All Entries in the "Trading Tips" Category

Momentum Trading – A Different Mindset

August 3, 2009 at 7:17 am

After a lengthy period of indecisive, range-bound price action, we’ve seen the market gather some momentum in recent weeks.  The push from the July low was rapid and relentless – clearly a change of character.

The landscape tends to shift like that from time to time.  Sometimes key levels serve as steadfast boundaries for price and don’t allow it to gather any steam in either direction.  But at other times, we’re in a run-and-gun market where we get trend days after trend days, and follow through is far easier to come by.

Let me be clear though:  that doesn’t mean it’s easy.

In fact, the momentum game really requires a different kind of mindset for success.  Dare I say, it can be much tougher on the experienced trader.

Let me explain why.

Mindsets of the Amateur and the Adept

First, let’s examine the novice.  Generally, their approach can be quite simple…

See green, go long.
See red, sell.

Often times, they may not even consider how much green they’ve just seen – all they know is that there’s strength present, so they buy without concern.

This mentality contributes to the momentum, and when it’s particularly strong, they make money without much stress.  Soon they’re saying, “I think I might quit my day job!”

On the other hand is the experienced trader.  A guy like me finds it particularly difficult to chase stocks, because in my post-beginner trading phases I’ve bought the top or sold the low.  It isn’t fun.  Experiences like that can leave you a little gun shy, and it becomes a habit to recognize at which point a play has moved too far for a new entry.  Thoughts creep in, such as “Is this market ever gonna rest?”

So, seeing a stock which just ran 5% intraday, for example, leaves me far more likely to respond with an I’ll catch the next move mentality.  I know how nice it is to have some inventory to flip out to those late-comers after a big pop, so when moves start getting extended, my preference is to start lightening up instead of adding.

This “I forgot my track shoes today, so I won’t be a chaser” mentality might frequently serve to help me protect capital, but during those times when powerful momentum is present, it can actually cost me opportunities.

Shifting Gears

Knowing this, how bout we take a look at 3 ways to identify and trade momentum.  That could help us adjust when the conditions warrant hopping on board the train when it’s already in motion.

1.  Recognize a change of character. Paying close attention to the environment you’re trading in will make it more obvious that your approach should change accordingly.  Perhaps recent advances have been 3-4%, and suddenly a 6% move arrives and shows no signs of fatigue.  That’s a change of character, and it’s a signal to shelve your current strategy for the time being.  And if you don’t have another style to turn to, then it’s time to seek out another way to profit.

2.  Watch the volume. Under normal circumstances, even with a trend, we can compare upside volume to downside volume and notice some patterns emerging.  For example, an uptrend might see spurts of strength accompanied by higher volume, and periods of rest accompanied by lighter volume.  But when real momentum arrives, the volume may not follow that same pattern.  Price simply gets on the move and keeps the pedal to the metal, and volume doesn’t have to play a major role.  Market participants are simply caught off guard, and there’s a persistent move as they jockey for position.  Many times that results in consistent volume levels which don’t surge and contract like they do during a rally-rest-rally type of phase.

3.  Notice when a pause is ignored. If you’ve been trading for almost any length of time, you’ll notice times when price starts to get a little stretched and is getting due for a rest.  If that rest is not allowed, then momentum is definitely present.  Lace up those running shoes, you’re probably gonna need ’em.

Emotion in Motion

One last note on this topic, which is that support and resistance levels are largely ignored when the momentum train is running.

That means if you’re looking for reversals or pauses at ‘logical’ zones, fugettaboutit!  Not likely to happen.  Momentum arrives when more emotion is present than logic, and emotion stops for no level.

Those typical reversals near key levels we tend to see during quieter times just aren’t going to happen, so go with the flow and don’t fight it until the tape tells you it’s tired.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White
Are you following me on Twitter yet?

Stop Loss Placement, Part 2

July 31, 2009 at 7:52 am

As we dive deeper into this series on stop loss placement, I want to be sure you caught Part 1 because it helps lay the groundwork for this ongoing discussion.

I’ll be posting segments of this series one segment at a time, both for convenience and better consumption on your part.  I want you to have a thorough grasp of how this can all work.  After all, it’s a topic every trader faces, regardless of risk tolerance or timeframe or style or the market we’re trading.

Let’s keep it moving…

The Importance of the Chart

Just as we discussed the value of timeframe & personality in Part 1, here in Part 2 we’re going to talk about the importance of the chart.

Given that my entries are determined by the chart, it’s logical and consistent to allow the chart to offer an exit.  That might be based on an important reversal, or simply a failure of the pattern being traded if I need to stop out of the trade.

In each case, I’ll show you in the clip below exactly what I’m talking about, along with an explanation of why this works for me.

The beauty of basing entries and exits on the chart is that it’s consistent across multiple timeframes. The same principles will apply on an intraday 3-minute chart as they will on a daily chart.  That means once you gain an understanding of it, you can use it for both day trades & swing trades.

Watch this clip and let me explain more thoroughly. It was also posted over at the Trading Videos site, but I’ve embedded it here for your convenience.

And if you have questions pertaining to stops, add them to the comments section or contact me directly and I’ll try to work those into the next few segments.

Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.

Update:  Check out Part 1, Part 3 and Part 4 of this series!

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Stop Loss Placement, Part 1

July 30, 2009 at 7:27 am

It is the most common question I’m asked:  “How do you determine where to place a stop loss order?”

And it’s a great question.  Newer traders need to know it.  Experienced traders will often study it and refine it.  It’s arguably as important as any other aspect of a trade.

So here I am setting out to create this mini-series as a resource.  There will be several parts, so check back often for the segments to come.

There are several aspects to stops which I feel should be addressed, so I’m going to cover them in pieces.  Small, bite-sized, easy-to-digest pieces.

Hopefully they’ll be helpful to your trading approach and enable you to specify some ways to protect the downside.  After all, a stop loss can be your safety net.

Timeframes & Personalities

Deciding on the placement of an initial stop loss will boil down to a few things, not the least of which are (1) your trading timeframe, and (2) the personality of the stock being traded.

I’ll elaborate on each of these in the video, but essentially they’re my starting point:

Longer timeframes necessitate wider stops, and shortened trading timeframes warrant tighter stops.

Similarly, a lively stock deserves a wider stop, while a stock which tends to move very methodically will justify a tighter stop.

Watch this clip and let me explain more thoroughly, along with some examples.  It is also posted over at the Trading Videos site, but I’ve embedded it here for your convenience.  And if you have questions pertaining to stops, add them to the comments section or contact me directly and I’ll try to work those into the next few segments.

Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.

Update:  Check out Part 2, Part 3 and Part 4 of this series!

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Protect Capital Even in a Bull Market

July 27, 2009 at 8:03 am

This market sure has been strong – we have yet to see a pullback which has lasted longer than a few minutes!

Instead, we’ve merely seen brief pauses of sideways price action, which is quite nice…if you’re long.

A powerful market like this does have a downside though, which is fewer quality setups for new long side entries.  And shorting?  Well, let’s just say some feelings have been hurt for the bears!

We’ve come a long way since the July 8th lows, and right here, it’s very easy to chase stocks if you want to get long.  It feels like it almost can’t go down (famous last words), and thus confidence is really high.  But that doesn’t make buying here a good decision.  In fact, sometimes it’s best to actually let the market come to us after such a move.

Protecting capital is the top priority of all successful traders. Making money is secondary.

Even strong bull markets like what we’re seeing right now require that we protect capital. It’s easy right now to think making money on the long side must be easy when the market rallies almost daily.

But trading out of fear that the market will run off and leave you behind is a recipe for forcing trades, which will usually cost you more money than it’ll make you!

Stay Focused

Our job as traders is to take only the best setups with the highest reward and lowest risk associated with them.

Keep that in mind here, as the market remains quite extended on a short-term basis. Manage your open positions the best way possible, and be willing to patiently let the market come to you.  Once it does, then set up new trades.

There will be plenty of good setups in the next few days and weeks, but it isn’t wise to lower your standards and buy stocks that are technically extended just to get long.

A lasting bull move will offer plenty of chances to buy, and that’s best done on pullbacks or after resting phases.  If this breakout sticks, we should see many opportunities in the weeks to come.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

Rip City – When Will We Rest?

July 23, 2009 at 12:44 pm

Shorts are getting torched right now.  The extreme momentum we’re seeing is definitely of the emotional variety, although it’s been technically significant as well.

Today, for example, the NAZ is going for its 12th straight advance – an impressive feat which has brought about a 14% move from the low set earlier this month.

We’re very stretched right now to the upside in the short term, and yet there could still be more.

So the biggest question on everyone’s mind right now – both bulls and bears alike – is “when will we rest?”

The notion of a pullback after a move of this magnitude isn’t crazy.  It’s logical to expect at least some profit-taking after such a huge surge.  But we’re still looking for one.

And given that the technicals are taking a back seat to emotions right now, it makes it tougher to determine when a dip might develop into something a little more than just a 15-minute slide.

Fortunately, there’s one situation in play right now that could offer a sell signal for a quick trade.

Just a little while ago over on the trading videos site, I posted the following video. In it, I discuss this topic and offer a rare clue to watch for when it comes to expecting a little deeper pullback than just a few points.

Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.

Just remember to wait until this pattern confirms, because until that happens there’s still upside momentum that deserves the utmost respect.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

Are you following me on Twitter yet?

One Way to Review Your Trades

July 9, 2009 at 4:47 pm

If you’re at all like me, every now and then certain aspects of your trading will stand out as having changed.  Sometimes that’s for the better, other times for the worse.

While it’s fun to see improvement over time, one key to trading success is the ability to modify one’s approach periodically in order to stay on track.

I think of it like that statistic you’ve heard about how much of the time an airplane is just a little off course when in flight, with the pilot constantly putting it back on line toward its destination.

As traders, we have the same responsibility.  We maintain our direction by reviewing (mentally or physically) how we’re doing, and then by making the necessary adjustments.

Well, last night I recognized that one particular strategy which I happen to trade has been off a little lately.

So what did I do?

I got up early this morning (that’s part of preparation) and spent some time going over some of my historical trades when this strategy was really on, and I compared what I found there to how I’ve been trading this strategy lately.  It was an eye-opening exercise, and so far, a profitable one.

This same clip is posted over on the Trading Videos site and perhaps you’ve seen it there, but in case you didn’t, I wanted to put it here on the blog.

Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

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]

Reminder: Webinar Tonight!

June 9, 2009 at 10:50 am

Here’s a quick reminder about tonight’s free trading webinar, as I would love to see you there if possible.

Chart Reading with TheStockBandit

I’m excited to run through a number of interesting chart setups, from both the bullish and bearish sides, in order to teach you some concepts and of course put some quality plays on your radar.

The webinar is scheduled to run 45 minutes, with 15 of those minutes set aside at the end for Q&A and a look at your favorite charts.

Visit this link for registration to the 8pm ET webinar:

Chart Reading with TheStockBandit

See you tonight!

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]