All Entries Tagged With: "Risk"
Win More by Risking Less
April 5, 2012 at 8:10 am
Each of us understands that we have to take some risks to get paid, but for most traders, improvement lies in taking the right kinds of risks.
Recently I sat down with Tim Bourquin for a MoneyShow Interview, and we discussed this topic of how to Win More by Risking Less. The clip is 3 minutes and can be viewed here.
In the segment, we discuss the mentality traders should bring to trading, the importance of knowing your exit, risk/reward ratios, and position sizing. We also discuss the often misleading notion of accuracy in trading and what that should be replaced with.
(Another 3-minute video from this same interview discusses The Trade Plan that Works For Me, which you may also enjoy.)
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Get our free newsletter to keep up!
Follow @TheStockBandit
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
Get our free newsletter to keep up!
Follow @TheStockBandit
The Zurich Axioms
January 25, 2012 at 12:08 pm
I first learned about The Zurich Axioms by Max Gunther in the daily Worden Report when Don mentioned it among his favorite trading books a few years ago. Soon after, I picked up a copy and found it was indeed packed with some great insights – enough to be a must-have trading book.
There are 12 major axioms highlighted in the book, with a chapter devoted to each, as well as 16 minor axioms. It’s a relatively short book at only about 123 pages, but the “Rules of Risk and Reward Used by Generations of Swiss Bankers” offers no shortage of wisdom and insights for any trader or speculator.
Without disclosing all of the Axioms, I’ll summarize two of my favorites.
Always Play for Meaningful Stakes.
This minor axiom highlights the importance of trading with enough size for it to matter. This goes beyond the learning stages in which a developing trader needs to hone his skills and not fixate on the money. Rather, playing for meaningful stakes is about getting over the fear of getting hurt in such a way that when a play works, it’s well worth the risk taken.
A story is told in the book about the oil tycoon J. Paul Getty, who grew up rich, but once he became an adult he was sent out on his own. Wanting to enter the oil business, he shunned various opportunities to invest $50 in the early 1900’s in favor of betting nearly his entire savings of $500 on an oil lease he felt was more promising. After paydirt was hit, he sold his holdings for $12,000 just a short time later.
Getty mentioned that if he had not struck oil, the $500 would have hurt, but that he could have found a way to save that amount back up again. He was quoted as saying “it seemed to me I had a lot more to win than to lose.” That’s playing for meaningful stakes.
As a trader, it’s not about walking a tightrope where bankruptcy is the result if you slip. It means you don’t nickel-and-dime your way throughout the entire year if you want to get somewhere interesting.
Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
What an excellent reminder for traders! Gunther makes the point that without some level of optimism, one cannot trade to begin with. However, there is general optimism and there is specific optimism. According to Gunther, it’s the venture-specific optimism which can become dangerous if you allow it.
The latter mention of what true confidence is just cannot be ignored here. Do you know how you will handle the worst? If you do, then you’ve got arguably the most difficult element of a trading plan already in place – the adverse exit. The ability to fail gracefully in trading – over and over – is what will ultimately define how long you can stay in the game. Your success may eventually be tremendous, but if you’re unable to handle losing the right way, you’ll be taken out long before the big wins can ever come along.
My advice? Pick up a copy of The Zurich Axioms and get a pen ready to mark up the margins and underline key points. It’s a quick read and one you’ll return to often.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Trading Timeframe Influences Position Size
December 13, 2011 at 8:58 pm
Equally important to locating entries and exits is the matter of sizing your positions. Too much and you can’t stick with the trade plan, aborting in favor of diminishing emotions (whether greed or fear). Too little and you don’t maximize the use of your capital.
While some traders prefer a standard lot size, in this video I’ll discuss the notion that your timeframe for the trade should influence your position size.
Yes, the chart itself will help determine your exits, but that’s also a function of how long you’ll expect to be in the trade.
Check out the video for a quick 5-minute explanation and you’ll see exactly what I mean.
(Direct video link is here for those interested in sharing).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Why I’m Careful Trading Drug Stocks
November 22, 2011 at 10:22 am
I’m really careful with trading drug stocks, there’s just so much to them. You have things to consider like FDA approvals, patient trials, lawsuits, huge news of positive or negative test results, etc. It can get to be a mess, and very few of those items are scheduled news, so they’re usually surprises.
That might sound exciting to some, but any veteran trader like me would tell you that surprises are not what a trading career is built on. Surprises spook us, and full-time traders like me want only to avoid them.
Take the buyout news in VRUS, for example, which sent the stock higher on Monday to the tune of 85%. Catching a pop like that doesn’t sound so bad, right?
Well, considering that technically the stock was set up better for a short than a long, the technical play wasn’t to be long over the weekend. The daily chart had shown both lower highs and lower lows in recent weeks. Those short would have effectively lost their entire position. Ouch!
Among other (more important) things this week, I’m thankful I had no position to begin with, but I just couldn’t help but notice the outsized gap on Monday morning.
Risk in market is required to profit, but great traders identify ways to reduce risk. Buyouts aren’t easy to see coming, but drug stocks just have too much other stuff going on anyway.
Bottom line:Â drug stocks are very tricky when it comes to overnight trades, so be consider the VRUS move another reason to be careful if you’re trading them (and consider options instead of common).
Here’s a closer look at the chart:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Post-Earnings Day Trading Profits
October 20, 2011 at 6:43 pm
Earnings season brings with it a host of opportunities. It includes the potential for new leadership to emerge once it’s all said and done, but in the heat of it, the price action offers some excellent chances to participate in emotional short-term moves via day trades.
Traders expect big gaps during earnings season, and quite a few roll the dice ahead of it in hopes of receiving a market gift. Fortunately though, a trader need not participate in the gap itself to do well.
The post-earnings gap is a regular occurrence for most stocks, although some make a larger move than others. The outlier moves are the ones to watch closest, as they can signal either the beginning of a new move, or an overreaction with reversal potential.
Thursday’s move in PLCM was an example of the latter, as a 30% opening gap to the downside proved to be a bit much. The stock made a huge run higher intraday, although as I’ll show in the video, catching the entire run wasn’t necessary. Instead, grabbing pieces here and there can prove quite lucrative when there’s heavy volume and high emotion present.
In this video, I’ll share with you how I profited in the stock despite feeling like I missed both the big moves (the gap and most of the upside reversal). The fact is, when a stock is in play like PLCM was, there’s opportunity for several kinds of plays along the way. And the exciting part is that this happens nearly every day during earnings season, 4 times per year.
Be sure to watch full-screen on the 720p setting for the HD version of the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Can You Trade Full-Time? Part 4
October 7, 2011 at 9:46 am
Be sure to check out Part 1, Part 2 , and Part 3 of this series if you haven’t already, as they offer some important groundwork for this series.
This is the final portion of the 4-part series on “Can You Trade Full-Time.” It’s one of the most common questions part-time traders ask me, so I wanted to give you a list of considerations as a resource in case you’re wondering if you’re equipped with what it takes to make it.
Keep in mind that the things I’m sharing here are my opinions of things I think are needed in order to trade full-time, but your unique situation may differ, so modify accordingly.
Here in Part 4, we’ll look at risk, your needs, and your trading plan.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
