All Entries in the "Trading Tips" Category

Per-Share Commission Pricing

October 4, 2007 at 7:21 am

Having founded a subscription-based trading website, I get the chance to interact with quite a few traders each day. Whether by email or through the community forum on the site, it’s always nice to visit with other traders about a variety of topics. Some of them have lots of experience and have been in the game much longer than me. Others are new and fresh and inquisitive. I enjoy dealing with each of them, but the newer traders often ask questions which I ought to cover here more often. One in particular deals with commissions.

Pardon the pun, but as an active trader, I do pay my share of commissions each year :-D. Some years I pay more than others, and it just boils down to how much of my trading volume that year comes from swing trading vs. day trading. When holding stocks for a few days at a time, or swing trading, obviously the share turnover is much lighter than when scalping for a few cents at a time with a day trading approach. Each style can be lucrative, but the higher your activity level is, the more it can benefit your broker if you aren’t careful.

The majority of part-time traders I run across are on a per-trade (or per-ticket) commission structure, which means they pay a flat rate whether they’re buying 100 or 2000 shares. This can get costly fast. Partial sales will add to the commission bill quickly. The smaller trader begins to see his precious capital erode faster if he’s very active at all, and unfortunately this can soon lead to him passing up good trades out of the simple fear of it costing too much to enter and exit the trade. That’s too bad, especially considering that trading is a numbers game.

Enter per-share pricing. Rather than a flat rate per order, you simply pay a flat rate per share, which means you pay for what you trade and nothing more. In dealing with many newer traders, not enough of them are aware of the per-share commission structures which many brokers offer. And although each broker is different, often times it’s as simple as requesting that your commission setup be changed to a per-share structure.

My broker offers per-share pricing, and I’ve had my commissions structured that way for several years now. Their standard per-trade rate is $9.99 per trade, but very active day traders can even negotiate lower rates based on high volume levels.

Commissions are truly a cost of doing business in the stock market, particularly if you want access to a sophisticated trading platform, but you can still reduce those costs if you go about it the right way. Regardless of which broker you trade through, find out if they offer a per-share pricing structure. Making the switch should save you a little money in the short term and a lot of money over the course of the year.

Trade well today!

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 With Indicators

October 2, 2007 at 6:32 am

I’m often asked why I don’t always apply stochastics or MACD or moving averages to my charts. To that question, there’s a simple and a complicated answer. The simple answer is that I prefer to focus on price and volume. My charts are cleaner and I can focus on the real buying and selling forces that are at work in a market without confusion or obscuring the most important indicator – price. The complicated answer requires a closer look at indicators.

Knowledge is Power

Indicators can be useful, but the trader must know when to apply them in order to get something useful from them. Applying the wrong indicator will only cause confusion, and trading is hard enough without adding more doubt to the picture! I have witnessed a number of traders frustrated with getting stopped out of trades when trying to buy moving average crossovers during a choppy, range-bound market. Taking trading signals from indicators must be done with the proper market conditions for which those indicators were created.

For example, a stock may be about to penetrate a key moving average, but if the stock isn’t trending then most likely you’re taking a false signal, as moving averages are rarely helpful in a non-trending environment. By definition, a moving average measures something on the move. Therefore, they are best used in a trending market. On the contrary, a stock with momentum may have an overbought reading according to oscillators, but oscillators are rarely helpful in a trending market, as they can stay overbought or oversold for long periods of time. Oscillators are subsequently best used for range-bound stocks and markets.

Selecting Your Settings

When in doubt, I will on occasion look at a trending stock and apply a moving average. However, a quick look through any trading magazine will show you that there are very few moving average periods with a wide following. For this reason, I place little weight in arbitrary numbers like 25 or 40 period moving averages which a great many number of traders supposedly follow. A stroll through any trading floor will show you the wide variety of time periods being sampled for moving averages, all of which produce different values. The 50-day and the 200-day moving averages are probably the most widely watched, but they trail price so far that most of the time a stock is some distance from either of these two moving averages, diminishing the usefulness of either for a short-term trade on most occasions. When I want to see a moving average, I prefer to apply a faster one of 10-20 days(2-4 weeks), which will often give me a better glimpse of where a stock may find recent support or resistance.

A range-bound stock will generally ignore moving averages though, which is the time to apply an oscillator such as stochastics. Oscillators help identify reversal opportunities, and are therefore better applied to stocks or markets which are stuck in trading ranges for a fade play. Anticipating reversals within trading ranges or channels is a trading style which can benefit from overbought or oversold levels as measured by oscillators, so consider these tools the next time you are contemplating an entry in such a trade.

Keep The Main Thing The Main Thing

At the end of the day, price is the most important element in any trade, and no indicator is the magic bullet that your trading has been lacking. Price is the sole indicator which is telling you right now whether you are right (profitable) or wrong (losing), and it doesn’t get any simpler than that. When you need a little extra help determining entries or exits, be sure to consider which indicator best fits the price action in question before you apply all that are available to a chart. Only then will you find value rather than confusion in the additional information that indicators can provide.

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]

Make More Than Your Broker!

September 27, 2007 at 10:32 am

It’s common for active traders to discuss trading volume and the commission rates they pay their brokers. The hyper-active traders can end up paying a whole lot of money by the end of the year if they’re not careful, but that doesn’t have to describe you. Sure, state-of-the-art trading platforms are great, but of course you always want to be making a lot more money than your broker does from your trading! Here are a few ways to accomplish that.

Be Patient

Waiting for the ideal trading times can be difficult to do. With hotkeys at your fingertips ready to blast orders to the market, buying power to spare, and a market full of stocks which are in perpetual motion, exercising patience and not trading at certain times is about like having the keys to a 911 turbo in your pocket while you just stare at the car and intentionally postpone driving it. Sounds crazy, right? However, as with waiting for the open road to dry out from the rain before you push that sportscar to the limit, it’s always a good idea to wait for the right conditions to surface before initiating trades. Eventually you’ll have the green light, and then you can put the pedal to the metal. Having the patience to wait for your favorite chart patterns to develop will mean less churning of your account in the meantime, so that you ultimately profit with minimal commissions to your broker.

Know When to Stay Away

At times, you’re going to be better off just not trading at all. For some, it’s the first few minutes of the trading day or the very end of the session. For others it’s when you have personal distractions, such as during the holidays when family is in town, or when a life-changing event comes along. Some traders just can’t stand to trade during the light-volume summer months. Whenever your least-favorite trading time happens to be, it’s up to you to identify it and avoid it. Shutting down the PC during that stretch will keep your mind clear as you avoid any confusion which would result from your trading activity then. You’ll be preserving your trading capital (Goal #1) instead of adding to your broker’s bottom line while your account stagnates. Take a trip. Go tee it up or scratch some things off your to-do list. Just find a way to take a break so that you don’t trade when you know it isn’t your ideal time to locate profits.

Keep Your Wins Bigger Than Your Losses

Every trader in every single market will have losses – they are just part of the game. We can’t (and won’t) be right all the time. Accepting that and reminding yourself every day will put you be miles ahead of other aspiring traders. Knowing this, it naturally stands to reason that losses should be kept small. If you’ve read this blog for any length of time, you’ll know I’m big on taking that approach. However, this is an important part of making more money than your broker! Taking small losses when you’re wrong makes it easier to turn a profit with fewer winning trades required, so long as they are larger than the losing trades. The result is your net profitability, which of course means you’re making more than your broker is.

Churning shares simply for the sake of activity means more commissions, which isn’t the point of active trading. I really like my broker, but I sure don’t want them making more money than I do from my trading! Trade with a broker who treats you right and offers you the best deal on the trading tools you need the most, and then put these principles into practice so that you can come out on top.

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]

Questions and Answers

September 26, 2007 at 7:03 am

Here are a few questions I’ve been asked in recent days by other traders which I thought some of you might find to be helpful. I’ve included the questions in bold below, along with my answers….

How would you describe your trading style, other than swing trading?
I am more of a quick-hit (Bandit) type of trader, so I don’t mind booking quick double-digit percentage gains in only a few days. For example, on Monday over at TheStockBandit.com we closed out a nice 15.5% winner in LDK, a stock we held just 4 days after buying it last Wednesday when it broke out at $61.00 from its ascending triangle pattern. The fast gains are my favorite kind, and I’m much more prone to be in and out of trades in a few days than to linger for weeks on end hoping my idea will eventually pan out. I stick with the charts, and I want to be in when there’s momentum and out when there isn’t. In addition to swing trading, I also like to catch some day trades for faster, smaller gains of a couple percent. These plays also come from the charts but typically in stocks which look poised for a temporary move where I can grab an initial breakout (or breakdown if shorting).

I’ve read about the Turtles, do you often catch major turns with your trading?
Quick money is fine with me, in fact I like it better than slow money! It adds up more rapidly and I don’t usually have the patience of a Turtle to stay long or short a stock (or index) for more than 2-3 weeks. I want my money turning over more rapidly, compounding faster.

How do you deal with closing out a solid gain, only to see the stock keep going without you?
It can be tough but that is sometimes just part of trading. I’ve found that when strong trends are present, multiple entries can set up along the way, letting me trade the same stock a few times profitably even if I don’t catch the entire move. I like catching a piece of it but I feel no obligation to participate in a long-term trend. I want to get in, get paid, and get out. That’s what my Bandit style is based on.

I have trouble leaving a nice winner on the table, how do you decide when it’s time to cash out? Any help would be appreciated.
For most of my trades I will set up my entry, stop, and usually 2 targets. Setting two profit targets allows me to book some gains along the way to ring the register while waiting for a potentially larger move to develop. That helps me offset the urge to take a good trade off the table, so partial sales are definitely helpful for allowing you to stay with the stock if even with a smaller position late in the trade. Most traders think they need to be IN or OUT of a trade, but few of them consider the idea of partial sales in order to scale out of a good trade carefully.

Trade well out there today!

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]

Reduced Trading Timeframes

August 27, 2007 at 11:17 am

With so many sharp and sudden reversals taking place recently, it’s certainly the kind of market in which one can easily overstay their welcome. They say that “bulls make money, bears make money, but pigs get slaughtered.” Well, this is no market for pigs. That trade you just nailed might suddenly reverse and erase all your gains. In the trading world, you always have to stay vigilant with your trading capital, but that’s particularly true right now.

Lately I’ve mentioned quite a few times to members at TheStockBandit.com how reducing trading timeframes is important in the current market environment, and I want to just take a moment to explain what I mean by that. It’s certainly not a phrase which is exclusive to me, but what does it mean exactly to reduce your timeframe as a trader?

To me, there are a couple of ways to do it. The first is to simply reduce your holding time for the types of trades you like to take. Whether you’re trading the long side or the short side, this tape is offering opportunities for you but you have to be very quick or else it’s easy to give some back. Reducing your trading timeframe can simply mean to book profits quicker once you start to get that good move you planned for.

Another way to reduce your trading timeframe is to zoom in on the chart. If you typically look at the daily charts but you’re finding very little to work with, zooming in your timeframe to watch the intraday price action might offer more setups. Of course, you’re looking more under the microscope, which means you’ll also have to expect smaller moves as a result. However, the same chart patterns which work on the daily charts can be found intraday and they tend to play out the same way. Breakout plays, buying pullbacks to support, and short selling at resistance can still be done on the 30-minute or even 5-minute charts. This can offer a continued flow of trades if you still have the itch for activity.

Regardless of your timeframe though, remember to stick with a plan. When headfakes are as prevalent as right now, frustration can set in more easily and cause you to overtrade. Know what you’re going after on a given day, and only take the trades which fit your criteria.

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]

Insider Activity

August 13, 2007 at 10:27 am

One thing I get asked quite a bit about is insider activity. People want to know if a stock should move up on insider buying, or if it should go down on insider selling. Many will ignore perfectly good chart patterns if the insider activity doesn’t suit them, instead deferring to what company execs are doing over time rather than catch a swing trade for a multi-day move.

My personal stance on the topic is a simple one: I ignore it. Here are a few reasons why:

There are lots of reasons to sell. Maybe junior is going to college and a corporate executive wants to free up a little cash to pay tuition. Maybe they’re buying a summer home or a boat or a collector car. Maybe they’re even afraid their stock will go down. But don’t jump to the worst conclusion when you see insider selling, because you never know their motives. And even if insider buying is taking place, that sure doesn’t mean the stock will soon reflect that optimism. Corporate executives can and will be wrong often, so don’t bank on higher prices even if you see insider buying. They’re not the ones moving the stock anyway.

Good chart patterns should still play out. A bullish chart is based on recent supply & demand in the stock, so if the pattern confirms I’ll take that trade with managed risk. If it never confirms, I never take the trade and there’s no harm done. But what happens over time with insider activity isn’t what will drive the stock. Institutions (big funds) move the stocks, so if they’re accumulating or distributing stock, the chart will show it.

My timeframe is days, not quarters. Even if Joe Insider has been selling (or buying) shares for a while now, why would I care? Suppose it is based solely on where they think the company is headed, even if they’re correct it’s going to take lots of time to play out – usually several quarters at a minimum, and I’ll be long gone by then. Because stocks fluctuate, there will still be good moves taking place most likely in both directions, offering chart-based plays in the meantime for active traders like me.

Good trades still boil down to the charts and managing your risk. Don’t jump to any conclusions that a CEO or CFO is going to nail trades in their company’s stock. They aren’t traders, they’re businessmen! If you’re a short-term trader, insider activity should be the last thing on your list of things to consider before buying or selling any given stock.

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]

How Gaps Change Motivations in the Market

August 10, 2007 at 8:19 am

With so many gaps hitting the market in recent days, it’s the perfect time to discuss them a little bit. Not only are they occurring in individual stocks as a result of earnings announcements (which is typical and expected), but we’re seeing a lot of them in the market indexes with the recent news flow adding to the volatility. Of particular note is how many of them have filled.

Before I get to the heart of this article, let’s look at an example in case you’re not quite sure what I’m talking about. Here’s a look at a 5-minute chart of the NAZ on Thursday morning, which gapped down some 40 points from Wednesday’s closing levels. It ended up rallying back up to fill the gap soon afterward, and even turned positive for the day after about 90 minutes.

(Click for full-size image, courtesy of TeleChart)

The Mechanics of a Price Gap

So how do these price gaps even come about? Well, they occur from a buildup of orders overnight which create an imbalance between buyers and sellers. Market makers and NYSE specialists have to take the opposing side of the public’s orders (they buy when you sell and vice-versa), so to offset this risk they do it at higher or lower prices, depending on the imbalance. When the public is buying en masse, market-makers will sell but at higher levels. That’s how gaps are created.

Once they’re in place, the next question is how do they get filled? Well, since many of them lately are occurring on emotional reactions to the news flow, most of the traders who would act on the news are the ones creating the gaps. After their orders build up which create the gap to begin with, there are very few traders leftover placing subsequent orders in the same direction, thereby limiting the extent of any follow through. As a result, the path of least resistance shifts to the other direction, meaning the gap now has greater potential to fill.

Psychology’s Role in Gaps

On top of the mechanics of how the gaps are created and filled, there’s also a lot of psychology at work which is adding fuel to the fire. Traders who are already holding positions in the direction of the gap are greatly tempted to take those profits, which means on a gap up that they create selling pressure as they move to book gains. The overnight windfall of “free money” motivates them to ring the register, and that only accelerates how quickly the gap may fill, especially when combined with the natural mechanics of a gap. Additionally, downside gaps are often viewed by those with cash on hand as an irresistible sale, unable to pass up the thought of buying “cheap” stocks. Their buying, along with the covering of short sellers, drives prices higher to fill the gap.

There is never a shortage of interesting dynamics at work in the market, and price gaps are a study in the psychology which can help us learn a lot about why things move the way they do. If you catch a gap in your favor, play it close to the vest and squeeze out of it whatever you can, but if it begins to fill just remember how momentum is shifting and decide quickly whether you want to battle it or not.

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]