All Entries Tagged With: "Market Conditions"
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:Â 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?
Video Review of the Indexes 8-2-2009
August 2, 2009 at 2:12 pm
We’ve seen some nice moves in the past few weeks, with many stocks awakening from their slumber to sprint to higher levels. The indexes have done the same thing over the same stretch.
Although we’ve seen some incremental gains in recent days, overall the pace has definitely slowed. And that’s actually a good thing.
Rest is needed after a huge surge higher. Traders re-evaluate their positions, those with cash wonder if they might be chasing, and the shorts get concerned that perhaps a pullback won’t arrive in the timeframe they desire. So things get quieter, and some consolidation is seen. That’s exactly where we are right now.
But following this rest phase, momentum may well return, and we’ll need to have some clues to watch for in case that starts to happen. So, let’s examine some important levels in the indexes to keep an eye on in the days ahead.
This clip was also posted over on the Trading Videos site (as always), and perhaps you’ve seen it there – but in case you didn’t, I wanted to put it here on the blog for you.
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!
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?
Video Review of the Indexes 7-26-2009
July 26, 2009 at 4:43 pm
Moving out of a multi-month trading range has been a very welcomed sight for many traders in the past week. It has meant an expansion in volatility, greater momentum than we’ve seen in a while, and new recovery highs for the market from the March low.
However, the way in which it has happened obviously caught quite a few people off guard. The emotions have combined for a panic buying atmosphere, ripping bears in the process while sparking fears among bulls with cash that prices may never again retreat.
That’s not a logical view of course, but anytime there’s a big move taking place it’s common to see emotions behind the action.
Nonetheless, the indexes are getting back on the move. And although a rest or pullback from here would be welcomed and healthy, we’re still waiting on it to arrive. While we wait, it’s a great time to examine some important levels for the indexes to keep an eye on in the days ahead.
This clip was also posted over on the Trading Videos site (as always), and perhaps you’ve seen it there – but in case you didn’t, I wanted to put it here on the blog for you.
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!
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?
We Now Interrupt Your Normal Programming
May 14, 2009 at 7:21 am
Perhaps the automatic buy button got disconnected somehow, but Wednesday’s decline marked the 3rd consecutive decline in as many days – something we’ve not seen since early March when this market caught fire for 9 very green weeks.
And although a 3-day losing streak is far from the worst thing this market could see, it begs the question of whether or not it’s the beginning of, um… a change of character.
A short-term turnaround.
Ok, a reversal, to put it bluntly.
After all, a pullback is going to happen eventually which lasts for a few weeks – not just a few days, and now might be just as good a time as any for that to happen.
No Crystal Ball
Now, I’m not one to make big bold predictions, but some of you might recall that on the day of the low in March – yes, 9 weeks ago – I showed you right here the “technical threat of a short-term reversal.” I wasn’t going out on a limb, just calling it as I saw it.
It turned out pretty well.
So here I am again, simply pointing out what I see.
And if this does prove to be the early portion of the first meaningful pullback we’ve seen since early March, it’s important to first recognize that it would be a healthy event. The strongest markets do have pullbacks along the way, and that actually can help to perpetuate a trend.
Think of it like a rest – nobody can run nonstop forever, and the market is the same way. Some time on the bench can be a good thing.
Winds of Short-Term Change
This question of whether conditions are shifting or not is at the forefront of the discussion right now. Most individual stocks will take their cues from “the market,” which is developing a bit of a rolled-over appearance on the daily charts here, I might add. Stated otherwise, it might play out to be more than merely a 3-day dip, with a pretty big if. (See the caption on the chart below.)
StockFinder Chart courtesy of Worden
3 Positives of a Pullback
And so it may very well be that a decent correction is finally starting here, which if it does, could serve to do a number of things – all of which are good. Assuming we don’t go straight back to the March low, that is. Here they are:
1. The widespread overbought conditions we’ve seen for the past several weeks can finally go away. That means when a bullish setup appears, it’s less likely to need a “stay away” sign in front of it for those of us who prefer to manage our risk accordingly.
2. Stocks should (once a good pullback is completed) be able to set up some new bases, patterns, and support zones for trading. While this might take more than just a few days, it’s ultimately great news – especially if your preferred timeframe is swing trading. The stocks which have produced nothing but steady climbs without rest can finally pull back and establish some new support – like a higher low. Combined with the higher highs we’ve already seen in recent weeks, that would keep the uptrend intact.
3. A meaningful pullback is going to help separate the men from the boys. During this run from the March lows, few stocks have failed to participate. It’s almost like everybody’s doing it. It seems virtually everything has joined in the rally, making it difficult to determine which stocks are merely being squeezed higher and which ones are developing into true, lasting leaders. Separating the also-rans from real leadership should help to narrow our focus as traders, and give us higher quality plays on both sides of the tape. That’s something we all stand to benefit from, whether bull or bear.
So in closing, let me just say I’m no perma-bear. But don’t hate me if I’m rooting for a little more of a correction here. It sure doesn’t have to last forever, and I think it’ll lead to much better things for those of us trading 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]
Market View Video – January 19, 2009
January 19, 2009 at 11:35 am
It’s always a good idea to start out the trading week by checking out the big-picture view and a look at the major averages. After all, they do have the biggest influence on how individual stocks move!
So as you start to consider what and how to trade this week, be sure to stop by and check out the Market View video over at TheStockBandit.TV.
And as always, Trade Like A Bandit this week!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
