All Entries Tagged With: "Momentum"
Trading Up from Mediocre to Great
November 8, 2010 at 12:28 pm
Can you imagine working hard for insignificant results? Or setting your standards so low that you need not put forth effort in order to attain your goals? Never, right?
A competitive drive pushes many traders from the inside, causing them to take on risks others wouldn’t accept. They shun the security of a regular job, opting instead to speculate in an arena filled with financial danger but unlimited upside potential. Long hours are often recorded in an attempt to gain an edge. Tedious tasks like sifting through hundreds of charts nightly, religiously reviewing results, or poring over statistics of trades past are done with the sole purpose of improvement by traders who are hungry for success.
In other words, they want it.
Those kinds of things are what it takes to get better in trading, and many are willing to pay the price. Yet far too often – unfortunately – some traders settle for less.
I’ve encountered many of them. They say things like “I’m not really trading right now because I’m waiting for XYZ to bounce back and let me out of a pretty big paper loss I’m facing.”
What’s interesting is that the ‘paper loss’ they’re referring to is quite real. Even more noteworthy is what they fail to see, which is that other trades could put them back on the right track and actually get them turning a profit again – if they’d free up their account to allow themselves to actually take those trades. Sadly, they’re just unwilling to turn loose of a mistake, so they cling to hope and wait for a miracle.
Are you one of them?
Trading Up
Often times on the road, I’m looking for an opening in the left lane to get around that slow lady ahead of me who is too busy talking on the phone to go (at least) the speed limit. In the mall, I’m amazed at how many people walk aimlessly, without a clue, as if there’s no purpose or destination to move towards. Yes, I am a bit impatient, but the point I’m making here is that it’s a habit I’m in of continually looking for ways to improve my situation.
That’s particularly true in my trading. I don’t mind putting on risk, and I realize plenty of trades will fail. What’s most important to me is to monitor how those trades move and how the stocks are behaving.
Let me be clear… It’s unrealistic to think I can foresee the moves before they happen, but it’s not difficult to recognize price action that’s outside the recent norm. And that is the key.
Studying the price action closely allows you to identify when outlier moves begin to occur, and subsequently when an exit needs to be made.
Always Think In Terms of Gain
We just sold our house. The real estate market is still soft, and for about two months we had a lot of showings but no sale. The price was too high, and we had to come off the price a bit in order to sell the house. But we’re upsizing, so what we had to concede on the last house we more than made up in the new house.
Once I thought of a price reduction in those terms, it became a no-brainer. It was less personal. Understanding that giving up $1 here might mean I save $1.50 on the next home (because it’s larger and higher-priced), logic dictated that I think in terms of what I’d gain on the other side, not solely what I’d be giving up.
Why doesn’t everyone trade this way? Why not dump an average name for a better one – one that shows more promise, more potential? Why not put in the work to get to the next level and leave mediocre results in your rearview mirror?
Make it a habit to think this way, especially if you’re gunning for improvement. OR…be complacent and stagnate, because that’s the only other option.
What has helped you learn to dump losing trades in favor of new names with better potential? Share your thoughts in the comments…
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Uptrend Aside, Trading Scene Set to Improve
November 1, 2010 at 10:45 am
August seems so long ago, doesn’t it? Stocks had rebounded from their July lows, briefly, and had turned back down hard for a test. The test passed, as an important higher low was established.
From there, we all know the story of how the seasonally-weak September and October stood conventional wisdom on its head to post big gains. What’s not been spoken of much, however, is the way this 2-month rally has changed in recent weeks.
What began as a rip-roaring rise ripe with short-covering has evolved into a slower, more steady uptrend channel. The pace has cooled off a bit, while still continuing to make upward progress. In fact, new intraday highs were posted multiple times last week, despite the indecision we saw between the opening and closing bells each day. Today we’re seeing more of the same, as early strength has delivered new highs while modest profit-taking has caused the indexes to back down from their best levels.
To put it another way, the “dumb money” has had great success in recent weeks. Those who waited for strength to return before becoming confident enough to join in have been fortunate enough to chase extended markets and stocks and still profit. But for those of us who prefer to see some kind of rhythm associated with market moves, it’s been a one-way street without many ways to play the long side while still protecting the downside.
Astute traders have instead found it a bit more difficult to navigate the current environment, as anyone with an ounce of discipline has felt the uneasiness of adding long-sided exposure for overnights while simultaneously recognizing the limited opportunity of trading intraday. It has left many of us to do more scalping while waiting for more lively day-to-day price action and higher-quality bases to come along. Those bases often rely on some back-and-forth price action, which we simply haven’t seen of late.
Watch The Horizon
Any trader worth his salt knows that conditions will shift. Maybe not immediately, but eventually.
That doesn’t mean prediction is necessary, because it isn’t, but it does mean staying alert.
When trading well, keep doing what works but be on the lookout for signs the setup may be changing. When trading poorly, it’s imperative to employ some other methods which are more suitable to the conditions. At the same time, hope can be had that a shake-up in the price action will bring more opportunities.
Right now, the market is in an interesting spot. The rally has brought the spring highs into play as we’re essentially testing them in this area. That’s a logical resistance area that could prompt some selling, depending upon the news flow. The uptrend channels seen in the averages could easily be penetrated to the downside, heightening concerns of whether that’s the end of the run. The other side of the coin is that the trend is still up, and no evidence has surfaced to suggest it’s changing.
So as a trader, here’s how I’m dealing with all this. The trend is up, so I’m favoring the long side while keeping timeframes short in order to offset the risk of walking the highwire here. I’m also mindful of potential shifts which could emerge anytime. We’re in the midst of earnings season, and that could easily sour the mood. We have the November elections tomorrow and the political implications of that, which is a major event. And then mid-week we have the FOMC, and with all eyes on the economy, the attention of traders will definitely be on Wednesday’s announcement and policy statement.
We could ramp from here and take out the spring highs before a pullback begins. It’s possible. We could break the uptrend channels and see some selling accelerate as traders recognize the trend line break and move quickly to lock in profits. Several scenarios are possible, and it’s important to keep an open mind here for that very reason.
I will say this: I’m expecting volatility to pick up sooner than later, and that means more opportunities for trading multiple timeframes. That’s where the real money is made, as you can have capital working for multi-day moves while still maneuvering to catch intraday moves for profits. Look alive out there, this is no time to get lulled to sleep.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Are Sellers Looking for a Catalyst?
September 21, 2010 at 8:44 am
Anytime we see market streaks emerge, we know someone’s been caught on the wrong side.
Monday’s session marked the 12th advance in the previous 13 trading sessions for the NAZ, including nine straight. Breakouts happened across the board, with the summer highs being cleared on solid volume. It almost feels like stocks may never decline again – and that’s a dangerous way to think.
The market will humble traders of all kinds, including bulls who become overconfident. It may not be a life-altering lesson, but in a tape like this, it could be one slip that brings a sudden pullback – even if it’s a brief one.
The technical picture is positive, there’s no doubt about it. We just established higher lows in August relative to July, and we just made higher highs. That’s a shift of trend, not only in the short term of the past couple weeks, but in the intermediate term of the past few months. The bulls are sitting pretty.
Things start to get really tricky though when momentum begins to run a little too hot, which is where we are right now. All news has been good news of late, and the buyers have dumped cash into this market relentlessly since the start of September. It’s been an impressive run, no matter how you slice it.
For a reality check, however, it’s safe to say that all the easy money has been made for this run. The pace is unsustainable, plain and simple. We could push higher from here, there’s no rule to prevent that from happening, but it’s far more likely that we’ll see some profit-taking kick in sooner rather than later. Those who are sitting on profits will be quick to lock them in at the first sign of weakness.
When it comes to excuses, the market is excellent at finding them. Right now, my hunch is that the bulls are needing an excuse to satisfy their urge to lock in at least some of their gains. And with a few key events on the horizon, it’s important that you and I stay on our toes.
Today’s FOMC meeting may be the first possible excuse for some profit-taking. It may not even matter what the Fed does or says – what matters is how the market responds to the news. And if it isn’t today, then there’s plenty of economic news slated for this week which could prove to be a market-mover.
So, I’m on the watch for a possible pullback. If I were predicting, I’d already be short – and I’m not. Instead, I’m watching carefully to see if some selling kicks in, which would then set up a favorable risk/reward scenario for a little round of selling. Here’s my game plan:
The QQQQ has rallied big, not only in recent weeks, but on the intraday chart as well. We have steep uptrend lines on both the daily and intraday charts, and I’m watching them both for downside breaks. First, let’s take a look at the intraday chart. Monday’s advance was smooth, and a break of the rising trend line at $48.70 would likely spark some selling. I’ll go short there with a stop in the $49 area, just above yesterday’s high.
On the daily chart, there’s also a steep rising trend line. A break of that wouldn’t necessarily mean price goes straight down, but it may be a worthwhile short for the nimble to catch the first move. The rising trend line currently stands around $48.30, and a break of that level could bring into play a multi-day pullback. Traders watching the daily chart should keep that level front and center today, and it will climb daily should this market happen to continue advancing. Once it’s broken though, the move could be a swift one to the downside for a quick trade.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
How and When to Use Moving Averages
August 22, 2010 at 5:42 pm
Price action provides me with chart patterns to trade from, and usually, that’s enough. However, occasionally I’ll see a situation where adding a basic indicator can really help out.
Many traders rely heavily on indicators, and while it’s my style to keep my charts nearly bare, indicators can be helpful. I think where traders tend to get into trouble is when they rely solely on the indicators, rather than seeing how they confirm or deny the overall price action.
If you’re looking for a one-size-fits-all indicator to rely on in all market conditions, or which all stocks will respect, you’re going to be looking for a very long time! However, if you’re willing to learn when, why, and how to apply indicators to your charts, they can be an aid to your trading process.
In this post, I want to show you how and when I use moving averages when eyeing potential trades. It’s a very basic indicator, but when there’s a trend present, it can help you gauge momentum, as well as help you decide on entries and exits.
Let me suggest going full-screen with the ‘HD’ option for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Reversal Characteristics & Candidates
August 25, 2009 at 12:30 am
Stocks can reverse suddenly or slowly. Sometimes it takes place in one big bar, and other times it’s a process that occurs over time.
Because there are differences in how downside reversals can happen, after running across a couple of reversal candidates in the charts, I wanted to share a couple here on the blog.
Uptrends will often times be followed by corrective action, which may pave the way for further upside down the road. But a reversal is often a longer-lasting change of direction, and that’s what I’d like to discuss in this post.
When looking for reversal candidates, the thing to watch for is a change of character. Something that’s different from previous dips and stands out as a potential shift in the stock. That might be a lower high, or it might be a sudden decline which proves to be much sharper and faster than previous pullbacks were.
Show & Tell
In the video below, I want to point out 2 stocks which might be undergoing reversals. That means there’s plenty more to prove before they can be considered to be in corrective mode (as opposed to merely a dip within their uptrends), but chart reading is always a work in progress. If the characteristics which we’re seeing now happen to change, then so should our expectation.
For now though, let’s take a look at what’s going on and see if these show us the necessary price moves to confirm what the charts of FUQI and RL may already be saying.
Here’s a video explaining it. Select the HD option and go 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
Are you following me on Twitter yet?
Scale Out of Winning Trades with Partial Exits
August 4, 2009 at 12:55 pm
It’s common among traders to think that you either have to be all-in with a stock or all-out of a stock, but that sure isn’t the case.
Many of us do our buying in one piece, entering a full position at one time as an important level gets crossed. This is my personal preference, as I continually seek out trading opportunities where a ceiling is shattered or a floor implodes, enabling price to make a nice move through it.
And when I am wrong (yes, when, not if ), I’ll exit in one piece. As events occur or conditions emerge to show me that the stock is clearly moving in the opposite direction of what I had expected, I’m going to bail out of the trade and protect capital.
So, I’m getting into trades in one piece, and I’ll stop out of trades in one piece. But rarely will I exit a winning trade in just one piece. Instead, I’ll scale out.
Advantages of Incremental Profit-Taking
Over the years in dealing with traders from literally around the globe, I’ve found that very few of them will get out of favorable trades in pieces. Adopting this method of booking profits can be an excellent way to trade, and particularly in a momentum-based market like the one we currently find ourselves in.
Taking partial profits and peeling off a portion of your position on the way up carries with it several advantages. Let’s look at a few…
1. You can lighten your exposure into favorable moves. As your trade makes its move, it’s a great idea to start reducing your position size. The idea is that as a move progresses, it naturally becomes more difficult to capture similar returns to the initial move. Typically stocks surge early, so this is a way to take advantage of that early momentum.
2. Make room for new opportunities. This isn’t just for those who may be trading with a smaller account and need to raise cash to put toward a new play. In fact, even traders with larger accounts may find it difficult to manage a lot of positions in terms of the attention they can devote to each trade. Catching the move you initially were seeking can remind you that it may be time to shed some shares and seek out another stock to put your money and/or attention into.
3. Let slippage work in your favor. Posting offers on the way up means you’re capturing the bid/ask spread – not paying it. I use market orders for entries and for stopping out, because when I need to be in or out of a trade I don’t want to haggle over a few cents. But when it comes to booking profits, limit orders resting at higher levels mean you’re out there offering out some inventory, letting someone else pay up for it.
4. Satisfy the urge to take cash off the table, yet still stand to gain from a continued move. This is a big confidence booster as well as a way to manage money wisely. Turning some of those paper gains into real profits not only pads your account, but it also reinforces that you’re on the right track. Gaining some momentum in your trading is a great thing, both for your account and for your psyche. And by adjusting the stop for remaining shares, keeping even a portion or a core position allows you to benefit from a major move, should it occur.
Trade Like a Surfer
Just as a surfer catches one wave after another, a good trader maintains the same mentality. Ride the best moves you can find, but don’t be shy about easing out of a trade once you’ve caught a nice move. Paddling back out to locate the next one will require your availability, so when you start smiling about a trade, it’s probably time to start scaling out.
The fear of missing out on a giant run keeps many traders from selling at all, but scaling out carries with it the best of both worlds.
Consider making partial sales in your next winning trade, and see what it does for your bottom line. It just might be the best adjustment you make this year.
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?
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?
