All Entries in the "Trading Tips" Category
A Market for Spectating, Not Speculating
August 9, 2007 at 10:35 am
Boy, is this market crazy or what?
Just since yesterday afternoon, we’ve seen a huge rally, sharp selloff, steep bounce into the closing bell, giant gap down and an immediate big bounce. Stocks are literally all over the map!
It’s quite a show, and I’ll venture to say that most traders are better served spectating in this market than speculating. If you’re not nimble, it’s incredibly easy to get burned, because just like springtime weather, it can change quickly out of nowhere.
Stay careful out there, and don’t be shy about protecting that capital while these violent swings play out. We covered our lone overnight position in ESI this morning for a nice gain on the short side, but at the moment we’re sitting in cash at TheStockBandit.com. It has served us very well to stay cautious in recent weeks, but once things smooth out a bit we should see much better conditions for more aggressive trading. While you wait, enjoy your front row seat to the show and don’t succumb to the urge to overtrade this market!
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]
Conviction vs. Conditions
August 7, 2007 at 10:04 pm
I love trading with the wind at my back, so when the market is strong I’m a buyer, and when it’s weak I’m looking for short sales. In general, it serves me well to trade this way, but inevitably there are times when I wish I had thrown caution to the wind!
Take last week for example. VRTX was setting up with a very well-defined bull pennant pattern, but I was cautious with any bullish setup due to the overall market weakness. The environment was bearish, so even as I saw this bullish setup I wasn’t very interested. The pennant even formed on decreasing volume, which is exactly what I like to see with this pattern, and I still passed on it. Here’s a look at the chart I showed to members at TheStockBandit.com last week as a stock of interest, although it was never listed as a trade candidate:
(Click for full-size image, courtesy of TeleChart)
As fate would have it, VRTX took off and has still not looked back. Here’s how it looks after Tuesday’s bar:
(Click for full-size image, courtesy of TeleChart)
Each time I saw it hitting new highs intraday on Tuesday I felt pangs of regret and guilt for not being in the trade. As it climbed higher and higher, I felt more and more foolish for not having bought such a sound pattern! What was I thinking?
And then it hit me: that isn’t my trading style! Taking trades which fly in the face of general conditions isn’t what I’ve built a trading career on. Rare are the times that trades have paid me well when I did throw caution to the wind. Catching this trade would have meant bending my rules, and while that may have paid off for me this time, making a habit of it would no doubt prove costly.
And suddenly it was alright that the stock had taken off without me. After all, I don’t have to catch every single move, plus the reason I wasn’t in the stock to begin with was because I had followed my discipline – not because I ignored it. My game plan doesn’t involve swing trading strong stocks in a weak market, and VRTX fit that description. Particularly when market emotions are running high, I’ll defer to general conditions over my conviction on a given trade, and that has saved me many dollars over the years. I’ve missed out on the occasional strong move (like VRTX) as a result, but my discipline when things get ugly has allowed me to protect both my capital and my objectivity while others are losing theirs.
So while it can be at times frustrating to miss out on a great move, sticking with your game plan and letting your discipline guide you will over time pay off very nicely. The occasional stock will laugh in your face and you will at times feel crazy for having let it go without you, but good trading will involve missing out on some moves. Put the odds in your favor as often as possible, and only trade when the conditions suit your style.
I hope you’re trading well this week!
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]
Not A Dip-Buyer’s Market
August 1, 2007 at 10:37 am
For the past year, every dip has been bought. Bulls have enjoyed a nice uptrend, and with each higher low their confidence reached higher levels. Anytime stocks have gone on sale (ie: come under pressure), the buyers have been there with wallets open ready to scoop up shares. And they’ve been compensated quite nicely for it, I might add!
But things have changed. Stocks have been punished lately, and the swagger of the bulls has disappeared. They’re not eager to provide support, and instead they seem to be getting more spooked. Dips have become all-out selloffs, and the buyers are nowhere to be found. In fact, even the bounces have been brief, as bulls become sellers and jump quickly to unload shares into any strength as they seek to raise cash levels. Concerns are running high.
As the major averages reach multi-month lows, it seems emotions are reaching new multi-month highs. And when emotions are playing an increased role by boosting volatility, trading can get a lot more complicated.
I’ve noticed lately that resistance levels are being respected much more than support zones, and that goes with the territory of a downtrend. Take the S&P 500 for example, as it undercut the 1485 area last week with ease (like it wasn’t there), but failed to reclaim it this week on the bounce attempt. The same level which was ignored to the downside was like a brick wall on the upside. As traders, we have to pay close attention to these kinds of things, or else it can cost us dearly. The dip-buying mentality which many have enjoyed for so long is simply not working right now. Key moving averages are being sliced as if they aren’t there, and that’s just one example of how the environment has changed. It’s time to adapt if you haven’t already.
So here’s the bottom line. Unless you’re a trader who’s very quick on the keys and can scalp effectively, or you’re willing to short sell this market, cash is the place to be! Don’t attempt to buy dips in a market like this until some stability is seen and the dust begins to settle. Once a new uptrend emerges, there will be plenty of opportunities to catch a ride, but you sure don’t want to be the first one to buy. Remember, the first person at a party has no fun.
Respect the current market weakness and live to trade another day!
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 Discipline
July 26, 2007 at 10:59 am
There’s a lot of talk about the D-word when it comes to trading, but what does it mean to put it into practice?
We all know that disciplined eaters are usually slim and trim. Everyone knows that disciplined savers don’t fret about retirement. And traders should know that disciplined traders are profitable over time.
Leave the Ego Behind
Good trading discipline means taking no action when you don’t know which action to take. Traders tied to their egos are afraid to admit when they don’t have a feel, so they keep pressing their bets, staying active and overtrading when conditions aren’t conducive to being active. They’ll trade anything that moves, just hoping to get something going and try to generate a feel for the tape.
Ironically, every good trader I’ve ever been around has been able to freely admit it when those times come along that they don’t have a feel for where things are going. They don’t let their ego drive their decisions. They keep their heads on straight and stay objective, only acting when the right conditions are present for their style. When those conditions are not present, it’s no shot to the ego to sit on their hands and remain passive. They’re in it for the money, not the thrill of the action.
Predicting is a Waste of Time
There are going to be plenty of times when you’ll be unsure of what your next move should be. Good news – that doesn’t at all have to be tied to your profitability! I have felt that way numerous times in the past week, and yet I’ve been able to make several profitable trades and grow my account during that same stretch. Predicting didn’t get me there, discipline did. Good traders know that perfection isn’t required, which means they don’t have to predict with accuracy what may happen next. Instead, it’s about selectivity and offsetting small losses with big winners.
Patience Pays
If you’re like me, you know very quickly when a setup comes along whether you like it or not. Some kinds of plays will just fit your eye, and you’ll know the timing is right to take action. Seize those moments as they come and use the opportunities to profit. BUT, when you’re not seeing the setups that just jump out at you, be willing to wait. If your watch list is providing no imminent entries even though the market may be running, sit on those hands instead of forcing trades!
Why be aggressive just for the sake of activity? I mean, I like my broker and everything, but I always want to be making more money than they are from my trades! I have no idea where this market will go tomorrow, but I know that I can still be profitable if I am disciplined. Improve your odds of success by exercising good discipline, and don’t just buy something for the sake of activity….only trade when the conditions you like are present. Everything else is just noise and a chance to give back those hard-earned profits!
By the way, subscribing to this RSS feed will mean you won’t ever miss a post!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Save Money & Confusion by Avoiding Earnings Trades
July 23, 2007 at 10:37 am
If you’re an active trader, it’s likely that you take a similar approach to me when it comes to earnings reports. Because I have no problem moving to cash quickly, I refuse to hold stocks into earnings announcements. Not only do I have no idea what the reports are going to be, I also don’t know how the market will respond once the report is out. I don’t have a crystal ball, plus the playing field isn’t level when it comes to information, which is why I’m a technical trader.
A key reason why I avoid earnings is that once an earnings report is released, the stock will almost always produce a breakaway gap after the news is out. That can shift the risk/reward profile significantly for a trade, so I tend to just let the stocks settle down later and revisit them at that point to see if a good chart pattern is developing. If it does, I will take it for a trade and manage it accordingly.
We’re right in the thick of earnings season, and it’s important to pay close attention to the calendar and know when your stock is due to report, whether it’s just a stock on your watch list or one you already hold a position in. This can save you money and confusion!
Over the weekend, a great example occurred of how watching the earnings calendar before a trade helped prevent confusion for me. I have had CALM on my radar for a few days for a potential buy, but before I actually set up my order for the stock I checked the earnings calendar first. I soon realized the report was coming out this morning in the pre-market, so I didn’t set up the trade. Here’s a look at how CALM looked prior to today:
(Click for full-size image, courtesy of TeleChart)
CALM gapped higher this morning but instantly came under pressure, falling 6.8% from its best level of the day in less than 40 minutes. Had I bought the stock, I’d have found my trade quickly underwater, which would have added some confusion on just what to do…(Wait for a rebound? Take the loss?). Here’s a look at CALM after the gap up and the way it left the daily chart looking:
(Click for full-size image, courtesy of TeleChart)
Just remember, earnings are tricky all around. Whether it’s a stock you already own or are merely considering an entry in, watch the earnings dates closely and be willing to avoid the stock around that time. There is a sea of stocks to choose from, so let the news-related excitement dwindle so that you can make a better-informed trading decision.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Grab Trading Opportunities Big or Small
July 5, 2007 at 1:51 pm
It’s easy to fall into the rut of trading the same size for every stock across the board, but on occasion you’ll inevitably run across a stock that fits a lot of your criteria but isn’t quite ideal. That’s when the dilemma arises: Do you ignore it or take the trade?
Volume is a key ingredient to me when I’m considering trades. Not only do I want the stock to be reflecting some level of interest (activity), but I also want to know that I can execute my orders effectively and without too much slippage. Strong volume also tends to mean narrower bid/ask spreads, which means a more competitive market. Naturally, volume is the next thing I look at after the chart. When it seems too light for a trade, my first inclination is to pass on the stock and move on to the next, but that isn’t the best or only option I have.
So in the case of the light-volume-but-bullish-stock, why not pick up a few shares if the chart is good and simply take a smaller position? If it pays off and the chart pattern produces the move you’re expecting, the profits may be slightly smaller but it’s still money in your pocket!
RIMG is a stock I’m currently eyeing which has a nice bullish pattern but trades much lighter volume than I generally prefer. The pullback of the past two weeks off the recent high has created a large bull pennant pattern, and a push up through the upper trend line will confirm the pattern and could free up this stock to head north.
(Click for full-size image, courtesy of TeleChart)
Instead of passing on the trade entirely due to the light volume, simply taking a smaller position in the trade if it goes would still allow room for some profits. Perhaps that will translate into a smaller winner than another trade where I may have a larger position, but as a trader I’m all about seizing opportunities whether large or small.
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]
Uptick Rule Ends, Short Selling Gets Easier
July 3, 2007 at 9:21 pm
For those who have not already heard, the SEC has voted to remove the “short sale tick test”, Rule 17 CFR 240.10a-1 for all equity securities. Effective Friday, July 6, traders will be able to short all securities on an up, down, or zero tick.
WOW! All these years of having to wait for an uptick to grab a trade on the short side has finally resulted in the simple removal of the rule. This means that on Friday, short selling will be just as easy as buying a security, as the uptick rule will no longer apply. Faster fills on shorts will mean less slippage and a greater ability to add exposure on the dark side for those who are willing to trade it.
Up until now, ETF’s have been shortable on downticks, as well as select securities which were a part of the SEC’s short sale tick test. The Regulation SHO pilot program began in May 2005. It suspended all short sale price tests for a select group of over 1,000 equity securities. But now the gates will fling wide open and there will be no restrictions on what you can sell short on downticks other than if your broker has shares available to borrow.
Ironically, we just happen to be in quite a bull market with the NAZ at 52-week highs, so shorting heavily at this point may not be the solution to all your trading problems! Stay selective out there and don’t let a rule change dictate your next move. Stick with the charts and let them determine your course of action. It’s just that now when that calls for shorting a stock, it’ll be easier for you!
For more info regarding Rule 17 CFR 240.10a-1 and the SEC’s proposal to remove the rule, visit the following links:
https://www.sec.gov/news/speech/2006/spch120406ccc-10a.htm
https://www.sec.gov/news/press/2007/2007-114.htm
Trade with Discipline!
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]
