All Entries in the "Trade Management" Category
7 Trading Lessons from the Masters
April 13, 2009 at 1:58 pm
As a trader who loves my job, I find it difficult to witness any big event without looking for some parallels to trading. The sports arena is one of those places, and it doesn’t take much of a stretch of the imagination to recognize frequent lessons that are applicable to trading.
Just about anytime someone’s talent or emotions are being tested, you’re likely to also gain some insights which can help your trading.
This past weekend in watching the Masters tournament, I couldn’t help but notice a few things about some of the players. Here are some of the things which caught my attention and the corresponding lessons…
1. Some days you don’t have your best game, but grind it out anyway. Tiger was a little off all week. He verbally discussed it, but it was also easy to see if you’ve watched him at all when he’s at his best. But in spite of not having his “A” game, he chose to grind on every shot and concentrate as much as possible. He came up a little short, but he had a chance on the back 9 on Sunday – which he admits is all he ever wants. What if you’ve done the same all week with your trading by the time Friday afternoon rolls around – do you think you’d be satisfied?
2. Stick with your style and be confident in your approach. Jim Furyk isn’t a long hitter compared to the guys he’s competing against, so he of all people is not going to overpower Augusta National. He had to lay up on some of the par 5’s, but he kept to his strategy and it put him into the mix with a chance to win come Sunday. Waiting for your setups to come along as a trader means not attempting unfamiliar approaches or those which don’t work for you. Trust your method!
3. When you’re hot, ride it – and enjoy the moment. Anthony Kim at age 23 is just one year older than Nick Adenhart, the Angels pitcher who died tragically last week. Recognizing the similarities of not only their ages but careers as professional athletes, Kim was touched by Adenhart’s death. Thinking of how brief life can be, Kim decided to enjoy himself and put life into perspective. After reading about Adenhart on Friday, Kim went out to set a Masters record by making 11 birdies in a round. He got out of his own way and allowed his talent to take over. When you’re reading the market well and your trading is on track, trade a little bigger and see what happens. It’s only trading.
4. Take your lumps with maturity. During the second round on the 15th green, Padraig Harrington addressed a short birdie putt when a gust of wind moved the ball. In accordance with the rules, he replaced the ball to its original position with a 1-stroke penalty, and made his par putt. Having won the previous 2 major championships and having been in good shape on the leaderboard Friday, Harrington would have had plenty of reason to be upset or shaken. But he went on about his business, not allowing a bad break to rattle him. When a good trade suddenly reverses on you or unexpected news costs you money, accept it like a mature trader. Keep plugging away with unflappable confidence.
5. Embrace opportunities with confidence. Kenny Perry has been close before in a major, having been beaten in ’96 in a playoff during the PGA at Valhalla in his home state. He’s won a number of times on the PGA Tour, and worked himself into the lead during the Masters. Success would have meant he’d become the oldest winner of a major championship, as well as his first major win. Facing the opportunity which Sunday brought along, Perry knew he’d either succeed or fail. And he relished the chance to walk that fine line. Trading afraid or scared won’t bring the success you crave. View every chance as an opportunity to build greatness, and face it head-on.
6. A little bit of nerves are good. Chad Campbell found himself right in the mix all week as he searched for his first major victory. When asked by the press about his nerves being on such a big stage and facing such a huge opportunity, he openly admitted that he had been and would be nervous. He also noted that having some nerves are a good thing, that they show you’re intense enough to care. When you find yourself nervous over trades, is it because it matters to you or is it because you’re afraid?
7. Don’t let a poor start steer your day. Angel Cabrera struggled early on Sunday as he found himself playing in the final group. At 1-over par through 5 holes, he was playing worse than everyone else on the leaderboard, losing ground and clearly uncomfortable. But he settled himself down and played solid for the remainder of the day, finishing with 3 birdies in his last 6 holes to get into a playoff – which he eventually won. Allowing your first few trades of the day or the week to define you isn’t the best course of action. Even if your year is off to a poor start, you can still salvage success. Stick with your game plan and trust that your experience and effort will pay off. Your attitude is a weapon – either you hurt yourself with it or you use it to your advantage.
I hope your trading week is a great one!
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]
Know Your Method
January 20, 2009 at 11:29 am
For nearly a year and a half, I’ve been blessed to be a dad. It’s been an awesome experience, and I have really learned a lot (though I still have a long way to go).
During the same time, I’ve been able to observe my wife in her role as a mother, and it’s really amazing how quickly a mother knows what their child needs! I had heard of a mother’s intuition, but witnessing it first hand really puts it into perspective.
I think mothers start out with an innate ability, a talent, to determine their child’s needs. And yet there are still the elements of practice and experience which enhance the natural talent that was there to begin with. It takes work, but the combination of talent and effort produces quite a skill.
Similarities Abound
Trading isn’t any different in that regard.
As traders, each of us start out with some kind of talent. It may be that we take quickly to reading the tape and gauging momentum, or it might be that we realize very quickly just where the boundaries of our comfort zones are when it comes to risk tolerance. Whatever it happens to be, generally it isn’t long before we start to build a method around our needs.
And what’s so nice about trading is that’s entirely possible in the market – since there are so many ways to seek out profits. We truly can custom-build a method which is fully-suited to us.
Once we get to that point, and if we want to trade responsibly, then one of our biggest obligations is to understand our method backwards and forwards. We don’t have to know everything about the market or be able to predict what’s going to happen next. Anyone who tells you otherwise just hasn’t traded much. All we need to do is keep our eye on the ball and continue to monitor and adjust the way we’re trading in order to achieve better results.
Worthwhile Effort
Just like a mother’s watchful eye on her child, our ongoing effort to remain aware of everything that’s taking place can lead to a great understanding of our method. As a result, we quickly learn when to adjust and how to go about modifying our approach whenever necessary.
What would it mean to you if you understood your method well enough that you could make small adjustments on the fly and right away improve your results? It would be huge, wouldn’t it?
As the newness of the year begins to fade and early resolutions fall by the wayside, take a stand for your trading. Make a commitment – a goal – right now to become sharp enough that you pick up on subtle changes in the trading landscape which warrant your attention.
Learn to detect when the environment is not ideal for your trading, so that you will know when to adapt or back down. And then when you see opportunities to do so, make those small adjustments so that you can stay on top rather than falling behind.
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 Video – 10 Chart Examples of How Stops Work
July 3, 2008 at 7:00 am
Here’s another video of a trading lesson for your viewing pleasure over the long weekend.
It would be difficult to have missed seeing the tankage in the Metals & Mining stocks on Wednesday, as most of them reversed sharply after demonstrating a lot of recent relative strength. The turnaround moves seen in those stocks offered too good of a trading lesson to pass up, so I spent a few minutes pointing out 10 charts and 3 ways which stops could have been employed to reduce the suffering for those traders caught on the long (wrong) side of these Wednesday.
Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.
Without further delay, here’s today’s video. Enjoy the show!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]
Good Trades vs. Good Results
April 22, 2008 at 6:24 am
What constitutes a “good trade?” Is it a profitable trade? Is it one that works quickly and provides you with a gain? Those are certainly nice!
But I’m not so sure that we can define our trades solely by our results. In fact, I’ll go ahead and say that a truly “good trade” can be declared regardless of your results – so long as certain conditions apply.
I recently had this discussion with a member over at TheStockBandit.com. A trader had commented that he was concerned about a day trade he had just made. Although he closed the position for a profit, he said “(his) only concern was (his) stop loss was greater than his profit…the risk reward wasn’t there when the trade was all over.” He followed with the question, “was it still a good trade?”
Interesting topic, to say the least! Here’s the reply I offered:
“I’d say that if before the trade you saw a risk/reward which fit your preference, that it was still a good trade. We have to roll with the punches after we are in (a trade), and sometimes we make a gain which is less than what we originally planned for. I think the measure of a good trade is whether the risk/reward was there from the beginning.”
We’ve all faced this issue as traders. We enter a trade with a certain game plan, do our best to follow it along the way, but when conditions change and we adjust, sometimes we’re left with a smaller gain than what originally would have offset the risk we took in the very beginning.
Seeing every twist and turn before they happen isn’t a requirement for good trading (fortunately!), so we don’t have to attempt to. What we have to do is evaluate the situation as it unfolds, and make the necessary adjustments to our stop loss levels or price targets, managing the trade to the best of our ability.
It’s like a pilot after takeoff, he keeps navigating toward the goal but a safe landing is of utmost importance. If that means he chooses an alternate spot to set it down, so be it. Exiting a trade at a spot not originally planned is sometimes necessary, but that doesn’t mean our choice was flawed to take the trade initially.
It’s important to remember that if the risk/reward profile of the setup was appealing from the outset, then taking the trade was the right thing to do. That means regardless of if you get stopped out for a loss or if you realize a huge gain. Taking high-quality setups with proper risk-reward profiles is at the core of how we manage our risk as traders. If you’re doing that, then you’re making good trades regardless of the results.
When it comes to results, we all want good ones and it’s important to review them from time to time and make sure we’re on track (as I’ve discussed before), so I’m certainly not diminishing the importance of that aspect.
However, making good decisions with not only which trades we choose to enter, but also taking logical steps along the way to manage each trade accordingly is what keeps us trading with a level head. So long as that’s the case, you’re protecting your objectivity and therefore able to keep making good decisions.
Trade well out there!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Stop Loss Discussion
April 20, 2008 at 1:52 pm
Thanks to Jonathan Burton of MarketWatch for including some quotes from me in today’s WSJ article on stop losses. Jonathan brings forth some interesting discussion regarding the use of stop loss orders, so be sure to check out his article.
Click to visit WSJ articleI’ve discussed the subject of using the stop loss order here before, and it’s one habit that I think is imperative for traders who care anything about consistent results and capital preservation.
Some additional comments on stops:
* A stop loss is your emergency exit, your safety net, your plan B when things don’t work out quite like you had planned.
* Even if you’ve never been taught how to set stops or an approach to determining which levels could serve as locations for your stops, choosing an arbitrary price to set your stop is better than not having one at all. Deciding on stop loss levels will largely depend on a couple of factors: the individual stock in question’s personality, and the overall market’s behavior at that time. Taking those into consideration should help you gauge an appropriate spot for an exit, which also is related to position sizing.
* Capital preservation is a priority to traders, but even longer-term investors would be better off incorporating some risk management elements into their plan. It all boils down to respecting the market and setting that ego aside. Your need to be “correct” can become costly if you allow it. So respect the market, or it will force you to respect it! We have to accept some level of risk in order to profit in the market, but even a small measure of humility should be a part of the plan because your timing may be off.
* Consider setting multiple stops for a longer-term position so that you won’t get shaken out on a small dip but at worst you’ll be reducing your position size as the stock moves against you. Your final stop would be in an area that on the chart it’s clear the entire trade has reversed course. Partial sales offer a lot of freedom, so remember that you don’t have to be “all in” or “all out” of a position. Scale out appropriately to reduce risk when you see fit.
* You don’t have to win on every trade, so look at stop loss orders as a way to protect your long term odds of success. Give yourself the best chance of profiting over time by preventing big hits to your account. You want to avoid ever going from stockholder to STUCKholder! Getting deep in the hole on any trade or investment costs you opportunity elsewhere, along with costing you your objectivity. All of us are wrong from time to time in the market, but the best traders know how to limit the damage done when they are wrong. The stop loss allows you to emulate that trait.
* Today’s commission rates are low enough that it’s sensible to use stops and then re-enter the stock later if you see fit. Stated otherwise, it’s easy to reverse that sale and quite inexpensive to do so.
* Every broker offers at least a basic stop loss order, with many brokers (including mine) now offering advanced order types which let you specify multiple conditions that must be met before your stop order gets triggered. That’s a huge tool for today’s traders and investors, so use conditional orders if they’re available to you.
The bottom line is this: small losses are the key to long-term success, whether you’re an investor or a trader. The stop loss order exists for the very purpose of limiting your “wrongs,” so use them!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Stop Loss, Investing[/tags]
Safety Nets for Trading
November 14, 2007 at 7:05 am
All of us could use a safety net from time to time, and fortunately every single one of us has access to one! It’s called the stop loss, and it’s an invaluable part of any trading strategy.
Regardless of trading style, we all know that there will be occasions when we’ll be wrong and lose money. Knowing that if we play the trading game it’s unavoidable, the next best thing to do then is to limit those losses the best way we know how and protect the downside. That may involve setting an initial stop loss level on a new trade, or it may involve tightening up stops on existing trades, but either way it’s important to have these safety nets in place.
Last week’s steep selloff caught many by surprise, bringing untold levels of pain to those who failed to employ a stop loss order. It’s an excellent reminder that truly anything is possible in the market at any time.
But you’re different, right?
Think of it this way…. an experienced driver still wears his seatbelt, a great climber still uses a safety harness, and any trader worth his salt will employ the stop loss as a safety net. Doing so will prevent the kind of long-term damage that hope can do to a trading account when positioned on the wrong side of the market.
Setting stops appropriately is an art which requires constant monitoring and modification. Even if you’re not a very experienced trader and may not even know the proper areas to place your stops, do not forget that having some kind of stop in place is better than nothing at all. Don’t walk the high wire without some protection! Your trading capital is your lifeblood as a trader, and it deserves your protection. Play great defense and you’ll have plenty of opportunities to put your offense to work!
The idea is to keep moving forward.
Last Thursday and Friday I was stopped out of 2 positions, one for a gain and one for a loss. However, obeying those stops saved me from further losses which I’d be sitting on had I merely ignored them or hoped for a recovery. That prevented further pain, and although taking those stops was no fun at the time, I was still very glad to have done so by the end of the week. After all, I’d rather be sent to the sidelines with a few paper cuts than be carted off the field on a stretcher with a broken leg (or worse). Don’t become a stuckholder – babysitting underperforming positions is no fun!
There will be plenty of times when we’ll be wrong as traders, so accept that fact as part of the game. As soon as you can do that, you’ll ensure your longevity as a trader, and vastly improve your odds of great success.
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]
