All Entries in the "Day Trading" Category
Dealing with the Pop and Drop Trade
May 17, 2011 at 1:43 pm
This question came in from a fellow Bandit recently, and I wanted to share it (and my response back to him) with you here…
Question:
Jeff, what’s the lesson to be learned from this today. One trade I was watching (***) moved past 13.45 in a hurry this morning. By the time a trade could be executed it was already up in the 13.60s, got up as high as 13.74 and then dropped like a rock back down to where it started the day. All of it happened in about an hour. I’m thinking it would have been better to leave this one alone today. Thoughts? B
Answer:
That one did shoot quickly past the trend line, and anytime that’s the case I try to lighten up into the move. The sharper the moves tend to be, the more prone to reversal they are. So while it’s nice to see a big fast favorable move, at the same time it’s imperative to recognize that it may not last long and to use that strength to book some profits.
Another thing I’d add is that anytime you happen to get a bad fill on your order (in this case 13.60 as you mentioned when you wanted 13.45, it’s important to recognize that the risk/reward profile of the trade has just changed. You might have intended to exit around 13.30, or just about 1% from your entry, but a higher-than-intended entry necessitates raising your stop aggressively in order to offset the late buy. Otherwise, your stop is simply too far down and the risk/reward is no longer as favorable as your original plan for the trade.
The idea is to keep managing risk, keep managing risk, keep managing risk when day trading. Sometimes you get ‘slipped’ on an order like that and end up with a later-than-intended entry, so when you do, either keep a tight stop beneath it or trail it behind the trade aggressively so as to either exit with a minimal loss or book a little gain. If the trade doesn’t unfold as planned, look for the next-best alternative, which is getting out about flat or slightly better if possible.
Sometimes as you said, hindsight will show stocks which may have been better left alone, but on the fly we can still manage the situation well with some good habits.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Archived Webinar
April 20, 2011 at 12:47 pm
Good news! Last night’s webinar in conjunction with Worden was recorded and is now available. If you missed out in real-time, there are still a TON of ideas worth taking note of.
The run time is under 1 hour, and I promise you’ll learn something on top of all the trade ideas presented. Here’s the link to the archived webinar.
Enjoy!
Trade Like A Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Lessons From a Life-Long Speculator
January 26, 2011 at 11:43 am
I caught a clip from a recent 60 Minutes interview in which a Las Vegas gambler named Billy Walters was profiled. This is a man who, at 64 years old, understands risk and edge as well as anyone. As a result, he’s been dubbed “the most dangerous man” by Vegas sports books.
Walters has been a life-long speculator, betting on golf courses and in pool halls, and of course he wagers regularly on football and basketball games. He’s no stranger to streaks, having mentioned he’s been broke more times than he can recall, and yet the show stated he’s currently worth “hundreds of millions.”
The interview is embedded below, and you’ve got to see it, but before we get there I just want to point out a few things Walters clearly does exceptionally well. As traders, and therefore speculators in a different realm, we can all learn from him.
Success isn’t about making one big bet. Note in the clip below how Walters never lets it all ride on one game, instead he spreads out his capital across multiple opportunities. He’s confident in the outcomes, but by operating in different games and even different sports, he also helps to protect his outlay from unforeseen events. For the trader: don’t put your entire account into one idea.
Success goes hand in hand with passion. Walters’ net worth is said to be in the hundreds of millions, so why does the show depict him placing more bets of a few hundred thousand or mention he’s up $1M that week on his games? Because he’s passionate about it, he loves it. For the trader: if you don’t love the game, it’s going to be hard to get through the tough times and persist.
Get bigger when you have an edge. Over the years, Walters has increased his bets along with the expansion of his bankroll. But beyond that, when Walters sees a line that’s vastly different from his own, he bets very aggressively. He trusts his edge, and looks to exploit it most when that edge is biggest. For the trader: when your home-run setups come along with defined risk, size up.
Be creative. Walters used to be small enough he didn’t move the lines in the sports book when he placed his bets, but over time, he’s become a major player. That’s required him to adjust his system along the way, utilizing his team of associates to place bets for him. He also may push a line one way, then bet big on the other side. For the trader: don’t get stuck trading only one way, keep looking for a better approach.
Be persistent. A guy who claims he’s been broke many times clearly exemplifies persistence to not only still be in the game, but to be such a huge success. When the proverbial (or literal, in his case) chips were down, Billy Walters hung in there and kept fighting. He expected success, and he kept working until he got it. For the trader: stay in the game and don’t give up.
Surround yourself with sharper minds. Walters admits his team is made up of people who are all smarter than he is. That doesn’t mean he isn’t confident, but rather that he relies on others to provide assistance where he feels his skills are lacking. He’s no doubt the biggest success among them, but he attributes that to the bright people on his team. For the trader: if you’re not getting where you want to be on your own, get some help.
Play for meaningful stakes. One doesn’t amass a fortune by accident, and Walters hasn’t gotten rich by nickel-and-diming it along the way. He recognizes an opportunity, gauges the size of his edge, and then puts his capital at risk in expectation of a sizeable payout. For the trader: once you understand how to trade, allocate capital in such a way that you stand to make a fair amount when you’re correct – and never overtrade.
Here’s the clip:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
One Good Trade
January 21, 2011 at 12:23 pm
I was sent a copy of One Good Trade by the author, Mike Bellafiore, longer ago than I care to admit. (In fact, Bella, please forgive me for taking so long to get around to reading it!) I will say though, once I picked it up, I only wished I had started reading it sooner.
Mike’s been a trader for just a little longer than I, so a few of his earliest experiences were before I got into trading back in 1998. From there, I really enjoyed his reflective tone regarding his trading career, experiences, mistakes, lessons, and successes. His honesty was refreshing, and I enjoyed seeing how he adjusted his approach throughout the market changes over the years (as we all must) in order to survive.
But beyond the nostalgia, One Good Trade was also full of wisdom. Mike’s personal trading experience was at the heart of the lessons he teaches in the book, but his experience and insights are compounded by those of the many traders at his prop firm. I started out in a day trading office – a very similar environment where I was surrounded by dozens of other traders for my first few years. I can tell you from my own experience, Mike still learns plenty from the other guys in his office. And it shows in the lessons he relays from having trained others over the years.
I want to hit 8 highlights I found in this book in order to give you a glimpse of what’s inside. Even though I’ve cherry-picked a few of my favorites to share with you, this is still a book you need to read if you’re an active trader (so go pick up a copy!).
1. Trading – like sports – is performance based. Athletes, like traders, understand that a little talent isn’t enough…it takes hard work too. Some days (or weeks) are better than others, so it’s important to show up ready to play, both physically and mentally. Bella’s recent example of MLB great Trevor Hoffman gives an excellent example of one such mental exercise for peak performance. Getting good rest is another way to ensure you can be at your best on a regular basis.
2. Maintain lists of the setups which work for you and those which don’t. This sounds so obvious, and yet have you ever done it? Trading responsibly includes knowing what works for you and which setups tend to fail or shake you out prematurely. Understand which is which, and as Gartman says, “do more of what is working, and less of what is not working.”
3. The market doesn’t care what you wish – so you must always adapt. It’s harsh truth, but something each of us needs to hear from time to time. Mike goes on to say that the market also doesn’t reward the trader seeking lazy trades, so be creative. These go hand-in-hand for the trader who is willing to adjust his approach as the tape requires.
4. You choose your attitude. This can be said for any endeavor, including trading. Go tell Lance Armstrong that attitude doesn’t matter. In trading, Mike reminds that you can complain and make excuses, or you can compete (and find ways to use current conditions to your advantage). There will always be obstacles to overcome (HFT’s, head-fakes, etc.), but never make excuses. Poor traders blame, so don’t be one of them if you want success in trading.
5. Make the most trades with the most size during the trading periods that statistically are most profitable for you. Another seemingly obvious statement, yet one which most traders simply don’t understand. You don’t have to be a statistics nut to appreciate the fact that for your trading style, there are times when you need to be active and times when you need to sit and wait. Find out when to do which, and you’ll stop giving back gains.
6. Work on your visualization abilities regularly. This is the best way to get better, best way to grow, best way to overcome challenges, and the best way to train your brain in the way you want to respond in any situation. Mike works hard with his professional traders to not only review their trades after the fact, but he harps on the importance of mentally rehearsing how to respond to various situations. That way, when the real deal comes along, the right preparation has been done.
7. Be coachable. Traders with a stubborn attitude or who don’t listen simply won’t improve, whether it’s what the market’s trying to tell you or something someone else is teaching you. If you aren’t a listener, you’re going to either stay stubborn (and lose) or you will take the long road to improvement. Those who are coachable are more able to place their ego aside and move forward, rather than adapting to what the market’s telling you (see #3 above).
8. Trading is all about skill development and discipline. Great traders obsess over doing their job, which is to make One Good Trade at a time. They always live to fight another day, and they’re continually developing their skills so they can trade any market which comes along. Discipline is shown both at their desk and away from it, and as a result, their hard work isn’t sabotaged by destructive habits.
Bottom line:Â Fantastic book, and it’s not to be missed if you’re a trader who is passionate about improving.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Uptrend Aside, Trading Scene Set to Improve
November 1, 2010 at 10:45 am
August seems so long ago, doesn’t it? Stocks had rebounded from their July lows, briefly, and had turned back down hard for a test. The test passed, as an important higher low was established.
From there, we all know the story of how the seasonally-weak September and October stood conventional wisdom on its head to post big gains. What’s not been spoken of much, however, is the way this 2-month rally has changed in recent weeks.
What began as a rip-roaring rise ripe with short-covering has evolved into a slower, more steady uptrend channel. The pace has cooled off a bit, while still continuing to make upward progress. In fact, new intraday highs were posted multiple times last week, despite the indecision we saw between the opening and closing bells each day. Today we’re seeing more of the same, as early strength has delivered new highs while modest profit-taking has caused the indexes to back down from their best levels.
To put it another way, the “dumb money” has had great success in recent weeks. Those who waited for strength to return before becoming confident enough to join in have been fortunate enough to chase extended markets and stocks and still profit. But for those of us who prefer to see some kind of rhythm associated with market moves, it’s been a one-way street without many ways to play the long side while still protecting the downside.
Astute traders have instead found it a bit more difficult to navigate the current environment, as anyone with an ounce of discipline has felt the uneasiness of adding long-sided exposure for overnights while simultaneously recognizing the limited opportunity of trading intraday. It has left many of us to do more scalping while waiting for more lively day-to-day price action and higher-quality bases to come along. Those bases often rely on some back-and-forth price action, which we simply haven’t seen of late.
Watch The Horizon
Any trader worth his salt knows that conditions will shift. Maybe not immediately, but eventually.
That doesn’t mean prediction is necessary, because it isn’t, but it does mean staying alert.
When trading well, keep doing what works but be on the lookout for signs the setup may be changing. When trading poorly, it’s imperative to employ some other methods which are more suitable to the conditions. At the same time, hope can be had that a shake-up in the price action will bring more opportunities.
Right now, the market is in an interesting spot. The rally has brought the spring highs into play as we’re essentially testing them in this area. That’s a logical resistance area that could prompt some selling, depending upon the news flow. The uptrend channels seen in the averages could easily be penetrated to the downside, heightening concerns of whether that’s the end of the run. The other side of the coin is that the trend is still up, and no evidence has surfaced to suggest it’s changing.
So as a trader, here’s how I’m dealing with all this. The trend is up, so I’m favoring the long side while keeping timeframes short in order to offset the risk of walking the highwire here. I’m also mindful of potential shifts which could emerge anytime. We’re in the midst of earnings season, and that could easily sour the mood. We have the November elections tomorrow and the political implications of that, which is a major event. And then mid-week we have the FOMC, and with all eyes on the economy, the attention of traders will definitely be on Wednesday’s announcement and policy statement.
We could ramp from here and take out the spring highs before a pullback begins. It’s possible. We could break the uptrend channels and see some selling accelerate as traders recognize the trend line break and move quickly to lock in profits. Several scenarios are possible, and it’s important to keep an open mind here for that very reason.
I will say this: I’m expecting volatility to pick up sooner than later, and that means more opportunities for trading multiple timeframes. That’s where the real money is made, as you can have capital working for multi-day moves while still maneuvering to catch intraday moves for profits. Look alive out there, this is no time to get lulled to sleep.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Narrow Your Scope With Basic Stock Filters
October 27, 2010 at 11:09 am
Each night I work through literally hundreds of charts, aiming to find those setups with an edge. They’re the ones which allow me to not only clearly define my risks, but also offer potential profits which greatly outweigh those initial risks.
I’m asked quite frequently by traders how I narrow down the universe of stocks to a more manageable list. The short answer is to start with price and volume filters in order to eliminate the low-dollar stocks, as well as those with poor liquidity. That alone will give you stocks to consider which aren’t as highly-speculative as penny stocks, as well as stocks which are liquid enough that there should be a buyer when you go to sell and a seller when you go to buy.
Beyond those basic filters though, you may still wish to narrow the list. In the charting program I use, dozens and dozens of additional filters are available. Among them are things such as Beta, Trade Range, Average True Range, Expanding Trade Range, Contracting Trade Range, and a lot more.
Just that brief list is enough to help locate stocks which move faster than the broad market, or to eliminate names which simply don’t move enough.
Base Filters on Broad Market Movement
When dealing with ‘trade range’ types of filters, you can accomplish a lot. For example, you might generally use Average True Range to knock out stocks which don’t fluctuate much, helping you to eliminate the ultra-quiet stocks. When the market is starting to break out, look for Expanding Trade Range to help you locate stocks which are likely participating in the move or gaining momentum. When the market has made a big move already and is beginning to rest, use Contracting Trade Range to locate more stocks which are basing and may be starting to create patterns.
Don’t seek a one-size-fits-all filter, because it doesn’t exist. Keep an open mind, and put some thought into what it is you’re wanting to find. Stay flexible in your approach, and you’ll continually be able to avoid wasting time sifting through stocks which aren’t worth a second look.
The key to effective filtering is to learn over time how and when to vary the filter you’re using based on general market conditions. As you develop that skill, you’ll get really efficient at narrowing down the universe of stocks to a more manageable, appropriate list, depending upon whatever conditions you find yourself trading in.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
One Intraday Setup That’s Working
September 28, 2010 at 9:38 am
In a world dominated by algo’s and machines, the astute trader can still turn a profit. It’s true, despite what many losing traders might tell you.
It takes adaptation, some ingenuity, imagination, and of course, thinking outside the box. For the creative trader though, new patterns will emerge from which profitable trades can be made.
So today, I wanted to point out to you one such example. I won’t name the stock, because it doesn’t matter, but here’s the chart from the opening 50 minutes or so:
As you can see, this stock gapped higher, ran a little more initially, and then began to roll over. The selling intensified as new lows were made on the session, and the gap began to fill before a brief period of rest set in. But that wasn’t the end of the story. Conventional day trading wisdom says this gap keeps getting filled, but only if another new low is made with a break of that intraday support.
Lately I’ve noticed this kind of setup – and you can reverse it with a downside gap if you’d like – offering some good plays. I had one finger on the trigger to short sell this one upon a break of that support, but it held just above the whole number. As the stock started to catch a bid, I went long with a very tight stop – only $0.06 from my long entry. And only 10 minutes later I was flipping out my shares for a quick $0.50 winner.
** For those wondering, that’s a reward-to-risk ratio of better than 8:1.
This setup offers two things I really like…
First, it offers very minimal, defined risk. If support (or resistance in the case of a morning gap down) gives way, I’m out quick for a small loss.
Second, it offers a great pivot area where emotion is building. The battle that took place at support was really something, and once one side began to win out (in this case the buyers), it sparked a quick move away from that level.
So, keep an eye out for this setup – it’s been a great one to trade. Gaps which only partially fill before hesitating at a level just might offer you a quick, profitable reversal play like this one.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
