All Entries in the "Trading Tips" Category
Train Well to Trade Well
August 12, 2008 at 1:27 pm
While watching the Olympics, it never ceases to amaze me the dedication of these athletes and the preparation they go through in order to be at their very best. These people are what some might call ate up with it! They’re consumed with improvement, they’re completely focused on peak performance, and their commitment level is unparalleled.
I’m sure you see where I’m going with this.
If you want to be a good trader and turn real profits from your efforts over time, you can’t just treat it like it’s a short-term hobby. It can’t be something you work to improve at only on occasion or whenever you feel like it. That isn’t to say that it should dominate your life – because it shouldn’t. But I am saying that you’ll get out of it what you put into it. Good habits pay off.
Like a world-class athlete, you absolutely must train well to trade well. It’s a continual thing, regardless of your time availability. If you can only put 30 minutes per day toward your trading, then by all means do it – day in and day out. If it’s 8 hours, so be it – you’ll come to expect even more from yourself.
Make an effort to consistently improve, and you’re going to see the results. Think of it this way… hopping on the treadmill 5 days every week would have you in better shape a month from now, right?
Trading isn’t any different. It’s a honed skill that requires consistent action on your part. That doesn’t mean you continually press buttons, but it does mean that you set some attainable process-related goals to strive for each month.
Designate some tasks you know you need to perform regularly in order to keep improving, and get after it. Whether that’s your nightly homework, a month-end review of your trades, or something else, those frequent milestones will keep you on the right track. It’s all part of trading responsibly, which is what this is all about.
Now let me be clear… I’m sure not saying that your life should revolve around trading. I don’t believe that, and a balanced life has far more important aspects to it than trading. But when it does come to your trading, if you want to be truly good at it, then examine your level of dedication and adjust accordingly.
Remember – trading is a marathon, not a sprint. Treat your daily activities that way, and you’ll see that over time you are building up to much better skills than you currently possess. Keep aiming for patient progress, and the steady account growth you get as a result will reiterate to you that you’re on the right path.
But it takes practice, building each day on the previous day, just like an athlete training for something bigger.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Blending Trading Plans & Flexibility
August 6, 2008 at 11:49 am
In my previous post, I discussed the biggest enemy of traders. Among other things, I mentioned “formulating a flexible but well-defined trading plan.” Let’s unpack the ‘flexible’ portion of that comment today.
Sidestep Risk & Stupidity
If I plan to stop out of a long position in XYZ below $25, and the stock falls through that level and I hang on in hopes of a recovery, I’m not being flexible – I’m being stupid.
However, let’s say news surfaces from XYZ that they’ve modified their earnings announcement date to tomorrow afternoon as opposed to a week from now as had been planned. For me to be flexible means I roll with the punches and modify an exit strategy accordingly so that I’m not holding the stock when that major news is announced (as per my Trading Rules).
See the difference? Flexibility is crucial in today’s environment, but it must be implemented with some discretion.
‘Outline’ Your Plan
How about another comparison? What if we thought of a trading plan in the way a public speaker uses an outline. The speaker knows what he needs to say and when to say it, but just in case he gets distracted he’s got an outline right in front of him to bring him back on course at a glance without missing a beat.
Similarly, a good trading plan lets us know at any point in time what move we need to be making – whether entering a position, standing pat on an existing trade, or closing out a position at an appropriate level. At times we’ll be distracted by the price action, so the trading plan prevents us from becoming panic-prone.
The ability to pair flexibility with that trading plan comes with experience, but it does come. Just as a polished speaker can read his audience and recognize when certain topics may need additional time and attention based on the response (or lack of) of his listeners, an experienced trader can read his position and gather some feedback from it in order to determine when stop or target levels may need to be modified. But just as a first-time public speaker should stick with his outline, new traders should stick with their game plan.
Cater to Your Account, Not Your Feelings
Many traders think of a trading plan as something which is too rigid to allow for modifications which might be warranted, but that simply isn’t the case. A trading plan should be implemented to benefit you. Only allow it to hinder your poor habits. If you find yourself in a situation where it isn’t accomplishing that, or if the landscape has changed in a way that your original plan did not account for, then don’t think twice about making an adjustment.
The key is that you don’t want to go about making changes in order to accommodate your feelings. Because remember, great traders control emotion by trading without it. So get a grip and utilize your trading plan purely for functional reasons.
As you begin to gather the experience which builds ‘gut feel,’ you’ll come to recognize situations which warrant a modification to your trading plan. But until that comes along, don’t rush it! Stick with your plan like a speaker watching his outline, knowing that it will keep you focused and on the right track.
Trade well out there!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
P.S. Have you signed up for the Free Video Newsletter yet? It’s a new feature with regularly-updated video posts which are brief but beneficial. Check it out!
The Biggest Enemy of Traders
August 4, 2008 at 7:05 am
The day stands out in my memory quite vividly, but only because it wasn’t all that long ago. I had dug myself into a hole early in the day, and while I wasn’t too deep to get out of it, I was definitely frustrated. Let’s just say the guys taking the other sides of my trades were doing alright on this particular day. 😉 I had seen no swing trading plays to initiate, and the day trades were acting fickle. Shorts would break down with no conviction and bounce immediately back up, and the only stocks showing strength were doing so on poor volume, which meant they couldn’t be trusted as buys.
I had taken several losing trades in succession, and was having a dilemma of whether to take a break, call it a day, or stay and battle it out in an effort to recover. At about that same time, a thought crossed my mind as to why I was in this position, and I recognized it instantly. I had allowed myself to fall victim to the biggest enemy of today’s traders: overtrading.
While the shorts and longs I had traded were clearly not moving with conviction, the real reason I was underwater was due to my taking trades which were merely mediocre. I wasn’t waiting for my pitch, and rarely does that kind of impatience pay off in trading.
The Temptation of Convenience
It’s so incredibly easy to do these days. In fact it’s downright convenient to buy and sell stocks. With lightning-fast executions and dirt-cheap commissions, those unplanned trades tend to come along frequently and easily if we allow them. And yet, have you ever noticed how few of those impulsive trades yield great profits?
My work ethic has never been questioned by those around me. I never want to be still, so I’m always striving to move toward some kind of goal in several areas of life. Many of us face that internal pressure to stay ‘busy,’ but let me make one very important distinction: in trading, hard work does not equate to high activity. Just because you might be busy placing continual trades doesn’t mean you’re being effective or efficient.
Exercising Some Self-Control
At times we all have to remember that there’s serious value in simply concentrating on the correct things. Believe it or not, that means there will be occasions when not trading is best! Most of the time though, it’s going to mean that we formulate a flexible but well-defined trading plan, and then stick with it. Hunt continually for the setups you love, but don’t ever lower your standards out of boredom or for the sake of activity – that’s never worth it. Discipline plays a major role, so if you don’t have it, you’re in no place to be trading until that’s under control.
As you become a better trader and gain more experience at the screens, you’ll also find ways to stay away from those market conditions which prompt you to overtrade. Keep the phone handy. Have a stack of books to browse if the market isn’t moving. Go run some errands or catch a movie.
But by all means, when your ideal conditions do emerge in the market, get busy!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Earnings Expectations vs. Trader Expectations
July 28, 2008 at 11:55 pm
Around earnings time, the word “expectation” brings a dual meaning. There’s the Street’s “expectation” for EPS and other estimates on what the fundamental news will be when companies report, but there’s also the expectation of traders.
I put together a video for Free Newsletter subscribers over at TheStockBandit.com discussing this very topic (which will go out mid-day Tuesday), and in it I take a look at an excellent example of how those 2 kinds of expectations can collide – and which one typically wins out.
If you aren’t on the free newsletter mailing list, sign up here and you’ll have access to these kinds of videos whenever they are produced. But you gotta be on the list to get ’em!
Trade well out there!
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]
Guest Post at StockTickr
June 18, 2008 at 7:05 am
Just want to give you a heads-up that I wrote a guest post today over at the StockTickr Blog called Finding New Edges from Old Trades.
I think you’ll want to check it out, because it goes hand-in-hand with some of the things we’ve been discussing here recently (such as my previous post).
Here’s that link to today’s post one more time, and while you’re over there be sure to take a good look around – there’s a lot of great stuff!
Trade well today,
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Skipping Trades Can Be as Bad as Overtrading
June 3, 2008 at 6:30 am
This guest post comes from a friend of mine, Dave Mabe of StockTickr, an automated trading and performance analysis tool designed to help traders improve their results. Dave’s post outlines the benefits of adhering to a trading plan, as well as the pitfalls of deviating from it.
Most traders are aware of the dangers of overtrading, that is, taking too many trades or trading with size that’s too large. Overtrading can quickly turn a reasonably bad day into a disaster. However, the less obvious problem of undertrading or skipping valid trades can be almost as bad.
If you’ve been trading for any length of time you’ve no doubt experienced it. A setup comes along that fits your trading rules just fine – but you find a reason NOT to take the trade. No harm, right? We all know what happens next – it runs and runs and had you taken that trade it would have been a nicely profitable trade. But you’re still sitting on the sidelines.
There’s More Lost Than Just an Opportunity
In the scenario described above, there is the obvious opportunity loss of a perfectly good trade. You could have made money on that trade, but you spent time warming the bench instead. But there’s a more important loss that is often overlooked. By skipping trades that meet your trading rules, you’re going to have an incomplete picture of your trading system’s performance. Think about it – when you go back and review your journal to gauge the performance of your trading system, you’re looking at the trades you took. If you’ve skipped trades that met your trading system’s criteria then those performance results are skewed and less meaningful than they could be.
It’s easier to imagine how a losing trade that you skipped can skew your results – when you review your trading metrics your system looks like it performed better than it actually did – it’s a little like looking through rose-colored glasses.
What Those Skipped Trades Might Actually Mean
If those skipped trades are starting to mount up, it might mean that your system needs a little more clarity. There are probably some additional trading rules that need to be more clearly thought through and applied to your trading plan. A well defined trading plan will allow you to be decisive and give you confidence to take trades that meet your critieria without hesitation. I’m not one of those guys that preaches that you need a fifty page thesis for a trading plan before you start making trades, but you do need a clear definition of the setups you’ll trade. You also need to be flexible enough (and humble enough!) to be able to look at your results objectively and make adjustments to your plan over time based on what the market and your journal are telling you.
“Small” Mistakes Can Often Lead to Bigger Ones
The seemingly benign mistake of skipping a trade can lead to more painful ones. Think about your worst trading days – many times they start with a small mistake that leads you into making larger trading mistakes that do put a dent in your trading account. It’s easy to slip into revenge trading after missing a good trading opportunity. Sometimes these skipped trades can snowball into a disaster.
Your Trading Plan is There For A Reason
Having a game plan is critically important. Without a well defined plan you’ll be subject to our human emotions which often encourage us to do the opposite of what is required for profitable trading. Take the trades that meet your criteria – no more AND no less.
Dave Mabe
www.StockTickr.com
Trading Video – Looking for Explosive Breakouts
May 12, 2008 at 9:04 pm
Here’s another video of a trading lesson I learned in the market today.
Because I trade a lot of breakout patterns, the more characteristics I can find which point to an explosive move, the better! Today’s video discuses exactly that.
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]
