All Entries Tagged With: "Confidence"
Stay Sharp
October 25, 2010 at 12:52 pm
A year ago, I was in a surgeon’s waiting room. He was running late after having to do an emergency appendectomy. He hadn’t overslept or blown off his appointments for a tee time – he was operating, just as I’d expect a surgeon to.
With scheduled surgeries on the calendar, as well as the emergencies which inevitably pop up, he wakes up every day knowing he must be on his toes. He has to be prepared for whatever comes along. Routine procedures will even occasionally throw the proverbial curve ball his way, and he’s the one that must respond accordingly for the well being of his patients.
Some of you might be surgeons, but I’m confident that all of you reading this are traders. And at this point, hopefully you know exactly where I’m going with all this.
Maintain Your Edge
As a trader, it’s important that you stay active and stay sharp. You’ll of course take vacations (hopefully of the exotic type) and have times when life calls your attention elsewhere temporarily. That’s fine, and I’m certainly not suggesting putting your trading before all else – that would be unhealthy and out of balance. I’m all for maintaining perspective and priorities. However, if you truly want to get good and continually improve, you’ve got to be in the game on a regular basis to some extent.
I attended a couple of preseason NBA games this week. During the offseason, one player in particular had just signed a huge contract. Now, preseason games don’t mean anything at all. The fans love them, of course, but they’re generally treated like scrimmages and an opportunity for teams to start developing some chemistry after a few months apart.
Watching the game, it was quite clear who’s been working hard over the summer and who probably took the mindset of “it’s a long season, I’ll eventually get sharp.” The aforementioned big-contract player was of the former attitude. It was clear he worked on his (already great) game, and he was eager to get all the playing time he could – even in a preseason, so-called meaningless game.
This guy wants it, and he shows up to play every time out. In terms of dollars, he’s long since arrived and would have a hard time spending what he’s already amassed. But money is not his sole definition of success, and it’s clear in how he plays the game.
Plan & Play to Win
As you reflect on your trading, I wonder if you’re seeing some glaring problems standing in the way of your success. Some take more time to work out, such as learning to accept a loss or understanding the times when sizing up isn’t appropriate. But if it’s just more “minutes on the court” that you truly need, that’s a much easier goal to reach…and one which will pay many dividends.
The end of the year is approaching, but it isn’t here yet. You’ve still got a couple of months before you’ll need to review 2010 and look ahead to 2011 and set appropriate goals. That time will come.
For now, you still have time to make 2010 better. You still have time to gain some momentum into the end of the year, so that you can hit the ground running when January hits. But you’ve got to look at each day as an opportunity to grow.
Let me be clear though – it won’t happen from the sidelines. You’ve got to make it a habit to be in the market regularly. Modify your timeframes if you need to, and trade small when you’re struggling to get a feel for the tape, but be active, stay sharp and on your toes.
Surgeons operate, and get their hands (gloves) dirty. Athletes play and sweat and push for improvement. Traders trade and face the pressure and find ways to grow. The best simply do not allow themselves to go cold.
Earlier this year, I completed a major trader training project which required a lot of my time. It took a few months to finish it all. I could have cut that time at least in half, but I maintained a daily devotion to trading, even in the midst of a big undertaking.
I write blog posts like this one every week, and I produce a nightly stock newsletter for subscribers over at TheStockBandit.com. I’m a husband and a dad, and trading isn’t my entire world. But I’m in the market every day, moving my money into and out of opportunities as I see them. It’s the focus of my work day, and it’s what my evening preparation points to. Staying in the game is how I stay sharp.
Are you doing the same?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
5 Rookie Trader Mistakes & How to Avoid Them
October 4, 2010 at 8:50 am
In trading, as in life, lessons can be learned out of inspiration or desperation. It’s hard to say which is better, but I know that regret is quite a teacher.
For example, I’m in the process of buying a house right now, which will be the second for my wife and me. Eight years ago, I made several mistakes as a first-time buyer, some of which I’ve wished I could go back and change. Experience educates each of us, fortunately, and needless to say this time around (I think) I’m doing it right.
A lack of experience is responsible for many mistakes newer traders make as well. Those errors not only prove costly the first time around, but they can also ingrain some bad habits if not corrected quickly.
Over the years, I’ve been fortunate to work with hundreds of traders around the globe, of all trading styles and timeframes. And yet as diverse as these traders seem to be, a handful of common issues continue to surface. Coincidence? No. Just human nature, which the market preys upon.
So, to help you stay on the right path with your trading, let’s take a look at 5 common mistakes rookie (or struggling) traders make, and how to avoid them.
1. Adding to Losing Positions. This is a biggie, and it addresses perhaps the most common lapses in judgment among traders of all experience levels. Gartman says to “do more of what is working, and less of what isn’t working.” By definition, a losing position is not working. And unless you originally planned to scale into the trade, adding to a loss is a big no-no. Take note of your P&L, and if you’re wrong, avoid throwing good money after bad.
2. Forcing Trades Out of Boredom. Boredom is one of the biggest enemies of today’s trader, because it leads to so many bad decisions (like overtrading). Transaction costs are so low and it’s so easy to place trades that one can easily forget just how costly boredom trades can become. So if you’ve done your homework and come up with very little, place no pressure on yourself to be active. There are times where sitting tight is exactly what you should be doing, so have the courage and discipline to do nothing when that’s the case.
3. Switching Strategies By the Day. I’m all for trading with multiple strategies, and as your experience increases, your trading toolbelt will begin to fill. However, each of us during times of struggle has encountered the losing streak. That’s perhaps the biggest cause for traders to throw the proverbial spaghetti at a wall to see what sticks. While experimenting can yield some clarity, doing it in either the wrong fashion or too frequently can prove counterproductive. Get some trader training, put some strategies to work across multiple timeframes, and give them enough time to prove their effectiveness. Trying something for a day, losing money with it, and shifting quickly to something else isn’t responsible, so avoid that limited mindset.
4. Putting Everything on the Line for one ‘Idea’ Trade. I was once warned by a more-experienced trader, “don’t get any ideas!“ He was right. A longer-term thesis takes time to play out, so leave that to the fundamentalists who don’t mind tying up their capital for months on end – for better or for worse. Stick with what the price action is telling you, and determine the best opportunities to get on board for the next move. Ideas are only useful when they relate to technical discoveries, so don’t bank on guessing right for one big recovery play – it may instead prove to be the final nail in the coffin.
5. Hoping a Stock Will Recover. Each of us has been trapped by a bad trade, and we’ve wondered if sitting motionless and simply hoping to be let out of the trap is the best solution. Marty Schwartz, of Pit Bull fame, mentioned how as a soldier, he was trained to do something when under attack…either fight back or retreat, but don’t just sit there. Hope truly is a 4-letter word in the trading realm, and relying solely on hope will provide plenty of damage to your trading account. Stops are available for good reason. Game plans offer if/then scenarios to follow under the gun so that big decisions need not be made in times of stress or volatility.
Avoid making these mistakes, and your money will be much harder for the pro’s to take.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
15 Questions & Answers
August 24, 2010 at 10:48 am
My recent live interview with Charles Kirk generated quite a few questions. A number of them we were able to address during the chat, but many went unanswered.
If you were in attendance and didn’t get your question answered, look for it below. But even if you weren’t there, hopefully you’ll find this useful to observe. I’m also happy to answer questions via the comments section below, so feel free to post yours there!
Here are 15 unanswered questions from the session:
1. Kevin: Jeff, what timeframe do you normally use in your charts, and do you let the bar close before entering a trade?
- Thanks for your question Kevin. I focus on the daily charts for swing trades, and the 3-minute charts for day trades. I don’t wait for the bar to close before entering a trade. That might save me an occasional failed signal, but I feel it will cost me many other trades which work right from the start, so for me it’s worth taking my entries as they signal.
2. Ryan: Do you have any execution techniques that you like to use?
- Hi Ryan! I like to keep things really simple, so I use basic stops for entries and exiting losing trades. That way, once a level has been crossed, a market order is generated immediately and I’m in (or out of) the trade. I’ve tried to get cute in the past with more complicated orders or execution techniques, but in the end it made me no more money and often cost me opportunity (buying breakouts with a limit order, for example, as the stock never looks back). When I’m booking profits, I’ll use limit orders at my targets and let the stock come up and hit me, but that’s the only time I utilize them.
3. Moe: How can you scan the market for setups or make trades when the market is so volatile and so driven by daily events and emotions?
- Yes Moe, it truly is a news-driven environment right now, and it might be that way for a while. I think the key is recognizing that I’m not trying to get in front of any news or predict what news may come along. Instead, I’m looking to put capital at risk when there’s an expected reward, and in order to do that I need to be hitting the charts regularly. Training your eye to do that will always leave you with opportunity, whereas waiting for emotions to settle could leave you sidelined possibly forever. Remember, that emotion and volatility brings with it opportunity. On the flip side, a trendless market with nothing but uncertainty brings with it very little opportunity. Keep looking for trades, and keep your capital moving.
4. Guest: What sectors are you finding most of your trades these days?
- Hello and thanks for your question. In terms of swing trades, I’ve traded many sectors and there really has been no consistency there to speak of. When the right patterns emerge, I take the trades. In terms of day trading though, I’ve focused frequently on the ags, financials, and energy names quite a bit in recent weeks, as they’ve been in play regularly.
5. Jon: Isn’t the general rule of thumb that in a correlation study, most of the correlation comes from selection, then overall market, so what we are looking for in trading is the small fraction which lead the pack on a given day which will then beat just trading the index ETF’s?
- Hi Jon, the recent discussion of being in a highly-correlated market (to the S&P 500, for example) carries with it some weight, yes. And I do agree that what we’re after is to locate leaders and trade them instead of the ETF’s. Keep in mind though that there will always be outliers which exhibit extreme strength or weakness, and those carry with them some real potential for good trades. So, seek out momentum whenever possible, and you should find far better bang for your buck vs. the ETF’s.
6. Sam: Do you ever trade options?
- Hey Sam, I do trade them on occasion. In longer-term accounts, I’ll short puts to establish long positions, then sell calls to collect premium. I don’t do a lot though in terms of directional trading with options. Occasionally when a stock looks to be very high risk, such as BP recently, I’d rather hold options overnight than common, simply to have defined, limited risk. The rest of the time, I’d rather have the shares for the greater liquidity, less slippage, and more flexibility to trade extended hours or pre-market (if necessary).
7. Tom: Do you hold stocks into their earnings report or do you only trade following the report?
- Hi Tom, actually I never want to hold a stock into an earnings announcement. Being a technical trader, it’s important for me that I can use the price action to determine both my entries and exits. That’s technical. When it comes to an earnings announcement, we’re talking about a major fundamental event, and since those usually happen outside market hours, I can’t control my risk. The stock is so likely to gap big after that news that I might have no shot at closing the trade at my planned exit. The excitement of potential ‘free money’ lures many traders into acting on their hunch, but it’s simply a coin toss and I am not about that with my trading. So, I want to stay responsible and only take trades where I expect to be able to manage my risk appropriately.
8. Frenchy: What is your favorite ETF you like to trade?
- Hi Frenchy. When it comes to the main index ETF’s, I like the usual SPY, QQQQ, and IWM. Typically I’ll avoid DIA since it’s only 30 stocks, and that can complicate matters more. In terms of leveraged ETF’s, I’ll go with SSO/SDS, QLD/QID, and TWM/UWM. Those are double exposure, and while there are some triple exposure ETF’s out there, I find the 2x levered funds are enough to provide nice moves.
9. Leon: Do you believe a high volume move to the downside can be a reversal signal?
- Hello Leon, that’s a good question. The short answer is yes, but it depends on how it happens. A stock which has been in a parabolic uptrend will sometimes signal exhaustion in this manner, reversing to the downside on heavy volume. Often, that’s followed by additional weakness. However, a stock that’s range-bound which sees a high-volume decline on a given day may see no downside follow through. So it can happen, but I’d be careful not to put a blanket statement across all high-volume selloffs that they’re reversal signals.
10. Jon: Do you feel price follows volume, or volume follows price?
- Hi Jon, this is a real chicken-and-the-egg topic, and there are cases of both. For example, consider a stock in a pattern like a bull flag. Price is consolidating, but one day edges toward upper resistance on heavy volume. That will many times signal an impending breakout, so volume in that case tends to lead the way. In other cases, price begins to gain momentum, and as the stock gets more attention, the volume naturally increases (following the move in price). See CAGC in recent weeks for an example of this. So it can happen either way. Nonetheless, I care the most about price, so if I’m seeing volume kick in ahead of a breakout, for example, I’ll still want to see price confirm that before I look to make an entry. That keeps me sidelined until I believe a real move is starting. Just remember, price is of utmost importance. If you’re on the wrong side of a move, it doesn’t matter if the volume is heavy or not, it’s still going to hurt!
11. Ryan: Do you have any interesting research projects in the works?
- Hi Ryan, actually I just recently completed a huge project with the creation of the Advanced Trading Course over at TheStockBandit University. That was a major project and I put everything I know into that course, so I don’t plan to do any other big projects for a while.
12. Layne: What indicators do you like to use? Certain ones in certain markets?
- That’s a great question Layne. I should say right up front I don’t rely on any indicators across the board, and actually utilize them rather infrequently. However, there are times when they can help in the trading process, so I’ll put them on the chart when it’s appropriate. A moving average, for example, is really only helpful in a trending market. I just put out a post explaining how and when to use moving averages. I will sometimes add ATR to my chart to see just how much (or how little) movement there’s been lately, and that’s another one which has been helpful for me. If anything, the ATR value lets me know when there’s just not enough movement to offer real potential relative to the risk I’d be taking.
13. Jake: What are the setups that you look for on the chart before buying and selling?
- Hi Jake, first I’m going to look for the presence of a trend. If there isn’t one, I’ll take a completely different approach in terms of what types of patterns I’ll look for. If there is a trend, then I’ll be watching for continuation setups like flag patterns, pennant patterns, and triangle patterns. And along with the price patterns, it’s important that the volume activity is confirming the price action, so I monitor that closely as well. Taking note of the rhythm of a trend is another key element, as it helps me gauge whether I should focus more on breakout patterns or utilizing pullbacks to get on board. There are a ton of ways to skin the market cat, but I’ve found it most effective to adjust to the environment you’re in rather than forcing one particular style at all times.
14. Ryan: Do you see the growing awareness and popularity of ‘technical analysis’ translating into an easier market to trade in the future, or a more unpredictable one as more retail money uses the same methods?
- Hello Ryan, another excellent question. Technical Analysis 101 has certainly become more embraced by retail traders than it was even a few years ago, but my response to that is somewhat complicated. First of all, I don’t think there’s a uniform usage of technical analysis methods across retail traders. Take 10 traders and ask them to define a particular pattern, or ask when they should use a particular indicator, and you’re likely to get a variety of answers. So that’s one issue I think that keeps everyone from seeing the exact same patterns or acting on them at the exact same time. Another issue is a bit more vague, which is the program trading we’ve seen such a growing amount of in recent years. Computer algorithms are likely preventing some patterns from fully maturing, or the institutional money heavily fades a breakout, causing many retail traders with tight stops to dump shares, only to see the stock head right back up. So it can be pretty tricky out there, and for those reasons, I do not think the rise of Technical Analysis has resulted in an easier market to trade. Bottom line is, ‘they’ will never make it easy. You and I have to keep paying attention to what’s working and what isn’t, and do more of that which is working!
15. Guest: Have there been any patterns you’re finding that are working well in this environment?
- Thanks for your question, and yes there are. I’ve focused more on trading the rising and falling wedges, as well as the “tilted” trend line breaks (like ascending or descending trend line breaks) for swing trading. For day trading, I’ve looked more for those exhaustion moves where news has caused an overreaction and the stock needs to come back in, so those are the ones I’d say have been most profitable to me in recent months. I also detail the most profitable one in the Advanced Trading Course. The key is to remember that what’s working well right now will eventually morph into something else, so we have to stay on our toes and be willing (and able) to adjust when conditions deem it necessary.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Reliable Technical Action
August 12, 2010 at 8:22 am
I was pointed to a post earlier today which I couldn’t disagree with more. The author opined that trading this market is a ‘waste of time’ and that the ‘real’ money won’t be made until a month or two from now.
If that’s your attitude, you’ll be exactly right. Attitude is everything – especially in trading.
Using broad, absolute statements to ignore what’s right in front of you will help you be correct – only problem is, you’ll make no money trading. And isn’t that what trading is about? I’d rather make money than be right.
It’s dangerous to adopt the ‘waste of time’ mentality, now or at any other time. Someone’s always making money, and therefore opportunity always exists. Right now, whether you’re a day trader or a swing trader, this market is moving plenty right now. We just rallied 12% in 6 weeks – how is that not enough? If you can’t pull some good trades during a period like that, then this game isn’t for you anyway.
Beyond that, the technical price action of late has been textbook – does it get any better than that?
We’ve seen multi-day rallies followed by shallow pullbacks, with higher highs and higher lows established along the way. An uptrend line was tested several times before finally breaking Wednesday, and the reversal which has followed has been very decisive. So whether you prefer the long or the short side, there’s been ample opportunity for you.
Here’s a closer look for you:
Finally, don’t be delusional enough to think you can call weeks in advance when a ‘real’ move will begin. Remember, the market caters to nobody. It’s not about being wrong or right on the timing either, it’s more about wasting the time between now and then by waiting and not watching for opportunities which are surfacing regularly.
Stay on your toes out there, and shun all excuses – a lack of success can’t be blamed on circumstances. If you’re focused and you’re attentive to the price action, you’ll get paid for your time instead of thinking it’s a waste.
Trade Like a Bandit!
Jeff White
Trader, Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Three Pillars of Risk Management
July 14, 2010 at 6:41 am
As a Seinfeld fan, I really enjoyed The Fatigues episode where Jerry dates a woman with a mentor. George needs to give a report on Risk Management, and passes off the task to Jerry’s girlfriend so she can read all about it and save George time.
But Costanza isn’t the only one who doesn’t fully understand Risk Management. In fact, far too many traders struggle with this very topic, and it keeps them from surviving and from succeeding.
So, let’s look at 3 pillars of risk management as a way to keep it simple. If you can nail these down, you should be alright.
Protect Capital
This is a biggie, no doubt about it. Simple on the surface, but not easy to put into practice.
As traders, our capital is what keeps us in business. Ignoring the consequences of mismanagement is a major mistake that’s not easily recovered from. Those who fail to understand the importance of first preserving what they have tend to place profits ahead of protection. That leads to the age-old error of eyeing new trades with only potential gains in mind, rather than placing equal importance on potential losses if the trade fails.
Capital comes in two forms…psychological capital and trading capital. Both must be protected with vigilance.
Psychological capital is the amount of inner strength, confidence, and willingness to take risks that a trader possesses. It can be eroded through many mistakes, and it’s not easy to replace. Protecting one’s confidence as a trader is paramount to staying in this game, because the trader who’s unwilling to pull the trigger when good opportunities come along won’t ever win.
Trading capital is what’s available in your account, and it’s of course the type of capital most are familiar with. Money can be more easier to replace than confidence, but it’s still critical to manage risk in such a way that your account stays intact. Traders who disregard the importance of keeping an adequate capital base find out quickly they’re unable to profit big enough to matter, even when they’re right. So, try to maintain account highs as often as possible, and you’ll find your account is growing on a regular basis.
Trade YOUR Proper Size
This one will vary for everyone, so the secret is to make sure you’re trading position sizes which allow you to be at your best. That means avoiding trades which mean too much, both psychologically and financially. Let’s look at those one at a time.
Psychologically, the ability to recover from a loss is something we all must ensure. Taking a big hit from a trade which didn’t work out leaves us vulnerable to anger or despair, and neither are beneficial to our trading. Anger promotes revenge trades, and that typically leads to digging a deeper hole than that which we may find ourselves in. Despair leaves us so focused on our emotions that we fail to recognize good opportunities when they come along.
Financially, we never want to be trading so large that we can’t recover from a loss. Taking a fairly large position when you’re confident is one thing, but dumping your entire account into a single idea is another. Consider the math behind poor trades, for example. A 20% loss in your account will require a 25% gain to get back to flat. And the deeper that loss gets, the more that’s required to make it up. Taking several smaller trades instead of one big one might require more management, but it can also greatly help to avoid one major disaster.
Exit When You Know You Should
This sounds really simple, and it is, but it’s the follow through which makes this one difficult for some. Making a trading plan is one thing, but sticking with it can be another issue entirely.
It’s all about discipline, and that isn’t going to change. You know at which point you’ve stayed too long in a position and the time has come to kick it to the curb. All of us know what it means to blow stops, and most likely, it doesn’t pay off when we do. That’s a self-inflicted mistake that can be avoided, provided some measures are taken to help automate the process.
Here’s the thing…defined risks are the best kind. Pick your exit at the same time you select your entry, and commit to it. If you struggle with that, set a stop order the moment you’re filled on your entry, and then you won’t have to make a decision under the gun. If you get stopped, you most likely just saved yourself some additional pain. But you’ll be managing your risk effectively and reinforcing discipline even when you’re wrong.
If you’ll protect your capital, trade your proper size, and get out when you know it’s time, you’ll be doing 3 of the things the most successful traders focus on. How can there be any downside to that?
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Disgusted
June 18, 2010 at 10:54 am
Disgusted…
It’s a word you probably learned in junior high when someone paid that kid $5 to eat frito pie from the cafeteria trash can.
But it’s a word you still experience.
You hate the way you feel, so you start eating better. You hate how your yard looks, so you get more diligent at mowing, fertilizing, and watering it. You’re sick of that relationship being on bad terms, so you make amends and try harder going forward.
Trading can be the same way. It can leave you wondering what you’re missing. The market acts or moves a certain way for so long, then shifts on a dime. You’re left feeling clueless and out of sync. You’re hemorrhaging capital, and you have no idea how to stop it. You’re completely disgusted with it.
Disgust isn’t necessarily a bad thing though. Mind you, it sure isn’t a good way to feel, but it can produce some incredible results – if you know how to use it.
Channeling Disgust into Diversity
What you’re about to read may disturb you, but here goes…
Embrace it.
Disgust is usually the rock-bottom spot where you’re finally ready to do some changing…of your attitude, of your expectations, of your approach. Most of us have to get to that place before we’re willing to make a change.
Until we’re there, it’s just too easy to tell ourselves “I’m just out of rhythm” or “this market is just acting strange” or “things will get back on track any day now.” Uh huh. What if the market stays strange for a while, or what if you don’t find your ‘rhythm’ quickly? You’re in big trouble, right?
Perhaps the greatest opportunity born out of disgust is that of diversity. When we hate the results we’re getting, we either continue to get them (by not changing), or we expand our horizons and learn some new approaches. Those are the 2 choices we have.
When it comes to trading, those new approaches might include different trading methods we’ve heard about or considered, but have not yet committed to. Or it might involve different timeframes for trades. When day trading isn’t offering much, shifting out to a swing trading timeframe can often make all the difference in the world. That’s why it’s so important for us to diversify as traders.
Dual Benefits
When you shift your approach from one which isn’t working to another method, you’re going to see some short-term changes in your results. Often times that’s going to mean instant improvement, which is quite refreshing. It brings you out of your funk almost immediately, so your attitude is also likely to be better.
But what’s even better is that as you learn another method, you’re that much more equipped down the road to make a shift when conditions call for it. Because you’ve now recognized what isn’t working, and which conditions prompted a change, you’ll be able to identify similar shifts the next time around, and you’ll now know better how to adapt. Win/win.
So if you’re currently feeling rather disgusted with your trading, I’m aware that it’s no fun – I’ve been there too. But if you want out of that mode, then don’t wallow in your sorrows any longer. Get on the move and start finding and employing some new styles and strategies – the ones you’re using are costing you too much in capital and confidence to continue using them right now. Keep them in the bag for later, but channel your disgust into a desire to develop new approaches, and you’ll be glad you did.
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Are You Too Motivated to Make Money?
June 7, 2010 at 1:38 pm
I know you aren’t lazy. The fact that you’re reading this tells me you care enough about your trading to hunt for clues that will make you better. You’re motivated.
Many of us think of ourselves as hard workers. Lazy gets us nowhere.
The problem is that when it comes to trading, motivation doesn’t always translate into greater profits. Incorrectly applied, motivation in trading can actually bring on some serious heartache.
The ‘O’ Word
It’s definitely true that the timeframe you trade should match your personality. Those who are patient can take longer timeframes while waiting for larger moves to develop. Those who are less patient will tend to find that the shorter timeframes suit their needs for knowing if they’re right or wrong.
But…that’s not what I’m referring to.
Regardless of your preferred timeframe, the fact is that you can still overtrade. Whether your average number of transactions per week is 100 or 3, there will still be a point at which you should be done. Perhaps the move of the day has already happened, and you’ve got a sense of that, but you keep pushing buttons in an attempt to make something happen. Maybe your P&L is flat, and you hate the idea of fighting to a draw. So, you lower your standards and take some trades in hopes of either making some money or losing some. Hey, at least you’ll have something to show for your time, right?
Or consider another scenario in which you’ve turned a quick profit, whether through an overnight position that gaps in your favor, or simply some quick trades early in the session which put you nicely positive on the day.
If it were 90 minutes to the closing bell, you’d probably shut it down, but it’s only an hour into the session and you’ve got no idea what to do with your day if you quit now. So…you stay and trade and give some or all of it back.
You hate yourself an hour or two later, wondering why you didn’t just ring the register on the early profits and call it a day. In hindsight, up a little is much better than flat or down. But your greed and your ‘motivation’ really cost you.
Sound familiar? It is to me. I’ve been there way too many times, so these are mistakes I’m all too familiar with.
The Real Meaning of Lazy
For me, it really stems from the (incorrect) notion that not trading = lazy. That’s dead wrong, but periodically I’ll operate under that mindset and later on wish I hadn’t. I’ve never been a lazy person, because there’s always something to do. I like the feeling of getting things done. And when the market’s open, I know what my job is – to trade. Or so I tell myself.
In reality, my job as a trader is to put money at risk when there’s an expected payout of greater proportion. That should translate into profits.
My job isn’t to continually churn my account, try to grab every stock on the move, or to hit a daily volume target. I need to feed the family, pay bills, and build my wealth through my trading. That’s it. Pretty simple, but easy to forget when quick gains come along or when I battle several hours and make no progress.
Oddly enough, being lazy as a trader involves sitting at your desk when you should be doing something else. It’s hard to get up and walk away when that ticker’s still on the move. The allure of ‘what if’ drives too many to stay right there in their seat for just a little longer, and it’s costly.
3 Tips to Stay On Track
There are several ways to stay on track with your trading, so let’s take a look at a few of them.
1. Remember your goal. This seems obvious, but a regular reminder of what you’re striving to achieve through your trading will be a tremendous help to you. Maybe you keep a photo of your family close by as a reminder that you can’t afford big down days, and it helps you walk away when you aren’t seeing the tape clearly. Or maybe you keep a picture of that boat you want to buy close to your screens, helping you to focus your efforts on only the cleanest chart patterns so you can reach that goal sooner.
It’s a fine line to walk between fixating on something that’s actually a distraction, versus keeping a reminder in front of yourself to maintain the proper mindset. However, if you’re keeping yourself reminded of what it is you’re after, you won’t leave yourself much room to stray from the route you’ve laid out to get there.
2. Define your job. The word ‘trader’ might suffice when you’re telling someone else your occupation, but when it comes to the daily tasks you set out to accomplish in your trading, some boundaries should be defined. With greater experience comes greater clarity, so this will be easier for those of you who have been in the game a while. Nonetheless, it’s important to outline for yourself which kinds of market conditions you’ll be active in and which conditions will warrant standing aside.
Outside the realm of market conditions, you also should have some general guidelines for your P&L on any given day, week, or month (depending on your trading timeframe). For example, as a day trader, perhaps you structure a typical max-loss amount which will mean no more trades. That might be $500 per day for some, or $5000 per day for others. But having it in place will serve as a system breaker and avoid overtrading when you’re clearly out of sync.
You can also designate a general target for gains, that when it’s reached, you’re then committed to retaining a certain amount of those gains. Suppose once you’re up $1000 on the day, you’ll commit to keeping $500 of it, no matter what. You can keep trading and add to it (if the right setups come along), but you’re going to book an up day regardless. These things will help to protect not only your capital, but your confidence as well.
3. Have something else to turn to. Simply put, if you’ve got a go-to list of things to tend to always at the ready, then you’ll have that much more reason to shut down your trading once you’ve hit your loss limit or booked nice gains on the day. Rather than falling into the trap of sitting at the PC and pushing more buttons out of boredom, you’ll always have something to move on to when the time comes. That might mean you run some errands, get organized, go for a bike ride, or grab a book. It’s not so important what it is, so much as you have another activity to turn to when you recognize you shouldn’t be trading. Have that ‘thing’ in place at all times, and you’ll avoid overtrading.
In summary, dirt-cheap commissions and sophisticated trading platforms with all kinds of bells and whistles are really great to have, but remember one thing…they only exist to help you do your job. Don’t use them as reasons to be active when you should be sidelined. Know your objective for the current conditions, for the next trade you take, and for the reason you’re trading to begin with – and be not distracted.
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
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