All Entries in the "Day Trading" Category

Stop Loss Placement, Part 2

July 31, 2009 at 7:52 am

As we dive deeper into this series on stop loss placement, I want to be sure you caught Part 1 because it helps lay the groundwork for this ongoing discussion.

I’ll be posting segments of this series one segment at a time, both for convenience and better consumption on your part.  I want you to have a thorough grasp of how this can all work.  After all, it’s a topic every trader faces, regardless of risk tolerance or timeframe or style or the market we’re trading.

Let’s keep it moving…

The Importance of the Chart

Just as we discussed the value of timeframe & personality in Part 1, here in Part 2 we’re going to talk about the importance of the chart.

Given that my entries are determined by the chart, it’s logical and consistent to allow the chart to offer an exit.  That might be based on an important reversal, or simply a failure of the pattern being traded if I need to stop out of the trade.

In each case, I’ll show you in the clip below exactly what I’m talking about, along with an explanation of why this works for me.

The beauty of basing entries and exits on the chart is that it’s consistent across multiple timeframes. The same principles will apply on an intraday 3-minute chart as they will on a daily chart.  That means once you gain an understanding of it, you can use it for both day trades & swing trades.

Watch this clip and let me explain more thoroughly. It was also posted over at the Trading Videos site, but I’ve embedded it here for your convenience.

And if you have questions pertaining to stops, add them to the comments section or contact me directly and I’ll try to work those into the next few segments.

Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.

Update:  Check out Part 1, Part 3 and Part 4 of this series!

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Stop Loss Placement, Part 1

July 30, 2009 at 7:27 am

It is the most common question I’m asked:  “How do you determine where to place a stop loss order?”

And it’s a great question.  Newer traders need to know it.  Experienced traders will often study it and refine it.  It’s arguably as important as any other aspect of a trade.

So here I am setting out to create this mini-series as a resource.  There will be several parts, so check back often for the segments to come.

There are several aspects to stops which I feel should be addressed, so I’m going to cover them in pieces.  Small, bite-sized, easy-to-digest pieces.

Hopefully they’ll be helpful to your trading approach and enable you to specify some ways to protect the downside.  After all, a stop loss can be your safety net.

Timeframes & Personalities

Deciding on the placement of an initial stop loss will boil down to a few things, not the least of which are (1) your trading timeframe, and (2) the personality of the stock being traded.

I’ll elaborate on each of these in the video, but essentially they’re my starting point:

Longer timeframes necessitate wider stops, and shortened trading timeframes warrant tighter stops.

Similarly, a lively stock deserves a wider stop, while a stock which tends to move very methodically will justify a tighter stop.

Watch this clip and let me explain more thoroughly, along with some examples.  It is also posted over at the Trading Videos site, but I’ve embedded it here for your convenience.  And if you have questions pertaining to stops, add them to the comments section or contact me directly and I’ll try to work those into the next few segments.

Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.

Update:  Check out Part 2, Part 3 and Part 4 of this series!

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

One Way to Review Your Trades

July 9, 2009 at 4:47 pm

If you’re at all like me, every now and then certain aspects of your trading will stand out as having changed.  Sometimes that’s for the better, other times for the worse.

While it’s fun to see improvement over time, one key to trading success is the ability to modify one’s approach periodically in order to stay on track.

I think of it like that statistic you’ve heard about how much of the time an airplane is just a little off course when in flight, with the pilot constantly putting it back on line toward its destination.

As traders, we have the same responsibility.  We maintain our direction by reviewing (mentally or physically) how we’re doing, and then by making the necessary adjustments.

Well, last night I recognized that one particular strategy which I happen to trade has been off a little lately.

So what did I do?

I got up early this morning (that’s part of preparation) and spent some time going over some of my historical trades when this strategy was really on, and I compared what I found there to how I’ve been trading this strategy lately.  It was an eye-opening exercise, and so far, a profitable one.

This same clip is posted over on the Trading Videos site and perhaps you’ve seen it there, but in case you didn’t, I wanted to put it here on the blog.

Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

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]

The Importance of Losing Small

April 7, 2009 at 2:05 pm

Losses are inevitable, but small losses are easily overcome.

I put that first because if you don’t read anything else here, I want you to be sure and see that.

In fact, that one statement could be considered the key to my trading.  I remind myself of it often, and when I’m staying disciplined, I am able to see it in action.

Take Monday for example.  I took several trades…7 to be exact.  I made money on only 2 of them (no, it wasn’t a great day), and yet my net P&L was only slightly red.  Just a little bit negative – that’s all.  It was a down day for me, and yet it was about as painless as they come.  A minor loss.  All because I was able to recognize quickly when I was wrong, and immediately focus on damage control.

The trading landscape has changed dramatically just in the past year.  The market is moving differently, the stocks which are in focus are a different group, and there are even some new fees and rules making their way into the fray.  Nonetheless, there is still one constant: the trader who is able to lose small is able to stay in the game.  He’s able to survive, which means he’s able to profit.  And that of course means he’s able to thrive.

Two Big Benefits

Keeping those inevitable losses at a minimum carries with it a pair of huge benefits…

First, when you’re wrong, the damage is far from devastating.  Falling off a pony compared to falling off a Clydesdale sure makes it easier to get up and get back on that horse.  And trading is all about getting back up.  It’s an attitude thing.  It’s important to stay in the game, and that means an occasional bump or bruise is far easier to overcome than the occasional amputation.  The point is this – protecting the downside offers you a safety net to fall into.  Why not use it?

Second, confidence stays high, and that’s a major factor for a successful trader.  Confidence should be protected just as vigilantly as one’s capital, for it can be considered your psychological capital.  Just as money isn’t easily replaced, confidence isn’t quickly replenished once it’s wrecked.  Looking out for yourself by way of small and limited losses means you’re taking no big hits to your trading account or your psyche.

So on those days when you’re just not feeling it and you feel a step or two behind, be quick to recognize it and live to fight another day.  Keep the damage minimized, and you’ll be able to return tomorrow fully prepared to erase that small deficit quickly.

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]

SEC Fees Set to Quadruple on April 1

March 16, 2009 at 6:45 am

This is no April Fool’s joke.  I wish it were – it’d save me a lot of money!  But the SEC is making a mid-year adjustment to transaction fees, effective April 1, and it’s a significant one.

Right now, traders pay $5.60 per million dollars in sales, which granted, doesn’t sound like much.  It’s a cost of doing business for traders, and not a very steep one at that when added to commissions.

However, in 2 weeks when the SEC fees change, it will go to $25.70 per million – more than 4 1/2 times higher.  That’s not quite as bad as the proposed Trader Tax which was recently making so many headlines, but it’s more real and it’s going to happen.

Putting the Pen to Paper

If you’re actively day trading, here’s what this translates into.  Depending upon your level of activity and the size you tend to trade, this could translate into several thousand dollars more per year in fees for you.

For example, let’s say you sell an average of $1M in stock each day.  That’s a very feasible number considering you could sell 20,000 shares (buy + sell = 40,000 total) over the course of the day at an average price of $50 (20,000 X $50 = $1M).  For that activity level right now, that would basically cost you $5.60 in SEC fees on top of whatever your commission is.  With the new structure, you’d pay $25.70.

Do that 5 days a week, and it’s $100 more per week.  Trade every week at that level, and you’re looking at a hike of $5,200 over the course of the year.

Here’s a link to the SEC Mid-Year Adjustment to Fee Rates document itself for more intricate details if you want to check it out.

Bottom line:  keep improving as a trader and it’ll be fine!

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]

Always Be Prepared

February 12, 2009 at 8:50 am

Over the holidays, I encountered a door to door salesman while visiting family.  He was 23 years old and his name was Mike.  He was selling a cleaning product, and I mean he sold it!

Every single rebuttal thrown at Mike was overcome with ease.  Sometimes those replies were educational, sometimes they were entertaining, but Mike was ready for anything.  With it being the holidays and therefore plenty of time to spare, it became sort of a fun challenge to banter with him and watch his skill.  He knew his product inside and out, and he proved it with confidence.

I was most impressed by Mike’s preparation.  Anything we threw at him, he had a solution for it.  He was great at his job, because he had made it his craft.

How Do You Treat Your Trading?

That encounter with Mike proved to be a valuable reminder to me that I’ve got to be prepared each and every day for whatever the market delivers.  You do too if you have plans to pull any money out of the market on a given day.

The prepared trader doesn’t know what he will face each day, but he doesn’t have to.  He can handle it.  Mike didn’t know which rebuttals his customers would offer, but he still knew how to work through the situation.  Hard work, persistence, and a refusal to quit when the road gets tough…these are all the ingredients for honing a skill that will pay you over and over.

Those frustrating losses, the weeks when you keep fighting and adapting – sometimes just to break even – that’s what strengthens you and becomes a tremendous source of confidence that you’ll feed on in the future.  It’s the long days when you grind it out, win or lose, and you still stay after the bell to review your results and keep searching for ways to improve.

Look In the Mirror

Success in this world does not come easy, and anyone who tells you otherwise is misleading you.  Whether it’s a great salesman, a world-class athlete, or a top trader, they all have one thing in common – they work for it.  Even if they’re naturally talented.

So as you reflect on your trading of late, have you been adapting?  Have you made an effort to determine what’s working best and what’s proving to be costly?  Are you hoping that success will find you, or are you preparing in a way that enables you to go get it?

The thing about day trading the markets is that every day is gut-check time.  We find out quickly whether or not we ‘have it’ on a given day or if instead we’re funding someone else’s efforts.  The latter is a huge motivating factor to show up with our best as often as possible.

The first 6 weeks of the year are coming to a close, and I hope you’re making great progress.  But if you aren’t, then sacrifice a little extra time to get back on top of your trading.  It’ll be worth it.  Put in the effort to get prepared, and commit to doing it day in and day out.  That alone will make the difference.

And in case you’re wondering, yes, I bought from Mike.

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 Attitude Goes a Long Way

January 27, 2009 at 12:39 pm

Recently I spoke with a trader who was really struggling.  Not only were his results not up to his standards, but more importantly, his attitude was pitiful.

One comment he made really stood out to me about how he was approaching his trading – and how he could alter it for better results. After taking a couple of small hits in failed trades, he remarked:

Accuracy is important to me. It means everything to how i look at the market the next day and how i look at myself in the mirror at night.

I think we all deal with that to a degree as traders, and especially us guys tend to equate recent trading results with how we think of ourselves. Not deep down inside – I don’t mean that, because many of us have values rooted elsewhere – but our day-to-day mood is often impacted by our trading results.

That’s common across many professions, but full-time traders probably have it even worse since we can keep score every second of the day and know where we are and where we want to be, and often times there’s that discrepancy which causes some frustration.

That’s where huge mistakes can creep in if we let them, as we increase size or trade frequency based on our desire for quick gains rather than when the charts necessitate it.

Two Solutions

I think zooming out on the timeframe of self-evaluation is key.  Instead of responding to every tick with an “I’m a genius” or “I’m an idiot” mentality (which can be so exhausting), why not look at your results from a week to week or month to month basis? The daily swings, particularly in this market, can just be too much of a roller coaster sometimes – both in an account and emotionally.

Another way to keep your attitude in check is to accept that you’ll be wrong, sometimes often.  That’s not to say that you need to expect failure at all.  However, as a trader, your job is to manage risk effectively first and foremost, and that means when you find yourself on the wrong side of a trade, it’s often wise to return to the sidelines to reevaluate it.  Getting back in is fast and inexpensive – if you deem it necessary.  Taking a string of small losses might reduce your accuracy percentage, yes, but the goal of trading is to be profitable.  Too many traders tend to quickly forget that.

Check It

The aforementioned trader has already come a very long way from when we first met, ridding himself of his former style of operating primarily on hunches.  Moving toward a more methodical approach has already shown him a huge improvement in his results, and it’s been fun to watch.  But as with most Type-A personalities, he’s in a hurry to reach lofty goals – and I can’t blame him.  He’ll get there if he will stay on track.

What’s most important at this juncture for him is that he checks his attitude on a regular basis.  Just as he defers to the charts when making decisions and periodically monitors his P&L, he’s got to get into the habit of objectively gauging his mentality.  When he’s patient and prepared, he’ll be far less-likely to allow his short-term results to dictate his mood.  But if he falls back into the mindset of living and dying by every trade he makes, the road will get a lot longer and much more difficult.

As with so many other things, in trading it’s your attitude which can make the biggest difference between success and failure.  When your attitude is in the right place is when you’re going to see the most growth – both personally and in your account.

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]