of their worst performances ever. The selloff was harsh, unrelenting, and decisive (to say the least). The damage to many stocks will not be repaired for quite a long time, and it’s safe to say that just as many trading accounts suffered significant losses.
In fact, I know that’s true from my recent correspondence with many other traders. Just yesterday I heard from one I’ve known for a couple of years, finding out he’s leaving the game after having blown out his account after adding to a bad position. In his words, he failed to preserve capital and instead broke a fundamental rule by leveraging and averaging down when underwater. It’s a disappointing thing to hear of, and I’m sure it’s a common story this week. About the only positive thing about the situation is that those 5 Expensive Words aren’t likely to be used by him again.
To see the market come under heavy distribution is certainly not a new thing, because we all know that the market does much more than simply climb higher. Over time there are impressive rallies, there are dull trading ranges, and yes – absolutely – there are mind-blowing bloodbaths which can rock your confidence to the core if you find yourself caught on the wrong side of it.
Learning from Gustav, Ike, and Kyle
We’re at the tail end of hurricane season, and there are some realistic parallels we can draw here. Those who live in the projected path of these powerful storms whenever they come along realize that certain precautions must be taken in order to avoid physical harm. (See where I’m going here?) While a few of their belongings might sustain some damage, their willingness to pack up and get out of town when authorities say it’s time can save their lives – allowing them to return and rebuild, and once again thrive.
Similarly, as a trader you must be willing to seek shelter when storms come along, whether it’s a slow grind downward or a massive selloff like we witnessed on Monday. During these times, your account might take a hit, but any effort to preserve capital during such times will enable you to at some point resume your activities as a trader. (And that’s not something to be taken lightly, because I know of numerous others who wish they were able to do just that). Once the clouds begin to break up, then you can seek out those profits once again and begin to rebuild your confidence.
Safety First, Profits Second
Knowing that the market corrects is one thing, but making provision for your own safety in the event of such a move is entirely different. In my next post, we’ll look closer at a few specifics on how to put this idea into practice, but I wanted to set the table for it today and post a reminder that goal #1 is based on staying in the game. Without a sound understanding of that basic principle, making money over time becomes far more difficult.
It’s been a nasty market out there, so keep your head on straight and don’t let an adverse move take you completely out – whether you’re short or long. This too shall pass, so tread with caution and trust that better times will arrive when being bolder is far more prudent than it is now.
Trade well today, and I’ll see you back here soon with Part 2!
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 Makes a Good Trading Market?
The market has been all over the map lately… huge selloffs, sharp rallies, and just a lot of uncertainty in general. The government intervention has also made the landscape an unfamiliar one, as bailouts of individual companies have occurred, along with the introduction of a bailout plan for the economy as a whole.
Further, we’ve seen things which used to happen only on occasion become the recent norm… major intraday reversals, tremendous gaps to both the upside and downside (which are frequently filling), and a significant expansion in the average true range of the overall market. Needless to say, as traders we have had numerous additional reasons to stay on our toes!
Pros and Cons
There has been no shortage of excitement and movement for day trading, which is great for those of us who are able to monitor the action throughout the day. However, anyone with a longer timeframe has no doubt found it to be a mess with limited opportunities and sizeable risk.
With all the wild price action, my personal tendency has been to lighten up. I’ve not held an overnight position since late-August, instead opting to stay in cash and focus more on day trading in order to more closely manage my risk. Being one who typically does a lot of swing trading, that’s a big shift.
I’ve encountered many other traders, both in and out of the limelight, who are taking the same approach. The consensus has been that recent conditions fail to inspire much lasting confidence on either side (long/short), and therefore the better approach is to lighten up temporarily or stay sidelined until the technicals improve and things can smooth out.
And this market will smooth out.
But in the interim, all this discussion begs the question, “what makes a good trading market?”
Textbook vs. Practical
In a textbook sense, the ‘right’ answer to what makes a good trading market might be that it’s a trending market, perhaps even one which moves steadily higher. That’s nice and it might leave you feeling warm and fuzzy to know at some point that will happen again, but it might not help us right now. So instead, let’s get a little more real and explore some practical ways in which this market might improve in the near term for those of us who are traders.
Removal of ‘some’ uncertainty.
By starting here, I have to emphasize the word ‘some.’ There is never a complete lack of uncertainty in the market, which is exactly why there is risk and reward present. That’s good and we need it! However, market participants have had to fret continually over what will happen next, to a degree not typically seen. Instability is running high in many areas right now, as industries such as banking face unprecedented times and some have gone completely out of biz. Once we get back to an environment in which stocks are able to move more routinely (based on underlying supply and demand, rather than primarily in response to the daily despair or elation of the general market), there will be many more opportunities for taking trades with defined risk. At the moment, ‘defined risk’ is very difficult to find on a multi-day basis.
Lack of intervention.
I’ve only been a trader for a decade, but I have not ever seen such frequent government intervention as we’ve seen this year. I have no desire to discuss politics, the success of the interventions themselves or debate whether or not they were warranted/needed/wise, so I’m avoiding that here. The point is that when the market begins to fixate on how the government might inject liquidity or bolster confidence or disappoint and deny hopes for help, it’s an unusual environment for trading. Prior to recent months, about the only times we’d see that occur would be on FOMC days when interest rates might change and the policy statement is released on the economy. Aside from those times, the market has generally been able to focus on economic and company-specific data to make its decisions on, and lately those have been placed very much on the back burner. Once a return to that routine is seen, we should be able to expect more typical price action than what we’ve been seeing.
TA back in the saddle.
When the market is seeing so much violent price action in both directions and the news flow is causing extreme reactions on a day to day basis, technical analysis takes a back seat. Not only is it more difficult for bases to be constructed and well-defined patterns to emerge, but even when they do it’s more difficult to trust them to act like they ‘normally’ would. Consolidations are extremely rare to find when the market is whipping back and forth to the degree we’ve been seeing, which prevents a lot of reliable patterns from ever maturing to begin with. Further, when a bull flag or channeling stock is finally found, one has to wonder why the stock in question hasn’t been participating in the large market moves. As the market begins to settle down a bit and traditional chart patterns once again come into focus, we’ll see many more trading opportunities begin to surface.
More psychology, less knee-jerk reaction to news flow.
One of the primary reasons why I avoid trading earnings announcements or get extra-cautious on FOMC days is that the market gets fixated on the news. The nimble trader can capture some quick moves once the news is out, but the anticipation prior to the actual news release is what tends to alter the price action away from the norm. Any factor which interferes with the usual forces of greed, fear, confidence, or uncertainty is going to make the trading environment a little more tricky because the psychological aspects will play less of a role. Understanding the battle which ‘normally’ takes place within the minds of traders on each side of the market offers an edge, so whenever conditions shift in such a way that the importance of psychology is diminished, that edge disappears with it. We’re used to seeing emotions get paired together such as greed and fear, so when we recognize them both at work there is some natural opportunity which emerges. But when the primary emotion is uncertainty (like it is now), it’s extra difficult to determine who is poorly-positioned. As a result, new trades with good risk/reward profiles become harder to locate. Once the everyday focus moves beyond ‘bailout,’ it’s going to quickly become a smoother market for trading timeframes longer than a couple hours.
Looking Ahead
Of course there are additional factors which are impacting the trading environment right now, but I wanted to run through a few of the ones I’ve noticed of late which are combining to make the current environment a little harder to navigate than normal. If I’ve left out some others which stand out to you, please feel free to post them as comments below.
The good news right now is that we could start to see some of these things improve in the coming days. In the market, even a few days can make a tremendous change in the landscape, so don’t count out the possibility that the dust might begin to settle soon.
It has been a bizarre couple of weeks on the Street, but it certainly won’t always be that way. So start watching for some of these shifts to come along, because they could be here before you know it. And won’t that be a welcomed sight!
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]
Reckless Testing
Some traders are just reckless when it comes to trying out a new strategy.
From time to time, every one of us will see the need to modify our style in order to keep improving, and truthfully that’s a willingness each of us must have if we want long term success as traders. There is no shortage of tools or trading styles that might have the ability to improve your trading, so there’s certainly nothing wrong with trying them out when you recognize it’s time to change. In fact, some of the best traders I’ve ever known are willing to try new methods when they realize it could be better than their current approach. However, the key is how you test out those methods.
Reckless traders aren’t reckless because they are experimenters. Rather, they’re reckless in the way they fail to protect themselves while experimenting.
Just Enough to Feel It
Now, I’m not a fan of paper trading because no emotion is involved. Red and green numbers in a demo account somehow just don’t have the same impact on one’s psyche the way real dollars do, so naturally I don’t find it beneficial to “pretend trade.” Instead, having some real money on the line is the fastest way for the market to not only get your attention but also for you to learn quickly.
But hold your horses, because I’m definitely not advocating bold trading during a test phase. Yes, trading the actual shares with real dollars (as opposed to claiming a would-be entry on paper) gives you the best sense of how a new style really works, but go small. I cannot stress that enough.
The idea is to learn something new with minimal pain. Of course, stock market 101 requires that we pay the occasional tuition, but why tinker with different methods and invite more pain than is necessary before getting a feel for the new ways?
Just in case that tuition bill comes due, you want the price tag to resemble something from the local junior college – not an ivy-league school!
How to Test Best
So when the time comes that you find it necessary to do a little experimenting with a style that’s new to you, go slowly. You want to trade new methods so small that if you take several hits in a row you’ll still be fine. A couple of minor bruises still send the same message to your brain (‘that didn’t work‘) without requiring a broken leg to get the point across!
Don’t be reckless with new trading styles – be smart and find the best ways to get results with the least amount of risk. After all, you can always step up the risk ladder later on.
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]
