All Entries in the "Trading Tips" Category

Keep it Rolling

April 5, 2006 at 9:04 pm

It’s no secret that the fastest way to compound your money is to keep it working for you. For that reason, when I’m in the market, I do my best to keep my trading capital at work in stocks that are on the move. I lose patience quickly in trades that stall out, because I know there’s opportunity elsewhere I ought to be capturing. So when a stock begins to lose steam, I raise my stops aggressively so that if the trade begins to flutter, I am checked out of the stock and am free to put my money to work elsewhere.

KEA worked for a little while, but once it slowed down I raised stops aggressively. When stocks slow down, there is opportunity elsewhere to capture.

Today I was stopped out of KEA (Keane Inc.), but with a gain. I highlighted this stock as a swing trading candidate in my stock newsletter 2 weeks ago with a buy point of $14.50. KEA quickly began to work, showing me a gain of 9.5% in just 8 days. I raised my stop on Sunday night, and on Monday this stock began to fizzle out. With the market on the verge of a breakout, I was in no mood to stick with this trade, knowing that there would be a number of other opportunities I could catch if KEA was going to stall out. Today, I was stopped out at the close.

Getting stopped out doesn’t bother me, for a few reasons:

1) I booked a winning trade of 4.5% in 2 weeks. Not stellar, but not bad either.
2) I like to keep my money rotating into new stocks with potential, rather than sticking with a stock that is no longer on the move in my direction.
3) I now have more cash on hand to put into new setups which I highlighted tonight in the Member Area.

Force your trades to continue showing you why you should keep them on your screen. When your trading capital is at work, expect a lot from it. Whenever your positions stop producing profits for you, it’s time to move on to something else that will.

By keeping your money rolling from one good trade to the next, you’ll be able to rack up returns that would make the buy-and-hold crowd blush.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

Little Things

March 29, 2006 at 12:36 pm

Here’s one for all of you human calculators. A trader starts out with only $5,000 in his account, but is able to gain .5% each trading day. (That’s just ½ of 1% per day.) The first day he’d only make $25 profit, but how much would he have after 5 years?

$100,000? $500,000?

Would you believe it’s over $3,000,000.00? Wow! I’d say that little things make a big difference!

Have you examined your habits lately? They can have a giant impact on your trading results, so it’s worth taking a closer look at them.

Obeying stops is one habit we can all be reminded to check. It’s easy to “just give it a little more room” and soon after realize that you’re in a spot where you feel it’s too late to exit (which is never true). Doing your homework is always a great habit to be in. Showing up with your game face is another one. Remember how small mistakes = small consequences? Habits like those can keep you on the right track as a trader and pay off nicely as time goes by. Making a habit just to show up prepared every day for whatever the market throws at you can have a tremendous impact on your progress and consistency as a trader….not to mention your P&L!

Eating a bowl of ice cream late tonight won’t make you fat, but make it a habit and soon your pants start getting tight! The little things you do can add up to big differences over time. Acorns grow into great big oaks…..and your trading account can be the same way. Take a look at your habits and how they’re affecting your trading results. Keep the ones that are helpful. But like the garage this time of year, clean out those which are hindering your progress!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

Too Thin to Win

March 27, 2006 at 8:07 am

Although I’m a big proponent of trading with the use of chart patterns, a stock’s volume simply cannot be ignored.

I run across literally thousands of stocks every day in search of not only the best technical setups, but also the proper conditions under which to trade those stocks. I ultimately locate the cream of the crop for subscribers of my stock newsletter, and it results in consistently profitable trading.

There are many stocks which come through the scans with “the right look” to them, but a closer examination reveals some glaring reasons to avoid the stock as a potential trade. The most common reason pertains to volume, and particularly the risks associated with low volume.

Volume is the total number of shares traded for a given timeframe. It is a measure of liquidity for a stock, because it represents participation. High volume makes for a more competitive market with narrower spreads and more consistent price action. Low volume, however, is a warning sign to move on to the next trading idea.

Low volume stocks should not be trusted for several reasons:

Low volume means low participation. If very few people are active in a stock, then what appeal does the stock have? If participation remains low, that stock may simply sit idle while you have your cash parked in it, leaving you with fewer opportunities for profits.

Additionally, a stock with very low volume will often trade with a wide spread, which increases slippage when entering and exiting trades. Trading is hard enough without handicapping yourself with more difficult executions!

It is also far more difficult to accurately read the price action in a stock which might only trade every 10 to 15 minutes during the day. When a stock only trades 25,000 shares a day, what defines a big seller? 2000 shares? What defines momentum? A 20-cent move? It isn’t worth it.

And finally, a low-volume stock can be awfully hard to get out of if the tide turns against you and you need to get out. When the music stops and you need a chair, it’s going to be extremely competitive to get a good price when you go to sell your stock, which makes your losing trade even worse.

Let’s look at an example. PCYO showed up this weekend on my scans as having “the right look” to it. However, one glance at volume was all it took to see that this stock is too thinly traded for my liking. This stock averages fewer than 25,000 shares a day, which is entirely too light no matter how good the pattern might be.

PCYO looks great, but the low volume says to me, “stay away!”

PCYO has a very nice bullish consolidation which can easily be seen with the converging trend lines on the chart shown above, but this stock has hardly anyone trading it! This stock may take off and run higher, but the risk associated with the low volume of this stock tells me I would be far better off finding something else to trade.

When you screen for chart patterns, be sure to include volume in your requirements for potential trades. Just because the chart looks pretty doesn’t mean that stock should be traded. With literally thousands of stocks out there to trade, be strict with your criteria and put the odds in your favor every chance you get. Or, become a member at TheStockBandit.com and let us do the work for you!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

The Flip Side

March 23, 2006 at 8:08 am

You’ve probably heard the phrase, “you’re not trading the stock, you’re trading the people on the other side of the stock.” It’s a valid point that I can agree with to an extent.

As much as you might follow a trading strategy, there will likely be emotions to battle while you’re in the middle of a trade. Almost every trade will have some fear and greed associated with it, but the memorable trades are really packed with emotion on both sides. Keeping close tabs on your emotions while maintaining some awareness of what your competition is facing can greatly help you improve your exit timing as well as your P&L.

Meet paranoid trader Rich Quick

As traders, it’s certainly important to understand which emotions are impacting those on the other sides of our trades. For example, If I’m long XYZ stock and I’m losing money, the trader who’s short XYZ may well be getting greedy. As a result, he’s probably in no hurry to buy back the stock (which would help to support price and help out my trade). Knowing this and staying aware of it during the trade would remind me that I am probably better off taking the small loss and moving on to the next trade rather than making matters worse. I can always wait for a better spot and re-enter if I still like the trade.

In another example, say I buy ABC stock on a reversal play off of support. The trader who sold it to me is likely short the stock, and once ABC catches a bid, I know he’s in trouble. As momentum picks up steam, I might offer some out into the strength, but I’ll be looking to ride that stock further just knowing the emotions and disbelief that those on the other side of my trade are dealing with. Ultimately, they’ll capitulate and drive my trade higher, allowing me to capture greater gains.

Consider your own emotions during a trade, but also the emotions of those on the other side of the trade. Even a quick rundown of what the guy on the other side of your trade must be feeling could prevent further losses or help you maximize an already successful trade.

Remember to subscribe to this feed so you won’t ever miss a post!

Jeff White
The Stock Bandit, Inc.
www.TheStockBandit.com

I Love A Good Deal!

March 20, 2006 at 2:18 pm

This is an excellent dip-buying market, but you’ve got to know how to do it right if you want your trade to be a winner!

The idea of buying stocks on a dip sounds nice, but it isn’t easy to put into practice. Some people think that buying a stock on a dip means that any weakness should be bought. Well, what defines a dip? It depends on the timeframe! When do you know that a stock has finished “dipping” and is now ready to turn higher? Should every purchase be made on a dip?

My standpoint (and that of TheStockBandit.com) is not to buy any stock just because it looks “cheap.” Buying a stock simply because it’s at a lower price than it once was is never a reason to buy in my opinion. Maybe you can shop on the weekends that way, but in the trading world, you’ll often pay dearly when you buy weakness. I wouldn’t buy a stock that just got pounded, even if it is much cheaper than it’s ever been. In fact, you’d probably be far better off short selling a stock on a 52-week low than buying it.

The only time to buy a stock is when you think it’s going higher.

Having said that, the only time it makes sense to buy a stock on the dip is when it’s in the middle of an uptrend! During an uptrend, a dip is merely a pullback which sets up a new pivot point for buying. What’s also nice is that pullbacks within uptrends also produce natural stop-loss areas which let you manage your trade much better than buying blindly. So, let’s see an example of what buying a pullback looks like.

Last night, BWNG popped up on my scans as an uptrending stock that appeared to be completing a pullback within the trend. The stock had great recent momentum and had pulled back slightly off the highs but mostly was moving sideways. A well-defined trend line was seen along the highs of the past couple of weeks, which provided us with an excellent swing trading pivot point. I highlighted BWNG in my stock newsletter last night with a $13.00 buy point.

BWNG is in a well-defined uptrend, and the minor pullback presented an excellent buying opportunity for us at TheStockBandit.com this morning when it cleared $13.00.

….. and so far this stock is rocking to the tune of more than 11%….

BWNG has been smooth sailing since it triggered our $13.00 buy point this morning, giving us a very nice (and quick) profit of 11% and counting.

When you commit to buying the dips, be sure you’re doing so when there is an uptrend intact! Don’t buy a downtrending stock that will leave you feeling more like a stuckholder than a stockholder. Buying pullbacks within uptrends can give you a great initial move and put your trade well into the black right from the start!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

Changing Gears

March 15, 2006 at 11:39 am

The market is always in motion, so if you don’t like how it is, just wait a little while and it will change! JP Morgan has been quoted as saying that “Prices will fluctuate.” Knowing that, we as traders have to stay on our toes and plan accordingly for the changes that might take place just around the corner. If the market is range-bound, we can expect at some point that a trend will develop.

Yesterday, the S&P 500 finally broke out of its trading range when it closed above 1295. For that index, it was a significant technical event as it made new recovery highs from the bear market. However, the NAZ was a different story. Although it posted solid gains, it remains in the middle of a well-defined trading range. But it won’t forever (even if it feels like it might!).

So, what do we do to prepare for a breakout (or breakdown)? I’d suggest two ideas toward preparing for a market shift:

Have a shopping list ready. You take one to the grocery store so that you don’t forget anything, right? After all, a place with no windows or clocks and nothing but food can get pretty disorienting! Keep a shopping list for potential trades too. Have a running list of the stocks which are poised to move with the market in case it breaks out. Be picky, but know which ones are your go-to stocks when you need to deploy cash. Once the market gets moving, you’ll know exactly what to do.

Refine your game plan. Keep an eye on key market levels that would trigger a breakout or a breakdown. Have an if/then plan in place. This is so simple that it’s often overlooked by traders, but don’t make that mistake. If the indexes rally above key levels, then it’s time for you to take action. If the indexes crack key support, then it’s time for some short selling. And of course, if we remain range-bound, then it’s naptime!

The market will at some point get out of this tiresome trading range, and when it does, you don’t want to get caught in a panic. Know which stocks you’ll want to buy if and when the market is able to break out, and keep an eye on key market levels so that you’ll know just when it’s time to get busy.

What are some ways that YOU get prepared for market shifts?

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

Seeing the Future?

March 9, 2006 at 5:35 pm

It would be nice to have a crystal ball. But that’s not what trading is all about. Timing is everything. Although we might accurately predict the next move of a stock or the market itself, as traders we must still place the corresponding orders to enter and exit positions at the right times and in the right directions in order to profit. Simply understanding the direction to trade in won’t help you near as much as knowing when to get in and when to get out.

While I think it’s important to be able to locate and use chart patterns and technical analysis for trading, I sure don’t think a trader’s ability to tell the future (or backtest the past) will make him a profitable trader. Chart pattern recognition is certainly helpful to traders, but what about execution? What about psychology and knowing when to ride out a pullback versus recognizing a reversal and knowing when to bail out? The learning curve can be steep. Some things you just have to learn by trading.

Don’t get tied up trying to hone your prediction skills! Every trader is going to go through times of being right and being wrong. Successful trading is about damage control when you’re wrong and pressing it when you’re right. What’s most important is staying in sync with the market and adjusting your trading size and frequency at the right times in order to maximize your profitability.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com