Search Results for 'traders'
My Best Investment Ever – It’s A Boy!
Last week I became a dad, and needless to say I am thoroughly thrilled! I’ll be back writing in a few days, but just had to share the big news. Baby boy weighed in at 5lb. 13oz., and is happy and healthy at home with mama. I couldn’t ask for anything more.
At times in life, events and people come along to put everything into perspective for us, and that’s particularly true for us as traders. The flickering numbers and charts on our screens often become all too important to us until something else reminds us what life’s really all about. Whether trading is a hobby or a profession for you, I’m sure you’ve had weeks where your trading results dictated your moods, and others during which you never even thought about trading because it’s been farther down the priority list. The past few days for me can definitely be described as the latter!
In a couple more days I’ll make the transition back to full-time trader and you’ll find some market-related content showing up here again, but at the moment I’m loving the opportunity to tend to my personal life and adjust to my new role as a father! What an experience!
P.S. Check out the time stamp on this post! 🙂
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Trading vs. Investing: Two Kinds of Good Markets
“Regular” people I know (non-traders) are “invested.” They have 401k’s with company stock and mutual funds. They have managed money trying to outpace the market. They look at performance stats of money managers and funds before depositing their hard-earned dollars in such places.
And then they wait.
They hope.
They need.
They wait for the market to climb. They hope for an advance. They need a bull market. They want the little ticker at the bottom of their news screen to show a green arrow beside the DJIA or the S&P 500, or else they’re losing money.
They’re fully-dependent upon the market to produce their gains for them. For them to profit, the market must rally over time, and historically it has. As goes the market, so go their returns. But they have jobs and other demands on their time during the day, so they’re not interested in nailing a move right after an economic report or energy inventory number is released. They want their funds to grow over the next 10, 20, or 30 years from now so that they can quit their jobs and retire comfortably. I can understand that, so I don’t fault them.
A Trader’s Needs Are Different
Me? I’m not one of the “regular” people. I’m a trader and therefore entirely different.
I wait for opportunities. I hope for good chart setups. I need volatility.
Whether the market is up, down, or flat for the year doesn’t begin to tell the story of my returns. I’ve had fantastic days when “the market” was down after nailing some shorts. I’ve had huge days when the market was flat. And sadly perhaps, I’ve had pathetic days when the market screamed higher without so much as a minor dip! 🙂 That’s how trading works, and I wouldn’t, uh…. trade it for anything. I absolutely love it, and I can’t wait to see which opportunities will surface after the next opening bell.
But I must admit that “the market” does impact my trading. The most notable influence on my trading is whether a trend is underway or not. The presence or lack of a trend will impact my directional bias, my timeframe, and even my activity levels. Volatility is another piece of the puzzle, as too much of it will curb my aggression and not enough of it may remove me from my screen altogether. Volume is important (as I recently noted), because I need quality executions and enough liquidity to get into or out of trades without added slippage.
“Good” vs. “Bad” Markets
To me, when “the market” is good I see lots of high-quality chart patterns. In a “good market” I know I can risk a little to make a lot more(by swing trading), even though I’ll be wrong sometimes. A “good market” isn’t necessarily an up market, but it is on the move and giving me waves of activity which I can attempt to time and profit from. I only need a piece of a move to make my day’s pay.
A “bad market” to me is of course not necessarily a down market, but one which is offering few opportunities or poor risk/reward trades. “Bad markets” mean less activity and a greater focus on preserving my precious trading capital while I wait for better conditions to arrive. Needless to say, trading heavily in a “bad market” means spinning my wheels or losing ground, and those are things I specifically want to avoid in my trading plan!
If you’re a trader, I’m sure you can relate to this. Listening to talking heads on TV blab endlessly about where the market will be by the end of the year is a waste of your time. Always be measuring whether the conditions are ripe for your style of trading, and only take action when they are. Don’t get seduced by big point moves in the averages or fear that you need to just buy something in order to participate in a run. Stick to your method and know that your discipline will get you through bull markets, bear markets, and everything in between.
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]
Insider Activity
One thing I get asked quite a bit about is insider activity. People want to know if a stock should move up on insider buying, or if it should go down on insider selling. Many will ignore perfectly good chart patterns if the insider activity doesn’t suit them, instead deferring to what company execs are doing over time rather than catch a swing trade for a multi-day move.
My personal stance on the topic is a simple one: I ignore it. Here are a few reasons why:
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There are lots of reasons to sell. Maybe junior is going to college and a corporate executive wants to free up a little cash to pay tuition. Maybe they’re buying a summer home or a boat or a collector car. Maybe they’re even afraid their stock will go down. But don’t jump to the worst conclusion when you see insider selling, because you never know their motives. And even if insider buying is taking place, that sure doesn’t mean the stock will soon reflect that optimism. Corporate executives can and will be wrong often, so don’t bank on higher prices even if you see insider buying. They’re not the ones moving the stock anyway.
Good chart patterns should still play out. A bullish chart is based on recent supply & demand in the stock, so if the pattern confirms I’ll take that trade with managed risk. If it never confirms, I never take the trade and there’s no harm done. But what happens over time with insider activity isn’t what will drive the stock. Institutions (big funds) move the stocks, so if they’re accumulating or distributing stock, the chart will show it.
My timeframe is days, not quarters. Even if Joe Insider has been selling (or buying) shares for a while now, why would I care? Suppose it is based solely on where they think the company is headed, even if they’re correct it’s going to take lots of time to play out – usually several quarters at a minimum, and I’ll be long gone by then. Because stocks fluctuate, there will still be good moves taking place most likely in both directions, offering chart-based plays in the meantime for active traders like me.
Good trades still boil down to the charts and managing your risk. Don’t jump to any conclusions that a CEO or CFO is going to nail trades in their company’s stock. They aren’t traders, they’re businessmen! If you’re a short-term trader, insider activity should be the last thing on your list of things to consider before buying or selling any given stock.
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]
How Gaps Change Motivations in the Market
With so many gaps hitting the market in recent days, it’s the perfect time to discuss them a little bit. Not only are they occurring in individual stocks as a result of earnings announcements (which is typical and expected), but we’re seeing a lot of them in the market indexes with the recent news flow adding to the volatility. Of particular note is how many of them have filled.
Before I get to the heart of this article, let’s look at an example in case you’re not quite sure what I’m talking about. Here’s a look at a 5-minute chart of the NAZ on Thursday morning, which gapped down some 40 points from Wednesday’s closing levels. It ended up rallying back up to fill the gap soon afterward, and even turned positive for the day after about 90 minutes.
(Click for full-size image, courtesy of TeleChart)
The Mechanics of a Price Gap
So how do these price gaps even come about? Well, they occur from a buildup of orders overnight which create an imbalance between buyers and sellers. Market makers and NYSE specialists have to take the opposing side of the public’s orders (they buy when you sell and vice-versa), so to offset this risk they do it at higher or lower prices, depending on the imbalance. When the public is buying en masse, market-makers will sell but at higher levels. That’s how gaps are created.
Once they’re in place, the next question is how do they get filled? Well, since many of them lately are occurring on emotional reactions to the news flow, most of the traders who would act on the news are the ones creating the gaps. After their orders build up which create the gap to begin with, there are very few traders leftover placing subsequent orders in the same direction, thereby limiting the extent of any follow through. As a result, the path of least resistance shifts to the other direction, meaning the gap now has greater potential to fill.
Psychology’s Role in Gaps
On top of the mechanics of how the gaps are created and filled, there’s also a lot of psychology at work which is adding fuel to the fire. Traders who are already holding positions in the direction of the gap are greatly tempted to take those profits, which means on a gap up that they create selling pressure as they move to book gains. The overnight windfall of “free money” motivates them to ring the register, and that only accelerates how quickly the gap may fill, especially when combined with the natural mechanics of a gap. Additionally, downside gaps are often viewed by those with cash on hand as an irresistible sale, unable to pass up the thought of buying “cheap” stocks. Their buying, along with the covering of short sellers, drives prices higher to fill the gap.
There is never a shortage of interesting dynamics at work in the market, and price gaps are a study in the psychology which can help us learn a lot about why things move the way they do. If you catch a gap in your favor, play it close to the vest and squeeze out of it whatever you can, but if it begins to fill just remember how momentum is shifting and decide quickly whether you want to battle it or not.
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]
A Market for Spectating, Not Speculating
Boy, is this market crazy or what?
Just since yesterday afternoon, we’ve seen a huge rally, sharp selloff, steep bounce into the closing bell, giant gap down and an immediate big bounce. Stocks are literally all over the map!
It’s quite a show, and I’ll venture to say that most traders are better served spectating in this market than speculating. If you’re not nimble, it’s incredibly easy to get burned, because just like springtime weather, it can change quickly out of nowhere.
Stay careful out there, and don’t be shy about protecting that capital while these violent swings play out. We covered our lone overnight position in ESI this morning for a nice gain on the short side, but at the moment we’re sitting in cash at TheStockBandit.com. It has served us very well to stay cautious in recent weeks, but once things smooth out a bit we should see much better conditions for more aggressive trading. While you wait, enjoy your front row seat to the show and don’t succumb to the urge to overtrade this market!
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]
Not A Dip-Buyer’s Market
For the past year, every dip has been bought. Bulls have enjoyed a nice uptrend, and with each higher low their confidence reached higher levels. Anytime stocks have gone on sale (ie: come under pressure), the buyers have been there with wallets open ready to scoop up shares. And they’ve been compensated quite nicely for it, I might add!
But things have changed. Stocks have been punished lately, and the swagger of the bulls has disappeared. They’re not eager to provide support, and instead they seem to be getting more spooked. Dips have become all-out selloffs, and the buyers are nowhere to be found. In fact, even the bounces have been brief, as bulls become sellers and jump quickly to unload shares into any strength as they seek to raise cash levels. Concerns are running high.
As the major averages reach multi-month lows, it seems emotions are reaching new multi-month highs. And when emotions are playing an increased role by boosting volatility, trading can get a lot more complicated.
I’ve noticed lately that resistance levels are being respected much more than support zones, and that goes with the territory of a downtrend. Take the S&P 500 for example, as it undercut the 1485 area last week with ease (like it wasn’t there), but failed to reclaim it this week on the bounce attempt. The same level which was ignored to the downside was like a brick wall on the upside. As traders, we have to pay close attention to these kinds of things, or else it can cost us dearly. The dip-buying mentality which many have enjoyed for so long is simply not working right now. Key moving averages are being sliced as if they aren’t there, and that’s just one example of how the environment has changed. It’s time to adapt if you haven’t already.
So here’s the bottom line. Unless you’re a trader who’s very quick on the keys and can scalp effectively, or you’re willing to short sell this market, cash is the place to be! Don’t attempt to buy dips in a market like this until some stability is seen and the dust begins to settle. Once a new uptrend emerges, there will be plenty of opportunities to catch a ride, but you sure don’t want to be the first one to buy. Remember, the first person at a party has no fun.
Respect the current market weakness and live to trade another day!
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 Discipline
There’s a lot of talk about the D-word when it comes to trading, but what does it mean to put it into practice?
We all know that disciplined eaters are usually slim and trim. Everyone knows that disciplined savers don’t fret about retirement. And traders should know that disciplined traders are profitable over time.
Leave the Ego Behind
Good trading discipline means taking no action when you don’t know which action to take. Traders tied to their egos are afraid to admit when they don’t have a feel, so they keep pressing their bets, staying active and overtrading when conditions aren’t conducive to being active. They’ll trade anything that moves, just hoping to get something going and try to generate a feel for the tape.
Ironically, every good trader I’ve ever been around has been able to freely admit it when those times come along that they don’t have a feel for where things are going. They don’t let their ego drive their decisions. They keep their heads on straight and stay objective, only acting when the right conditions are present for their style. When those conditions are not present, it’s no shot to the ego to sit on their hands and remain passive. They’re in it for the money, not the thrill of the action.
Predicting is a Waste of Time
There are going to be plenty of times when you’ll be unsure of what your next move should be. Good news – that doesn’t at all have to be tied to your profitability! I have felt that way numerous times in the past week, and yet I’ve been able to make several profitable trades and grow my account during that same stretch. Predicting didn’t get me there, discipline did. Good traders know that perfection isn’t required, which means they don’t have to predict with accuracy what may happen next. Instead, it’s about selectivity and offsetting small losses with big winners.
Patience Pays
If you’re like me, you know very quickly when a setup comes along whether you like it or not. Some kinds of plays will just fit your eye, and you’ll know the timing is right to take action. Seize those moments as they come and use the opportunities to profit. BUT, when you’re not seeing the setups that just jump out at you, be willing to wait. If your watch list is providing no imminent entries even though the market may be running, sit on those hands instead of forcing trades!
Why be aggressive just for the sake of activity? I mean, I like my broker and everything, but I always want to be making more money than they are from my trades! I have no idea where this market will go tomorrow, but I know that I can still be profitable if I am disciplined. Improve your odds of success by exercising good discipline, and don’t just buy something for the sake of activity….only trade when the conditions you like are present. Everything else is just noise and a chance to give back those hard-earned profits!
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Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
