All Entries Tagged With: "Capital Preservation"
Bulls Still Getting Outsold
May 8, 2012 at 12:34 pm
The bulls haven’t found their footing yet as the market moves lower within its range. In some cases, we’re seeing some important recent levels get broken, namely S&P 1357. The DJIA has approached the lower portion of the 600-point range, and we’re getting a bit stretched in the near term.
Nonetheless, the bears are winning at the moment. All news is bad news at the moment, and I’m mindful of the Seinfeld episode The Serenity Now where George Costanza gets outsold by his childhood rival Lloyd Braun. No matter what George tries, he gets outsold. The bulls can certainly relate. (Hit the video link below for an entertaining 1-min clip.)
Lloyd Braun outsells George Costanza
While it’s important to be careful pressing shorts at this stage of the pullback, it’s equally important to respect the fact that each bounce has been sold of late. Trying to get long before we see some stabilization could result in being ‘early’ (read: wrong), thus trapping you. It’s never good to need bailing out by the market.
Best suggestion? Stay patient here. Lighten up on shorts if you’ve caught some good moves. Keep a shopping list handy if you’re eager to get long, but protect capital here and wait for better setups to arrive. Most bearish charts need some rest, and bullish charts are hard to come by at the moment.
For those curious about our trading style in the member area, we’d love to show you what we’re all about. We’ve been short since the end of last month and it’s been a nice little ride lower. Check out the free trial to our stock pick service if you’re interested in adding our ideas to your own.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Gap Strategy on Swing Trades
April 19, 2012 at 9:01 am
A Bandit subscriber recently asked me about dealing with gaps on swing trades. This was a great question, so I wanted to be sure to share this exchange with you in hopes of you adding your thoughts on this as well.
Background on the Situation:
This question came in reference to a swing trade I had listed Sunday night inside our member area. MGA had fallen below an ascending triangle pattern the previous week and bounced back up to test the breakdown area only to stall out. This appeared to be a potential short-term lower high (and failing bounce), so I listed it as a short sale heading into Monday’s session if it broke the rising trend line at $45.20 (see chart).
This was to be a swing trade, which is an overnight position – at least until target or stop levels had been hit. My swing trading strategy allows for some gapping beyond my intended entries, but then I scale back my size the further a stock gaps. This helps offset the added risk with a wider discrepancy between my actual entry and my initial stop loss.
In the case of MGA, it gapped 2.8%, warranting only a partial position of 1/4 size. The gap was filled quickly, and I ultimately stopped out Tuesday as the bounce continued, taking a loss on this very small position. Nonetheless, that’s the setting here under which this trader asks the following questions.
Question:
Jeff, most of the time when I set up my bracket orders for swing trades my initial trigger to open a position is a stop limit order. I use the limit order portion when I am working during the day and cannot actively adjust for gaps, as this way I don’t by default enter the trade in less than ideal conditions. In the case of MGA which had the immediate pullback, I was in moments after the opening. So my question is in general trades like MGA that return back to the original trigger levels should I let the trade continue or would I be better off passing on the trade?
Thanks
Answer:
Great question. I take it from your question you have mobile access or some way to get in and make an adjustment to the trade once you’re in. Some brokers offer several levels of sophistication with regard to managing orders like this, but if you are not inclined to complicate things then I’d say on trades like this just pass on it. The best trades for me tend to not come back to the trigger or go against me right off the bat. That is more characteristic of the losing trades I make.
I’d say to keep things simple, if the stock gaps beyond a certain amount you specify, then just skip it, or next-best scenario would be to just close out the position as soon as you notice you were filled. Either you got a price you didn’t like or you have more shares at that price than you want, but the point is you recognize it’s not the trade you had intended to take. Closing these out may mean a small gain or loss, but I suspect those will wash out over time and overall you’re sticking with an overall gap strategy which is suitable for your unique needs.
How do you manage gaps on entries when you’re away from your screens?
What would you tell this trader?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Think Like a Poker Pro
April 4, 2012 at 7:40 am
I love the movie Rounders, in which Matt Damon is a poker player looking for a big break (and then a way to get out of some serious trouble).
In the movie, his character Mike McDermott makes a comment early on that as a player, “your goal is to win one big bet an hour – that’s it.”
Notice he said “win one big bet” rather than “place one big bet.” There’s a key distinction here and it applies to trading.
Amateur Hour
Amateurs too often think they need to place some big bets in order to win big. They couldn’t be farther from the truth.
Amateurs are also generally too proud to fold. That’s admitting defeat, and rather than seeing the bigger picture of losing some battles in order to win the war, they take a stand when they shouldn’t – and they pay for it.
How the Pro’s Play
Professional traders, on the other hand, realize there’s plenty of quiet time to endure before those payout opportunities occur. They realize it’s a matter of hanging around, staying in the game, in order to be fit to capitalize on the best “hands” they are dealt.
Professionals understand that taking small hit after small hit is easily undone by just a win or two – so long as they’re losing smaller and winning bigger. Be willing to fold repeatedly if necessary – the goal is to be net profitable, but that won’t happen every single time you commit your capital.
Trading is a numbers game, and professionals only play (or play for meaningful stakes) when conditions are most favorable. Very simple, but very difficult for many amateurs to do.
So the question is… are you thinking (and acting) more like an amateur or a pro?
(Hint: your results are likely already reflecting it.)
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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5 Takeaways from the NYC Traders Expo
February 23, 2012 at 11:35 am
Last night I returned from my trip to the NYC Traders Expo. It was a great experience. Visiting the city itself with some great February weather and seeing all the famous landmarks was nice, but I really enjoyed spending time with some Bandit subscribers and some other trading friends I’ve made over the years from different parts of the country.
In addition, I was fortunate to speak to groups of traders twice while there, which was both challenging and insightful as I prepared ahead of time then fielded some well-thought-out questions from attendees. It was really fun!
There’s an energy when traders collect which is always motivating. From the trading floor I first participated on back in 2000, to times in Chicago seeing everyone file into the CME ahead of the day’s session, there’s just something that happens when traders gather to compete or exchange ideas – I love the atmosphere.
A few thoughts on what I witnessed, in no particular order…
Hunt for the magic bullet. There are a TON of traders who show up just wanting the latest lure to fish with. They aren’t willing to put in the work, to learn to think for themselves, or to understand what it takes to become successful as a trader. They want the overnight shortcut, and they exit the scene just as quickly as they arrive, disappointed and surprised that trading isn’t red and green infomercial-easy.
Trading is a process. I’ve known this, but was reminded of it through my preparations for speaking and in conversations with other traders. Trading requires adaptation, a willingness to lose regularly. Imperfection is to be expected, and so it all becomes about good management of trades rather than finding the can’t-miss sure thing. What works now may not work in a few weeks, so you have to be willing, able, and prepared to shift your approach. The market evolves, and so must you if you want to stay in the game and keep seeing opportunities.
Expectations. Expect some losing trades (and learn to manage them wisely). Expect periods of frustration and confusion, they’re going to happen. Expect the market to surprise you – it’s just that way, so you’ll have to be ready to respond accordingly. Times will come when you have no clue what’s next, but that’s OK. When they arrive, you can accept them and sideline yourself until clarity comes.
Hard work is rewarded. I saw Expo attendees show up early and stay late, attending multiple sessions, taking notes on the good things they heard, and leave tired but hopeful that some fresh perspectives will influence them to improvement in the days ahead. I saw prop traders from SMB who started their day extremely early, made the commute to lower Manhattan, gave it their best all day (though some admitted it was a tough day), then stuck around after the close to listen to my thoughts. Even after I was done presenting, they showed the discipline and desire to improve by asking questions, just absorbing knowledge even though they were tired and hungry and eager to call it a day. Those who work hard – even when it isn’t comfortable – are the ones who will make it, keep improving, and eventually see the fruits of their labor.
Trading is a battle. What’s interesting – and which few stop to recognize – is that only part of the battle is in the market. The rest usually happens internally. So be ready, you’ll need to bring your best if you want to compete in this game. You need to prepare a plan, and think through the emotions you might face while implementing it. Regardless of style, strategy, market, or timeframe, every great trader has his head on straight. Those who don’t will have it beaten to a pulp by a ruthless market.
If you were there, or if these have resonated with you, feel free to share some thoughts of your own.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Why Anticipatory Trading is so Tricky
February 3, 2012 at 9:25 am
Charts give us the opportunity to wait for confirmation or enter ahead of time – to anticipate. And while the latter may give us more of a feeling of being right, it’s not an easy way to trade.
Here’s an example from this week…
AGP is sitting in a bullish consolidation pattern here within an existing uptrend. This is a quality pattern – but it has yet to confirm. A breakout would happen beyond the upper channel trend line, currently at $70. Check out the setup, then down below let’s discuss trading it.
This is a setup which would have delivered some frustration for those anticipating a breakout – at least for those who entered early. Wednesday saw a move back up toward the upper channel line, suggesting a breakout was perhaps coming soon, only to have a decisive turn lower on Thursday bring it right back into the center of the channel. The stock is again lower this morning.
There’s a huge difference between how pro’s and amateurs make anticipatory trades, let’s see what they are and what those choices lead to.
How Amateur Traders Anticipate
Many amateur traders make anticipatory trades. They receive a tip, or they have a hunch, or they just want to see their predictions proven, and they get in before any bit of a move has started. They load up, then wait to get paid. A failure of the stock to deliver the move results in the max loss possible under this circumstance, all because of how the amateur entered the trade.
How Professional Traders Anticipate
Many professional traders make anticipatory trades as well. Their experience provides them with market feel, and when watching the tape and eyeing the charts, they’ll run across trades they like too – maybe even the exact same setups as the amateur finds. However, their execution methods are worlds apart.
Rather than piling into the trade and sitting back and hoping the market proves them correct, the professional enters a feeler position – a starter. A trade small enough to watch but not big enough to hurt them or really help them. It’s a marker. As the trade begins to prove itself and the pattern starts to confirm, they add to the trade. They build a position as it works, allowing them to get paid nicely when their hunch proves correct. A failure of the stock to deliver the expected move results initially simply leaves them stopping out of their starter position for the bare minimum loss.
See the difference between the two?
There’s a big argument to be made for just waiting for confirmation in a pattern to take place before entering a trade, but anticipatory trading can still produce profits, so long as you’re doing it carefully.
For those of you anticipatory traders, the example above is a great example of how to finesse your entry. Scale in, make the setup confirm before adding, and know you’re covered either way – whether a tiny loss you can easily survive or a winning trade you can build on.
(For more on anticipatory trading, read When to Make Anticipatory Trades.)
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Don’t Be a Monkey
November 17, 2011 at 10:20 am
Ever seen those monkey traps where they put some bait in a trap, a monkey comes along, sticks its hand through the hole to get the bait, but when making a fist, can’t remove its hand from the trap?
They have to drop the bait in order to escape the trap, but their greed and ignorance prevents them from letting go?
I’ve made some trades in that same manner, and I’m guessing you have too. The ones where I just refused to let go in time because I wanted it to work so badly, and ultimately they proved extra costly.
Dropping the “bait” in those cases would have freed me to go in search of many other, better opportunities, but my short-sightedness prevented it.
Monkey Brained
And while every single one of us has been there at some point in our trading, what’s curious is that it originates not with the setup or a poor strategy or a flawed technique for entering or exiting. It starts with not having a properly prepared mind.
It’s a flaw with our pattern of thinking.
At times it’s based on a fear of scarcity, whereby we stay with a mediocre or poor trade because there’s nothing else on the radar. In effect, we’re bored, in which case we shouldn’t be trading anyway. Listen to the charts!
Other times it’s that our pride is too much on the line and we’re more interested in defending that than our capital. That prevents us from moving on to a truly worthwhile trade, thus keeping us trapped.
Remember the Goal
I’ve talked at length previously about trading as a numbers game, but it’s such a fundamental viewpoint to have as a trader – something we just can’t lose sight of.
Over time, we want lots of at-bats to let our edge play out. When sifting through setups we select actual trades based on probabilities. That’s the aim.
And on any given trade, if we’re keeping that in mind, we’re willing to let go when the feedback we’re getting doesn’t support our original expectation for the play. The price action is weak, a key level fails to hold, or a reversal of direction has begun and the charts are telling you to shut it down – yet you aren’t listening.
Stay on track. Keep the bigger picture in mind. Be willing to lose in this one trade if you need to, so that over the next dozen or hundred or thousand trades you can be profitable.
… In other words, Trade Like A Bandit – not a monkey!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
How to Think About a Loss
October 26, 2011 at 12:58 pm
We all lose here and there, it’s just part of trading. You can’t avoid it, but that isn’t the issue. Where many traders struggle is how to handle a loss gracefully.
Instead if equating a trading loss with personal failure, shift your mentality for what a loss means.
Does it mean you’re stupid? Not necessarily.
Does it mean you were wrong? Yes, in at least one way.
Does that mean you will never get it back? Absolutely not.
Losses are an event, yes, but it’s also a distribution from your account. Consider them a cost of doing business as a trader. Brick-and-mortar stores have overhead, but as a trader, the biggest portion of your overhead is the losses you take.
When businesses cut costs, they’re reducing their overhead as much as possible to fatten their profit margins. Do the same with your trading. Reduce your ‘loss overhead’ by accepting a loss quickly and moving on to the next trade.
It’s much more fun to always be adding to your account rather than seeing funds flow out, but as soon as you start viewing trading losses as something impersonal, it’s going to change your perspective in a very helpful way. Rather than fret over them and allow losses to cloud your thinking or alter your mood, viewing them through the proper lens will help you more quickly get them back and then some.
Like it or not, trading is a business…how are you managing yours?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
