All Entries in the "Day Trading" Category
Satisfy Your Craving For Risk
September 17, 2007 at 10:36 am
Most traders at least occasionally have to deal with the urge….the temptation….the allure of taking on more risk. Sound familiar?
Risk’s Widespread Appeal
I’ve had the good fortune of spending time and trading with quite a few traders of all types. Some trade stocks, others trade futures or options. Some of them are day trading, others are swing trading. Some of them trade part time, others trade full time. But regardless of the characteristics which define their approach, every last one of them has at some point felt this urge of which I speak.
Oh there have been some great stories along the way of big wins and losses, but every single memorable story involves risk. Great days and even downright pathetic days will all boil down to how much risk is taken, and how well it is managed. If you stop to think about it, we’re all quite lucky to have the ability to make this choice every day. Those who become highly skilled in the balancing act of taking and managing risk effectively become successful traders. Those who do not will quickly become a mere statistic.
Gambles Must Be Small
I’ll venture to say that all great traders have a respect for risk in the markets they trade, and as a result they all have a certain level of discipline which goes along with it. I’ve commented to people before when asked if day trading is a high-risk endeavor that “it could be your own little Las Vegas every day of the week if you want it to be” but that taking that path almost guarantees a brief career as a trader. Personally, I don’t want a real job!
But what if you love to take occasional risks? Can you still be a great trader? What if you just have that urge to swing for the fence sometimes? Well, I’m here to tell you that it can hurt you, unless you do it the right way.
Taking high-risk trades doesn’t have to mean the kinds of gambles which get amateur traders into trouble. Stubbornness and speculation are not the same thing. The trader who blows out his account after adding repeatedly to a losing position is very different from the trader who puts on a small position as a hunch, risking a limited amount and never putting his trading livelihood on the line. Buying a lotto ticket isn’t the same as putting your car keys into a Friday night poker pot! Rolling the dice is alright on occasion, so long as the consequences aren’t significant enough to cause any real damage.
Some traders might want to buy a small amount of a high-flyer, trade some out-of-the-money options, or dabble in some illiquid little stock while waiting for an anticipated story to play out. Maybe you can’t fight the urge to take a few shares of a stock into earnings, or to try to game a Fed move after the announcement, both of which are a complete coin-toss. Perhaps you’re able to do this right alongside your normal positions and never let these little speculations interfere with your day-to-day operations, but if you’re like me, you find them somewhat distracting as your attention moves from what you should be watching to these little speculative trades like horses in a race.
The Solution for Speculators
Never fear, there is a solution: trade multiple accounts! I’ve found this to be the ideal way to separate different types of trades, allowing me to satisfy that occasional urge to take a risk while still keeping my attention where it needs to be – on my primary trading account.
Funding a speculative or secondary account with only a fraction of what your primary trading account is funded with will keep any profits or losses at a minimum, because remember, profits isn’t the point of a secondary spec account. This account exists solely to let you trade the high-risk plays in order to scratch that itch for an occasional home-run-or-strikeout type of play. The aim of this account is to let you act on those urges without the consequences if you’re wrong. After all, these are the kinds of plays which could really wreck your main account, so keeping them separate and tiny lets you focus on what matters most – pulling consistent gains out of the market in a more methodical way than going for the long ball.
These secondary accounts can also be used to hide longer-term plays from plain view, which will come in handy on occasion. What happens if you’re short-term bearish but have some long-sided positions socked away for the long term? It’s easy under the gun to lump everything together, but separating your timeframes across accounts can be an effective way to trade both timeframes according to your plan. Secondary or spec accounts also effectively hide the number while letting your higher-risk plays fully develop.
If you haven’t considered having a primary trading account and at least one smaller trading account to satisfy your urge for that occasional added risk you love to take, give it a shot and you’ll quickly see the benefits. Have the discipline to set one up. If anything, it’ll keep your pain to a minimum when you swing for the fence and miss, while keeping you focused on the types of trades which really pay the bills.
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]
I Wear T-Shirts to Work
July 10, 2007 at 10:05 am
The trading lifestyle can at times be demanding, but man…I sure love it. There are obvious perks of course, like unlimited potential income, but I also thoroughly enjoy some of the more subtle perks.
Like my wardrobe, for instance. Who am I trying to impress, seriously? I see these guys on CNBC sporting $2500 suits, but ironically their type is a dime a dozen. My label is Old Navy – don’t knock it. I’d rather have a unique t-shirt for a couple bucks than a big-name tailor for my imported silk suit. The other day I went into Chipotle wearing a t-shirt I bought off a clearance rack like 3 years ago with a faded iron-on decal of a 70’s muscle car on the front and I got a compliment! I don’t remember the last time I saw Dylan Ratigan tell a guest on the show that his pinstripes are sweet. Try to catch me on a day when I’m not in cargo shorts, I dare ya.
The speakers are usually on blast when I’m doing my “research.” I have no boss, and I get to call my own shots. I have no set hours. The smarter I work, the more I can get paid. My dog is next to my desk every day. I can make a fast food run anytime or go get a 44oz. Diet Coke whenever I need my caffeine fix. Shoes are optional!
You get the picture.
What I Get To Do
Don’t let the unusual perks fool you though, I work very hard. I’ve never been called lazy by anyone, probably because I didn’t give them a reason to. I am passionate about my work, and I thrive on the challenge of ongoing achievement. I get bored otherwise.
On an average day, you might find me performing a variety of tasks. I’m always stalking some trades, but due to the nature of the market, some days I am more market-focused than others. On those days when my trades don’t need as much babysitting, I’ll I focus more on my business and the educational side of what I do in the trading world.
My email inbox never seems to quit dinging at me, but I like it that way. Members and friends email me about the market, individual stocks or with funny stories. I feel no guilt when I take 2 minutes to laugh at an email loaded with pictures of redneck inventions. I post tons of messages on the forum in the member area of my site, interacting with traders, sharing insights and exchanging trading ideas. I tinker with software tools, write articles like this one you’re reading, and occasionally IM with trading buddies. I discuss ideas with my web developer.
And did I mention that I’m constantly on the lookout for trades? It is the trades that I’m most interested in during the course of the day since they’re at the heart of why I’m not under someone else’s employment to begin with.
Why I Do It
I’m an entrepreneur. I loathe the idea of working for someone else. I don’t want to be told what to do, so I work my tail off in order to keep working for myself. I don’t want a boss! Of course there are plenty of challenges and lean times, but it’s those times that really force me to grow. There’s something about putting your nose down and battling it out, whether it’s a stretch of tough trading or a lengthy to-do list which demands my attention. Once I get through it, I feel empowered and confident. I sleep better and walk a little taller. (But I don’t sleepwalk.)
When it comes to the main site at TheStockBandit.com, I started it as a hobby since the market closes at 3pm here in Texas, but I quickly realized how helpful it was to my routine to post my trading ideas each day, much like a journal of how I’m viewing and trading the market day after day. I also missed trading in an office full of traders with ideas flowing back and forth. After all, there are lots of lessons to be learned (and reminded of) when you’re interacting with other traders regularly. That’s the selfish part.
The unselfish part really boils down to the fact that I like to help other traders. I had a few very good traders help me out in my early days, and passing along some of the things I’ve learned is a good thing to do. I’ve written about 250 of these free articles for the same reason – to share insights. There’s some fulfillment in doing so.
Along the way, I have of course seen the opinions of some people who generally believe that newsletter writers are snake oil salesmen who don’t know how to trade and are just out for the money. People will think as they wish, but my response to it is that if you saw how little the website generated in terms of revenue back in the early days, you’d know that I wouldn’t have continued doing it if I wasn’t passionate about the underlying premise, which is helping traders. And these days I’m 100% confident that if you were to ask any of our subscribers about it that they would quickly verify that I’m in this to provide help as much as trade ideas for them. I don’t reply to the complex questions of members with 1-line emails or generic answers. I provide thorough help so that they “get it” by the end of a conversation.
I enjoy providing encouragement – we all need some from time to time, don’t we? And I know I’m helping traders when I point out blind spots to someone who’s unsure of what is plaguing them. Every one of us have blind spots, which means somebody’s gotta help us if we are to improve. That “Aha!” moment is great to experience. That’s why I camp out in our members-only forum every trading day. I like to share ideas and help traders who are seeking it. If that weren’t the case, I certainly wouldn’t devote the time I do to providing assistance, because nobody is forcing me to do it. I truly enjoy it and find it more fulfilling than just executing my own trades.
So there it is. Wonder no more about what I do or why I do it! To some, my routine would seem like total chaos. Every day is different, exciting and new (kinda like the Love Boat), but that’s exactly how I want it. I get to make decisions that impact both my personal wealth as well as the health of my business. I have flexibilities and freedoms that “regular” people don’t, and it suits me perfectly. It may not be for everyone, but I do my best to share it with others. Yes, I work hard, but it’s on my terms and that’s why I love my job.
Plus I get to wear t-shirts.
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]
Timothy Sykes: An American Hedge Fund
July 4, 2007 at 3:26 pm
I love to read trading books, so I’m always pleased to have the opportunity to do book reviews when writers offer to send me a copy of their book. Recently I was asked by Timothy Sykes if I would be interested in reading and possibly reviewing his upcoming book, An American Hedge Fund. I obliged, and soon after I found an “uncorrected proof” copy of the book sitting in my mailbox. I was pleasantly surprised to also find a very nice handwritten note by Timothy thanking me and offering an open invitation to contact him regarding any questions I may have. That set the stage for what was to become a very good read.
With a hectic schedule like most of us have, I found occasions to work my way through the book over the course of the last couple of weeks, but as I got to it I found it was a real page-turner. Once I completed it a few days ago, my plans were to post my review this weekend, but when I saw my friend Charles Kirk posted his review yesterday and then Timothy appeared on Fox News today, I figured it was time to stop dragging my feet!
I had seen Timothy on CNBC (he was the first to bring models to the show – nice touch Tim!), in Trader Monthly magazine, and he also stars in Wall Street Warriors on MOJO. He definitely was getting some press, so I was interested to see how he had gotten there.
This was a book I thoroughly enjoyed. In fact, not since Dumb Money have I found a trading author’s sarcastic humor and no-holds-barred honesty regarding his trading decisions, conquests and faults so authentic and compelling. I related to so much of it as a trader, was inspired by his successes, and was reminded of important lessons through his failures. Timothy’s style of writing kept me entertained and intrigued as to what would happen next, plus I kept getting waves of nostalgia whenever he’d mention flash-in-the-pan stocks of the 4-letter variety which I’d also traded in recent years. It can be fun to dabble in the story stock of the day, and fading those moves in micro-cap stocks just happens to be Timothy’s specialty as a trader – he’s the first I’ve known to do so well with such a strategy.
Timothy’s story takes you through the complete transition from his $12,000 bar mitzvah money all the way to his multi-million dollar Cilantro hedge fund, chock full of juicy details along the way. The P&L numbers keep on getting bigger, and he keeps nothing in reserve when it comes to his feelings after each individual victory or defeat. You’ll relate as I did not only to the highs and lows of his trading, but to the calculated (and sometimes uncalculated) risks he takes, the disciplines he learns to employ, the pain his weaknesses occasionally cause, and even the burnout he sometimes encounters.
His audited returns are certainly impressive, but he gives the reader a very clear glimpse of just what it takes to get there. Timothy details the lifestyle of a big-city trader, the journey of building a hedge fund when you’re a small fish, how to adapt to changing markets, and how to deal with the everyday challenges and thrills of just being an active trader.
Even though my copy of it was free, I found An American Hedge Fund to be an excellent book which has a lot to offer any self-driven investor or trader. Watch for it in stores or at Amazon October 1st this fall and pick up a copy for an entertaining read!
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]
Uptick Rule Ends, Short Selling Gets Easier
July 3, 2007 at 9:21 pm
For those who have not already heard, the SEC has voted to remove the “short sale tick test”, Rule 17 CFR 240.10a-1 for all equity securities. Effective Friday, July 6, traders will be able to short all securities on an up, down, or zero tick.
WOW! All these years of having to wait for an uptick to grab a trade on the short side has finally resulted in the simple removal of the rule. This means that on Friday, short selling will be just as easy as buying a security, as the uptick rule will no longer apply. Faster fills on shorts will mean less slippage and a greater ability to add exposure on the dark side for those who are willing to trade it.
Up until now, ETF’s have been shortable on downticks, as well as select securities which were a part of the SEC’s short sale tick test. The Regulation SHO pilot program began in May 2005. It suspended all short sale price tests for a select group of over 1,000 equity securities. But now the gates will fling wide open and there will be no restrictions on what you can sell short on downticks other than if your broker has shares available to borrow.
Ironically, we just happen to be in quite a bull market with the NAZ at 52-week highs, so shorting heavily at this point may not be the solution to all your trading problems! Stay selective out there and don’t let a rule change dictate your next move. Stick with the charts and let them determine your course of action. It’s just that now when that calls for shorting a stock, it’ll be easier for you!
For more info regarding Rule 17 CFR 240.10a-1 and the SEC’s proposal to remove the rule, visit the following links:
https://www.sec.gov/news/speech/2006/spch120406ccc-10a.htm
https://www.sec.gov/news/press/2007/2007-114.htm
Trade with Discipline!
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]
Day Trading: When to Take Profit
April 19, 2007 at 8:00 am
Day trading candidates are often listed in the Bandit Broadcast stock newsletter for the more active traders at TheStockBandit.com, offering some additional opportunities to grab some gains on an intraday basis. With earnings season underway, we’re still swing trading some, but right now is a good time to shorten timeframes a bit until the scheduled news passes.
While most day traders pay close attention to the price action, one of the most important indicators for short-term momentum can be found in the volume levels, particularly in relative volume. I keep a close eye on relative volume via Trade-Ideas Pro, a real-time scanner. Relative volume is the comparison between current volume levels in a stock and what the volume levels typically are for the same time of day. So for example, if XYZ is hitting highs on 2x relative volume, it is seeing twice the volume today as it typically sees for this exact time of day.
On Monday night, GROW was provided for our members as a day trade candidate in the Bandit Broadcast with a $31.50 buy point. The stock had pulled back slightly on the daily chart, but the pattern wasn’t quite clean enough to warrant a swing entry. There was a small descending trend line just overhead which was acting as resistance, and a push up through that level ($31.50) was likely to generate a quick pop to the upside. Here’s the original chart that was shown with the trade:
(Click for full size.) Chart Courtesy of TeleChart.
On Tuesday, GROW cleared the $31.50 buy point not long after the market opened, and quickly shot higher as momentum players jumped into the stock. However, the relative volume was only running right at 1 in my Trade-Ideas filter, which meant it was merely average volume. With the stock up $1.20 past my buy point (a 3.8% move) in less than 45 minutes, I decided it was time to ring the register. I posted my exit on the Bandit Bulletin trading blog for members, and moved to the sidelines with a nice chunk of change. The comment I made at the time of my exit was that it was “too good of a move not to book when volume is only average.”
That proved to be true, and I was relieved to have pocketed the profits as the day progressed, with GROW slowly fading all the way back to the trend line area by the end of the day. Timing really is everything in trading. Here’s a look at the intraday chart which shows all of Tuesday’s trading, including the gradual slide back down after our exit:
(Click for full size.) Chart Courtesy of TeleChart.
Sometimes the simplest things can be the most beneficial to watch. Trade-Ideas offers some amazing tools for day traders, and yet I seem to find ample value in the Relative Volume feature (they have several new features in the works as well). So the next time you’re catching a nice move in a short-term trade, be sure the volume is strong enough to support it. If it isn’t, you’re probably looking at the perfect time to book that gain and move back to the sidelines.
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, Trade-Ideas[/tags]
Day Traders Return
March 16, 2007 at 9:00 am
Yes it’s true, Day Traders are Making a Comeback on Wall Street! For years there have been quite a few of us, but I suppose the steady uptrend which started last summer and ran for nearly 8 months is part of the reason. Dirt-cheap commissions at direct-access brokerages also contributes to the rise of day trading, along with just greater education and awareness of active trading.
I used to purely be a day trader, but I’ve been swing trading more in the past few years. I still make a fair amount of day trades when I see inefficiencies that I feel I can capitalize on, and I’ll continue to do so for as long as there are opportunities to pull some profits out of the market, in spite of the ongoing debate about day trading.
If you’re considering doing some day trading, you’ll no doubt find it easy to get spooked away. With countless stories of traders who got their head handed to them (via TraderMike‘s QuickLinks), you might change your mind before you ever even get started! However, there are a few things to keep in mind that are positive aspects of day trading:
Day Trading Helps You Manage Risk
It’s true! By looking “under the microscope” and shortening trading timeframes, the risk is inherently lower on a per-trade basis. Overnight gap risk is not a factor. Event risk is limited. Stated more plainly, closing out trades by the end of the day would have saved countless “investors” a lot of money by not holding onto losers!
Day Trading Offers Higher Leverage
Leverage can be a double-edged sword, and should be used only by those who understand & respect it. If you meet both of those requirements, you can get up to 4:1 leverage for day trades that will enable to you profit by a greater percentage than would be possible without margin. That’s a big benefit that offsets the shorter holding times of day traders, but I cannot stress the importance of understanding leverage and respecting it.
Day Trading Allows Money to Compound Faster
This is probably the biggest advantage of day trading, as the more rapid turnover of funds and adding up more small gains will lead to the faster compounding of money. Einstein called compound interest “the greatest mathematical discovery of all time.” That certainly supports the concept of frequent incremental gains adding up very rapidly for day traders, and it’s hard to ignore. Gary B. Smith made a great point a few years ago that a trader starting out with $5,000 who increases it only 0.5% each trading day will end up with quite an impressive sum after 5 years: $3,000,000!
So of course, do your homework, determine what trading timeframe is right for you and your needs, and investigate some day trading strategies. If you’re slow to act or if you’re a compulsive gambler, then day trading is absolutely not for you. However, it just might suit you and provide you with another trading method to build up your account.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Day Trading: The CNBC Debate
January 27, 2007 at 1:57 pm
As I watched CNBC’s clip on the return of day trading Friday, I was entertained by the banter. On one side was Trey Robinson, an acquaintance of mine from CyberTrader who just happens to be the Director of Business Development (who would possibly know more about the scope of traders in the market today?). On the other side of the argument was Michael Farr, a long-term portfolio manager who clearly knows very little about day traders being that he only deals with buy-and-hope hold investors.
Day Trading Differently
Trey discussed the higher net-worth clients that are accounting for the increased level of day trading in recent months (there has been a lot of buzz lately regarding this), and it’s not surprising to hear that much of today’s trading crowd is notably different than the bubble crowd of several years ago.
Trey Robinson of CyberTrader discusses today’s day trader on CNBC. (Click image to launch video)By taking a portion of their portfolio to day trade, the new crowd is able to diversify their timeframe rather than just attempt to match the market’s returns over time. They’re also using sophisticated tools to help execute their trading strategy while reducing risk. Truly a sophisticated new breed of day traders, no doubt.
Long-Term Investing Contradictions
As Michael started to speak about day traders, he wasted little time before jumping right to unfounded claims such as “these people are speculating and not investing,” and that “when the music stops, it’s over.” He also added that “when the general trend turns down, these people don’t make money.”
How ironic! He failed to mention that a long-term investor such as himself can indeed suffer considerable losses during a market correction, especially considering how few are hedged or short selling the way most day traders do. It’s also interesting to note that his long-term investors can be at greater risk than a day trader during a downturn, especially considering that they are mostly invested at all times and a day trader can take a position in cash (thereby preserving capital, not losing it).
Michael also failed to mention that even long-term investing also involves a level of speculation. After all, what guarantee does any investor have that his choice of investment (whether day trading or long-term investing) will produce a profit as expected? There are no guarantees in the stock market, regardless of timeframe.
Day Trading Reduces Exposure to Risk
On Friday at TheStockBandit.com, some members and I were discussing on my trading blog the sizeable downside gap in HAR after the company had reported earnings. Interestingly, a day trader would have had no exposure to the risk of an earnings gap which occurs overnight, but the long-term “investor” would have felt the full sting.
Same thing for the incredible downside market gap which followed 9/11: no harm to the pure day traders, but long-term investors needed considerable time to recover.
It’s pretty clear that even long-term investing involves significant risk (geopolitical event risk, earnings gaps, analyst downgrades, etc.), but one can easily argue that day trading reduces the exposure to risk due to the limited holding periods. Who can disagree with that?
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Trading, Day Trading, CNBC, Stock Market[/tags]
