All Entries in the "Day Trading" Category
Why I’m Not Trading AAPL
October 19, 2009 at 10:27 am
AAPL is set to report earnings after today’s closing bell. It’ll be the focus of attention at times both today and tomorrow as the dust settles post-news, but truth be told, I have no interest either way.
Obviously it’s one of my trading rules to avoid stocks when they’re reporting earnings, as scheduled fundamental news simply carries with it no edge for me as a technical trader.
But I’ve had no interest in trading AAPL for a few months now. Let me explain why.
The short answer is that AAPL simply doesn’t move enough. For a stock that’s highly liquid (over 15 million shares/day on average) and within sneezing distance of $200, it should move a lot. And yet it doesn’t. On an average day, it’ll see an Average True Range (ATR) of about $3. There are stocks trading at a fraction of AAPL’s price which move that much and are still highly liquid, so why pay up for less movement?
Let’s take a look at the chart.
Over the past year, we’ve seen AAPL’s price rise dramatically, while its movement has shrunken dramatically. ATR is a price-based measurement (not percent), so as price gets higher and higher, often times we’ll see ATR expand along with that. That’s not the case with this stock.
StockFinder Chart courtesy of Worden
Anytime you’re trading the high-priced stocks, do your best to gauge whether there’s enough movement there on an average day to justify an entry. Others like GOOG, CME, and BIDU all are higher-priced than AAPL, but on a relative basis (when comparing ATR) they each move considerably more than AAPL.
At some point, AAPL will be worth trading again, but on an average day right now, the moves are just too limited to warrant an entry.
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?
Stack the Odds for Daytrading Success
September 3, 2009 at 5:04 pm
Trading is all about stacking the odds for success. Risks must be taken in order to get paid, but the key is gauging under which circumstances the potential reward really outweighs that risk.
I discussed taking risks in a recent post, and I felt that a follow-up and an example of what I was referring to was in order. Here it is.
Many of my trades are continuation plays. They can be great for offering situations which warrant putting some money on the line once clues of a continued move are present.
However, there are many opportunities on the intraday timeframe which are exhaustion/reversal kinds of setups.
Buy or sell programs, news, and just plain old momentum drive stocks far beyond the pain thresholds of traders, carrying price a considerable distance in one direction or the other. That opens the door for some recoil, and catching the turning point can be quite lucrative.
Stacking The Odds
Here in a moment, I’m going to show you exactly what I mean in a video, but first let me outline a few keys which combined to produce a great trade in this situation.
- Corresponding market action. With the indexes having a distinct possibility of a short-term turnaround, conditions were ripe for similar price action in individual stocks. This is a point I make over and over in the weekly index videos.
- Prior key level on the daily chart of this stock was being tested. A huge intraday move which carries price right to a previously important level on the daily chart will increase the odds for a quick recoil move.
- Intraday price action suggested the move was becoming exhausted. That indicated that a reversal could quickly develop in the stock.
Here’s a video explaining it. Select the HD option and go full-screen for best quality:
Stack multiple factors in your favor for a great trading situation. They’re worth waiting for!
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Reversal Characteristics & Candidates
August 25, 2009 at 12:30 am
Stocks can reverse suddenly or slowly. Sometimes it takes place in one big bar, and other times it’s a process that occurs over time.
Because there are differences in how downside reversals can happen, after running across a couple of reversal candidates in the charts, I wanted to share a couple here on the blog.
Uptrends will often times be followed by corrective action, which may pave the way for further upside down the road. But a reversal is often a longer-lasting change of direction, and that’s what I’d like to discuss in this post.
When looking for reversal candidates, the thing to watch for is a change of character. Something that’s different from previous dips and stands out as a potential shift in the stock. That might be a lower high, or it might be a sudden decline which proves to be much sharper and faster than previous pullbacks were.
Show & Tell
In the video below, I want to point out 2 stocks which might be undergoing reversals. That means there’s plenty more to prove before they can be considered to be in corrective mode (as opposed to merely a dip within their uptrends), but chart reading is always a work in progress. If the characteristics which we’re seeing now happen to change, then so should our expectation.
For now though, let’s take a look at what’s going on and see if these show us the necessary price moves to confirm what the charts of FUQI and RL may already be saying.
Here’s a video explaining it. Select the HD option and go 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
Are you following me on Twitter yet?
More on Recovering from Trading Losses
August 17, 2009 at 6:44 am
Ever been downright frustrated with your trading?
If you’ve been a trader for any length of time, I’m sure you have. There can be stretches of disappointments during which it feels like getting on the right side of a move might not ever again happen. Your account shrinks and your confidence takes hit after hit, causing you to question your desire to continue playing the game.
If it sounds like I’ve been there, it’s because I have been. Multiple times. Every time I’ve hated it just as much as the first time, but every time I’ve emerged as a better trader. No pain, no gain!
Dealing With Drawdowns
I think it’s a good exercise for every trader to know their thresholds, and to determine just what you’re willing to lose during a poor trading stretch. That’s not to say you plan on it, but rather you designate some amounts, which if lost, will prompt you to make some immediate adjustments.
That might be a dollar amount subtracted from your account highs, or it might be how many consecutive losing trades you’ll endure when a drawdown occurs. Once those flags have been raised, it’s time to shift the routine.
It doesn’t mean you entirely abandon an approach which has proven to work for you over time, but rather that you install some safety rails for yourself before the damage becomes far more difficult to repair.
Short-Term Steps for Long-Term Survival
If you’ve suffered from a recent drawdown, it’s important that you take a few steps to get back on track – both in the near term and for the long haul.
In the near term, it’s crucial to preserve whatever confidence you have left. Remember, that’s your psychological capital, and it must be protected. Take a few days away from trading, maybe a week, and just clear your head. This may sound obvious, but stepping away is the best way to stop losing! Discouragement leads to some poor decisions in trading, so come back in a few days to resume trading after some of the irritation has subsided.
When you do begin again, cut your position size down to an amount which is insignificant, whether win or lose. You want to gain some confidence in trading well once again, making some good choices without the influence of recent losses. P&L becomes an afterthought at this stage.
Focus on the method, on making good trades which work, and then gradually increase your trade size so that the profits return. The first few trades might not grow your account, but they can greatly aid your thinking process by lifting the pressure of “making it back” and then you can get to that shortly thereafter.
Staying in the Game
A string of losing trades is no fun – downright frustrating, irritating, and bothersome. But the idea is to limit the losses when they do come (and we know they’ll come, that’s just part of trading) so that we are still trading when the best opportunities come along.
That’s how my method is. I equate it to a poker player who loses small, hand after hand, folding to surrender antes before finally sticking with his bet when a good hand comes along so that he can win a pot. Lose small, lose small, win big – that’s exactly how trading must be. How you choose to respond to losing will make or break you.
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 4
August 6, 2009 at 8:50 pm
As we complete this series on stop loss placement, we’re going to discuss trailing stops. But be sure to catch Part 1, Part 2 and Part 3 first!
In this segment, I specifically want to discuss the importance of managing our risk throughout a trade, not only to reduce losses but also to preserve profits. This is achieved by adjusting our stop, or through the use of a trailing stop.
When and Why to Adjust a Stop Loss
A rock climber knows the importance of anchoring himself to the wall along the way up, just in case he happens to slip. The anchor set early in the climb at a low altitude is every bit as important as the ones set at higher levels, but the more a climber ascends, the less useful a low anchor will become. As a result, it’s wise to keep raising it along the way.
Trading is similar in that the stop loss we initially set for a position may not be appropriate once that trade has progressed, so it’s likely to need adjusting along the way.
Setting some rules for ourselves, sticking with them consistently, and maintaining an adequate reward-to-risk structure throughout the trade can keep us in good shape.
Watch this clip and let me explain more thoroughly with some specific examples. It was also posted over at the Trading Videos site, but I’ve embedded it here for your convenience.
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 2 and Part 3 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 3
August 5, 2009 at 8:44 pm
To continue the series on stop loss placement, it’s time that we build on both Part 1 and Part 2 by taking things a step further.
In this segment, I specifically want to clarify a major advantage of basing our stops on the chart. Of course we’ll know where to get out if the pattern happens to fail, but there’s one thing many traders fail to focus on in relation to that. It’s an equation, and a simple one, but it gives us our position size.
Dollar Risk Per Trade
If every stock were the same price and carried with it the same volatility, and if every pattern we traded happened to carry the same exact chart scenarios, Part 3 of this discussion wouldn’t exist.
But each stock is a little different than the next. Each setup will vary from the previous one we entered. And of course, the distance from our entry to stop isn’t going to be the exact same from one trade to the next.
So what we need to do if we want to maintain a consistent dollar risk per trade is to determine an amount we’re willing to lose on each trade in case we are wrong. Let’s face it, some trades aren’t gonna work, and we’re going to get stopped out.
Once we know how much we’ll be willing to risk (in terms of a set $ amount, or a set % of our account value), then we can combine that into a simple equation to give us our position size.
$ Risk Per Trade / Distance from Entry to Stop = Position Size
Watch this clip and let me explain more thoroughly with some specific examples. 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:Â Check out Part 1, Part 2 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?
Scale Out of Winning Trades with Partial Exits
August 4, 2009 at 12:55 pm
It’s common among traders to think that you either have to be all-in with a stock or all-out of a stock, but that sure isn’t the case.
Many of us do our buying in one piece, entering a full position at one time as an important level gets crossed. This is my personal preference, as I continually seek out trading opportunities where a ceiling is shattered or a floor implodes, enabling price to make a nice move through it.
And when I am wrong (yes, when, not if ), I’ll exit in one piece. As events occur or conditions emerge to show me that the stock is clearly moving in the opposite direction of what I had expected, I’m going to bail out of the trade and protect capital.
So, I’m getting into trades in one piece, and I’ll stop out of trades in one piece. But rarely will I exit a winning trade in just one piece. Instead, I’ll scale out.
Advantages of Incremental Profit-Taking
Over the years in dealing with traders from literally around the globe, I’ve found that very few of them will get out of favorable trades in pieces. Adopting this method of booking profits can be an excellent way to trade, and particularly in a momentum-based market like the one we currently find ourselves in.
Taking partial profits and peeling off a portion of your position on the way up carries with it several advantages. Let’s look at a few…
1. You can lighten your exposure into favorable moves. As your trade makes its move, it’s a great idea to start reducing your position size. The idea is that as a move progresses, it naturally becomes more difficult to capture similar returns to the initial move. Typically stocks surge early, so this is a way to take advantage of that early momentum.
2. Make room for new opportunities. This isn’t just for those who may be trading with a smaller account and need to raise cash to put toward a new play. In fact, even traders with larger accounts may find it difficult to manage a lot of positions in terms of the attention they can devote to each trade. Catching the move you initially were seeking can remind you that it may be time to shed some shares and seek out another stock to put your money and/or attention into.
3. Let slippage work in your favor. Posting offers on the way up means you’re capturing the bid/ask spread – not paying it. I use market orders for entries and for stopping out, because when I need to be in or out of a trade I don’t want to haggle over a few cents. But when it comes to booking profits, limit orders resting at higher levels mean you’re out there offering out some inventory, letting someone else pay up for it.
4. Satisfy the urge to take cash off the table, yet still stand to gain from a continued move. This is a big confidence booster as well as a way to manage money wisely. Turning some of those paper gains into real profits not only pads your account, but it also reinforces that you’re on the right track. Gaining some momentum in your trading is a great thing, both for your account and for your psyche. And by adjusting the stop for remaining shares, keeping even a portion or a core position allows you to benefit from a major move, should it occur.
Trade Like a Surfer
Just as a surfer catches one wave after another, a good trader maintains the same mentality. Ride the best moves you can find, but don’t be shy about easing out of a trade once you’ve caught a nice move. Paddling back out to locate the next one will require your availability, so when you start smiling about a trade, it’s probably time to start scaling out.
The fear of missing out on a giant run keeps many traders from selling at all, but scaling out carries with it the best of both worlds.
Consider making partial sales in your next winning trade, and see what it does for your bottom line. It just might be the best adjustment you make this year.
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?
