Search Results for 'traders'
Changing Gears
The market is always in motion, so if you don’t like how it is, just wait a little while and it will change! JP Morgan has been quoted as saying that “Prices will fluctuate.” Knowing that, we as traders have to stay on our toes and plan accordingly for the changes that might take place just around the corner. If the market is range-bound, we can expect at some point that a trend will develop.
Yesterday, the S&P 500 finally broke out of its trading range when it closed above 1295. For that index, it was a significant technical event as it made new recovery highs from the bear market. However, the NAZ was a different story. Although it posted solid gains, it remains in the middle of a well-defined trading range. But it won’t forever (even if it feels like it might!).
So, what do we do to prepare for a breakout (or breakdown)? I’d suggest two ideas toward preparing for a market shift:
Have a shopping list ready. You take one to the grocery store so that you don’t forget anything, right? After all, a place with no windows or clocks and nothing but food can get pretty disorienting! Keep a shopping list for potential trades too. Have a running list of the stocks which are poised to move with the market in case it breaks out. Be picky, but know which ones are your go-to stocks when you need to deploy cash. Once the market gets moving, you’ll know exactly what to do.
Refine your game plan. Keep an eye on key market levels that would trigger a breakout or a breakdown. Have an if/then plan in place. This is so simple that it’s often overlooked by traders, but don’t make that mistake. If the indexes rally above key levels, then it’s time for you to take action. If the indexes crack key support, then it’s time for some short selling. And of course, if we remain range-bound, then it’s naptime!
The market will at some point get out of this tiresome trading range, and when it does, you don’t want to get caught in a panic. Know which stocks you’ll want to buy if and when the market is able to break out, and keep an eye on key market levels so that you’ll know just when it’s time to get busy.
What are some ways that YOU get prepared for market shifts?
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Tuesday T-Shirt Trivia!
As part of my ongoing effort to clothe homeless traders, I’m starting a weekly fun segment called T-Shirt Trivia! For the next little while on Tuesdays, I’ll put up a random question (which may contain multiple parts), and the very first person to contact me will win a T-shirt from TheStockBandit.com!
Buying BIDU at $150.00 proved to be a mistake for this poor trader. There’s always hope though. Let’s hear it for wireless networks!Only a few rules apply:
1. You must use the contact form when you submit your answer.
2. Include your name & mailing address when you submit your answer.
3. Only the first completely correct answer submitted will win a t-shirt.
Now, let’s get started!
Because we trade for the money, and it’s about more than “just the Benjamins,” this week’s trivia question pertains to some “paper” of the past. The first person to correctly answer (first & last names) whose pictures are on the front of the following U.S. currencies wins this week’s shirt:
– $500 Bill
– $1,000 Bill
– $5,000 Bill
– $10,000 Bill
If you know the answer, send me your name & address via the contact form, and the first to correctly identify who’s on the front of each bill wins. Good luck!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Seeing the Future?
It would be nice to have a crystal ball. But that’s not what trading is all about. Timing is everything. Although we might accurately predict the next move of a stock or the market itself, as traders we must still place the corresponding orders to enter and exit positions at the right times and in the right directions in order to profit. Simply understanding the direction to trade in won’t help you near as much as knowing when to get in and when to get out.
While I think it’s important to be able to locate and use chart patterns and technical analysis for trading, I sure don’t think a trader’s ability to tell the future (or backtest the past) will make him a profitable trader. Chart pattern recognition is certainly helpful to traders, but what about execution? What about psychology and knowing when to ride out a pullback versus recognizing a reversal and knowing when to bail out? The learning curve can be steep. Some things you just have to learn by trading.
Don’t get tied up trying to hone your prediction skills! Every trader is going to go through times of being right and being wrong. Successful trading is about damage control when you’re wrong and pressing it when you’re right. What’s most important is staying in sync with the market and adjusting your trading size and frequency at the right times in order to maximize your profitability.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Backtesting
It has become an everyday word……backtesting. You can hardly avoid seeing it, because so many marketing efforts are convincing traders during this choppy market that backtesting is the magic bullet for successful trading. I’m not so sure I agree.
Maybe a PC tells you that a given trading system would have made or lost X dollars over the past 6 months. So what? Isn’t the market always in motion, always changing? If it is so easy to just figure out what worked over the past month and apply it toward the coming month, then wouldn’t the market be showing us some phenomenal trends right now with everyone pushing stocks in the same direction rather than the back-and-forth choppy action we see so much of?
Instead, we’re getting a LOT of program trading that keeps things choppy as dips are bought and rallies are sold. With the trendless market, it has truly become a market of stocks. Good swing trading right now is about doing your homework to locate good technical patterns and then keeping your risk/reward in check.
Don’t let glossy advertising from software vendors fool you into thinking that your trading strategy just isn’t complicated enough. Remember Gartman’s rule and the simplicity it offers. Keep tabs on the market environment and adjust your trading plan accordingly. If a good trend exists, then look for some continuation setups like flag patterns and triangle patterns. If prices are stuck in a range, then consider some reversal setups like the double top or trade a channeling stock. Your ability to adapt to existing conditions is what will add to your P&L, not your ability to backtest effectively.
Successful trading is about recognizing what kind of market you’re in and how to trade it most effectively, even if it means that you stand aside at times. Hoping that you could spend the next long weekend backtesting a magic formula based on past conditions may just be a shortcut that will only leave you more frustrated.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Parabolic Uptrend: IIIN
Some stocks on the move are simply best avoided.
We’ve looked at MOVI twice (December 6th and February 13th) as a downtrending stock to avoid. Cheap stocks can be tough to short sell because they don’t move very much and they become more ripe for takeovers, which you sure don’t want to get caught on the wrong side of!
But sometimes stocks move up at such a rate that they too are best avoided. Anytime a stock is running higher at a rate which is not sustainable, it’s probably best to just observe and wait for a good chart pattern to develop before entry.
One such stock is IIIN. This stock has now moved higher an incredible 17 sessions in a row, moving up by over 44% during that time! This is called a parabolic uptrend, and although it often will be the way a stock ends its advance, it is extremely difficult to trade. For one reason, the stock has advanced so far that it’s tough to buy it with any confidence. Secondly, when the music stops, you can bet that everyone’s going to start looking for a chair and the stock could surrender lots of ground quickly in search of bids at a lower price. This makes a stock like IIIN hard to buy or go short in.
IIIN is on a tear, but I wouldn’t want to be a buyer here. Buying puts would be my only consideration, because trying to short a stock like this can be like stepping in front of a freight train!Always consider the emotions of other traders in a stock like this. The ones who are short desperately need to cover, and the ones who are long are tempted to take profits. Such emotions in a stock like IIIN after an extreme move will surely keep things tricky! If you must dip a toe in the water, be careful with this one. Puts might be the only thing to buy related to IIIN, but avoidance is probably best for now.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Stocktickr: Now Open!
My buddy Dave at Stocktickr let me in the door a little while back to check out his new product. I was very pleased with what I saw, and even handed out several invitations to traders I know for the beta release which we were using for the past couple of months.
Stocktickr is not only a great tool for tracking your trades, but the journal feature really sets this product apart from the others. Using Stocktickr’s journal, you’ll get comprehensive reports about your trading that you might not otherwise ever know about. It will keep track of your performance, but will also calculate expectancy and winning percentage right there for you. This is an excellent tool for taking a realistic look at your trading performance and learning from your past results.
Stocktickr also allows users to view the trades and timing of other traders, thereby making a community of traders. You can even “tag” your trades with custom names like “new high” or “volume jump” to help you see better which kinds of trades are working for you. I highly recommend checking out Stocktickr, it is a wonderful trading tool with the ability to pay huge dividends on your trading when used the right way. And Dave, keep up the great work!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
What a Short Squeeze Looks Like
Short selling can generate some nice profits….quickly. Maybe that’s why the word short is used – because it can be such a quick trade.
I noticed OPMR this afternoon and cringed for those traders caught on the wrong side of a short squeeze. This stock had been moving steadily lower and had even confirmed a couple of chart patterns along the way. However, trying to swing trade a stock so badly beaten up on the short side can be tricky, so be sure that you pay attention when you’re short.
OPMR had been moving steadily lower before the trade got crowded and the path of least resistance suddenly changed.A short squeeze occurs when a downtrending stock suddenly catches a bid and begins to rise. The traders who have short positions begin to see their trading profits slip away, causing them to panic and buy to cover their shorts. This quickly pushes prices higher, and upside momentum replaces the downtrend due to the sudden burst of buying. One look at this 2-day chart of OPMR and it’s easy to see that plenty of traders got caught on the wrong side.
Once OPMR changed directions, it was smooth sailing to the upside with shorts covering for the past 2 days.Uptrending stocks will occasionally be met with a heavy dose of selling, seemingly out of nowhere. This is the same kind of behavior that leads to short squeezes, and is characterized by a large group of traders reacting to a shift in a stock’s direction.
Short selling is not a poor trading method, so there’s nothing to be afraid of. As long as you keep your stop loss in place and remain disciplined, you can avoid getting caught in a short squeeze. Just don’t ever underestimate the level of pain in a stock when you’re trading the short side, and be quick to take profits when the landscape begins to change!
Add another dimension to your trading and watch how I trade the short side with a 2-week FREE TRIAL to my stock newsletter.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
