All Entries Tagged With: "Swing Trading"
Day Trade or Swing Trade? Progression of a Play
July 26, 2011 at 11:21 am
One of the things I’m asked about quite often is how I decide my timeframe for a good setup. Will it be a day trade or a swing trade?
That’s a great question, and it took me a long time to figure that out. I go in-depth in the Advanced Trading Course at TheStockBanditUniversity.com to explain it fully, but one component in the decision is the pattern quality. That’s going to encompass the risk associated with the trade, which means entries and exits are more defined by a cleaner, mature pattern vs. one which is simply building.
So rather than just talk about it, I wanted to show you an excellent example from last week of how a stock can go from being simply a day trade candidate to a swing trade candidate when the pattern matures.
I had run across CROX pulling back from its 7/7 high on 7/11. The uptrend was still very much intact, and this looked to be a potential dip to buy once the dip was completed. Here it was at that time:
CROX needed to be watched a little longer before a play was evident, as I wanted to be able to draw a clean trend line along the highs and then go long on a push through that trend line. Sometimes you have to wait on the market. It took a couple of days, but I finally listed it for subscribers on the night of 7/13 for a day trade the following day. It wasn’t a fully mature pattern, so I was only interested in grabbing the next pop if it occurred the next day (7/14). Here was the setup, which didn’t trigger (it stopped a few cents shy of clearing the trend line, therefore no trigger):
Despite not triggering an entry for a day trade, I kept CROX on the radar nonetheless. After two more daily bars had been painted on the chart, a cleaner trend line could be drawn, and the pullback had the appearance of greater stabilization. I then set up a swing trade since the pattern was more mature, the pivot was more evident, and a stop loss area was now well-defined. Here was the setup I posted for subscribers along with a $26.60 entry trigger price, a $25.70 stop loss (just beneath newfound support), and upside targets at $28 and $29:
From there, CROX triggered an entry on 7/18, dipped for a day on weak volume, then got back on the move. With Target 1 at $28, the stock stopped just a few cents shy of hitting that level on 7/21, creating a bearish engulfing bar. However, I stayed with the trade since volume didn’t confirm distribution, and the following day the stock blew through the $28 first target on much heavier volume.
CROX pushed all the way to Target 2, topping out exactly at $29 on Monday. That offered a nice quick 9% gain, allowing me to book a solid profit ahead of the August 1st earnings announcement (which I always avoid). Here’s a look at the final bar of my trade:
Several takeaways…
Allow setups to determine your trade timeframe. I’ve said it many times, but the smaller the pattern, the shorter the trade should last. Bigger patterns can be trusted for more, it’s just that simple. This started out as a day trade candidate but evolved into a swing trade setup after the pattern grew and matured.
Be patient as patterns build. I stalked this stock for several days before placing a trade. Waiting for stocks to “come to you” is the best way to improve your odds of success. Risk management is crucial, pattern awareness is important, and position sizing is not something to ignore. However, it all begins with making a limited-risk entry, so timing is everything. Don’t rush the process.
Monitor the volume in relation to the price action. This stock made a few moves which, based on price alone, would have made me wonder. The trigger day saw a weak finish. Four days into the trade a bearish engulfing bar could have spooked me out. But neither were confirmed by volume. Instead, I kept seeing volume expansion along with advances in price, which gave me conviction in the trade and allowed me to stick with it.
Stick with good trades and don’t get shaken out. Along with the previous point on conviction, staying with a good trade can be tough. The price action or the overall market activity can cause premature evacuation. Stick with your trade plan and what the overall trade is doing. If it pulls back but volume’s weak, stay with your existing stop. It could just be a head fake on the way to much higher prices.
Hopefully this walk-through helps you understand better how I determine my timeframe for a trade. Beyond that, this review should also give you some insights into managing trades along the way, because learning to assess how a trade is developing is a critical skill you must possess for trading success.
If you want to know what I’m trading tomorrow, stop by the site and begin your trial to our stock pick service.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Strong Coffee
July 11, 2011 at 9:39 am
Truth be told, a Slurpee is the beverage that’s actually on my mind (happy birthday 7-Eleven), but if you’re looking at the charts of anything drinkable right now, it’s all about coffee.
Granted, it doesn’t quite have the same ring to it as the 1999 Bubble or the Crash of 1929 (or ’87), but the Great Coffee Rally of 2011 is on.
Names like CBOU, JVA, PEET, GMCR and SBUX have been ramping in recent weeks, putting them squarely on the radar of momentum players far and wide. This isn’t your typical grind (no pun intended) higher. These things are hotter than a car hood in the Texas summer.
Like quite a few other stocks, most of these could certainly stand to put in some rest here in the short term, but once that’s done, these are among the strongest (no pun intended) stocks in the market. Let’s take a closer look at each one.
CBOU – Nice pick up in not only activity, but of course in price as well since the higher low was established in early-June. Next levels are $14.30 then $14.50 to set this one free for higher prices.
JVA – The July run alone has been more like a quintuple shot of espresso than your average cup of coffee. We’ve also seen a 323% gain since June 6th – how’s that for a wake-up? Incredible short squeeze action here and way too extended at the moment to consider an entry, but certainly deserves a spot on the watch list for one of these days when it has settled down and created a new pattern.
PEET – More of a steady grinder, this one has actually built a couple of bases along the way up. It’s not in a place where I’d be getting long, but once it puts in some rest, it’s certainly one to revisit. Lighter volume than the others.
GMCR – At $95 per share, it’s a little rich (no pun intended) for some, but the uptrend is steady and this one continues to run. This year alone, we’ve seen 3 breakaway gaps which never saw attempts to get filled, serving as reminders that this one is very strong.
SBUX – The grandfather of them all might be kinda old, but he’s still got it! SBUX left a multi-month channel with a solid push higher a few weeks ago, tacking on nearly 15% over the past month. Currently it’s trying to put in a little rest, which is healthy to see. Once that’s done, don’t be surprised if another leg higher begins.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
The Naked Truth About Your Trading
July 5, 2011 at 1:18 pm
If I asked you how your trading was last week, or actually even if I let you pick any other week of June, what would you tell me? Something along the lines of:
“…well, last week wasn’t really a good week to do that because I had (this or that) going on…”
That would be a typical response, and it’s one I’ve been guilty of answering with in the past. Excuses about your trading only delay the inevitable truth though, so they’re really not worth making. The fact of the matter is that your performance last week is the naked truth about your trading.
Uncomfortable? That’s what you’ll have to face if you want to get better. Your call.
You’re going to have to confront reality, and take a “typical” week and see if the results are anywhere close to what you’re wanting. If they aren’t, then your trading doesn’t look good naked and needs some help!
Your profitability as a trader is the bare naked truth about how you’re doing. Get equipped if you need to in order to improve. Get committed to cutting losses better or planning with greater precision. Get inspired if that’s what you need to move beyond mediocrity. But don’t sit there idle and expect your results to magically change.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Obscurity and Opportunity
June 28, 2011 at 8:57 am
Prolonged market rallies have a way of pulling obscure stocks off the sidelines and getting them involved in the action. It’s the effect of “a rising tide lifts all boats.”
And that’s entirely fine. It’s nice when new names are added to the mix of active stocks.
The market turned higher in March 2009, and since then we’ve seen considerable progress. Tons of little names have entered the fray, paying astute traders along the way (unintentional rhyme).
While I do have some restrictions on what I will and will not trade, I don’t mind trading some of the more obscure names when they’re set up for moves – so long as they exhibit the proper traits:
Size Matters
Dirt-cheap, thin stocks are not worth trading. They carry much greater potential for pain than profit, despite their inexpensive price tags. But growing stocks (price & volume growth, not necessarily earnings growth) are another story. Every big run starts somewhere, right?
There’s often a relationship between ‘unknown’ and ‘underowned’ and that can spell exceptional opportunity. Under-the-radar stocks often times begin to exhibit technical characteristics worth noting, raising interest in them in such a way that they’re the up-and-coming stocks. Naturally, they’re little-known, and that means they’re underowned by institutions (the ones who really move stocks). As they exhibit some staying power, interest in them grows. That brings both price and volume up to tradeable levels, placing them squarely on the watch lists of traders like you and me.
(I’m talking to mostly guys here, so ladies please bear with me on this next analogy. I want these guys to “get it” so they know what I’m talking about.)
Think of that co-ed in college who returned from summer looking far better than the previous semester. What happened? Suddenly she has the attention of many more guys, has more dates, and as competition for her time expands, so does her confidence. Now that she’s being noticed, she’s unlikely to regain the 15 she lost and return to the sweats-with-no-makeup look again. (Nothing against the natural, casual look… just stating that a change is likely to last in this case). She’ll quite likely take care of herself better, and interest in her will be maintained as a result.
Stocks sometimes follow a similar path.
Beware the Flash in the Pan
As the phrase states, “one day does not a trend make.“Â Therefore, it makes sense to make a stock prove itself – at least for a little while – before taking a position.
The single-day spurt higher on news will bring no-name stocks into view on a regular basis, but most of those are just having their 15 minutes of fame. If what you’re seeing is just a knee-jerk response to a headline, there’s limited opportunity and that stock is likely to drift right back into obscurity. Avoid those.
Instead, as a stock begins to earn respect (and attention), watch for the key characteristics that it’s starting to trend: expanding volume, higher highs and higher lows, and a good price/volume relationship. These stocks are much more likely to stick around and offer you multiple opportunities to participate and profit.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
YOUR Trading Plan, Part 3
June 15, 2011 at 7:52 am
In Part 1 we discussed the importance of discovering YOU. In Part 2, we looked at the need for defining risk so that you know “the number” for every trade you make.
Here in Part 3, let’s see what the remaining process might look like.
Playing Favorites
In accordance with what you’ve already discovered about yourself, the first step in the next phase is to identify 3-5 patterns you’re comfortable trading. This chart pattern page is a great starting point. Pick out a few you think you can locate with ease, and you can always build or add more later. The aim is to master a few plays which you can rely on, and then build more into your arsenal later.
Next, set up some watch lists for each of those patterns. Add stocks into the appropriate list (ex: ascending triangle candidates) and remove them when they fail to meet the designated criteria. Filter out low-priced stocks or thinly traded issues (I prefer to avoid stocks with daily average volume below 500,000 shares). This is just another way to narrow down your list. Draw trend lines when necessary, and make notes when you see important technical events unfolding. My stock newsletter highlights actionable ideas with identifiable patterns nightly which you may be seeking. But regardless of where you get ideas, the point here is to cultivate them on an ongoing basis.
At this point, it’s time to eliminate stocks which misbehave. These are stocks which gap frequently, or which tend to make sudden, adverse moves, or which have a history of breakout failures immediately after clearing resistance levels. Some stocks my either be too volatile or too sluggish for your liking, so get rid of them. It’s up to you, but by studying your lists closely on a regular basis, you’ll identify certain “personalities” which seem to jive better with you than others, and again this will narrow down your list by eliminating those which are not a fit.
All About Priorities
Finally, designate a way to prioritize plays. It might be the pattern itself (maybe you like ___ pattern better than ___ pattern). Or maybe it’s a certain price range preference (ex: you might like stocks in their $30’s better than single-digit stocks). It may be based upon the cleanness of the pattern – for me this is important. I like cleaner patterns, just because they are that much more concise on when I should be IN vs. OUT of the trade.
Whatever you choose, have a hierarchy for which plays you seem to do better with than others, as this will help you narrow down *your* trades without putting you into the first 25 stocks you see. It’ll also help you decide which plays to hold onto and which plays to rotate out of when you see a more fitting opportunity for your capital.
CONSISTENCY is the key. The actual selection you make isn’t nearly as crucial as many think. It’s more important to be decisive and pick one and manage it properly than it is to flip/flop between one strategy and another. The success comes in having a plan and putting it to work over and over through time, like a batter knowing he’ll have 1000 at-bats. You want to eliminate errors, and those largely come from indecision and inconsistency, like swinging at pitches outside of your hitting zone.
I hope this series has been helpful to you and has answered some lingering questions which pertain to your unique situation. There IS a trading style for you, but you have to ask the right questions, put the right kinds of plays into your routine, and then consistently execute the plan you’ve set forth.
Should you need additional coaching or assistance for your trading, contact me and I’ll be glad to show you several solutions.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
YOUR Trading Plan, Part 2
June 14, 2011 at 9:36 am
In Part 1, I put forth some questions that need to be answered by you in order to move forward with any lasting effect. Those help you identify what it is you’re after, what styles you should pursue, and which approaches you should completely avoid. Let’s proceed.
Start With the Basics
Understanding your preferences, biases, needs and availabilities will clarify your basic approach.
For example, if you were trading a retirement account (non-margin, and thus no short selling, and you prefer the long side and capturing segments of uptrends, you’ve got a starting point. You might narrow your focus to a long-only style based on patterns such as resistance breakouts, as well as bullish continuation patterns like bull flags, bull pennants, and ascending triangles. Those are easily identifiable patterns, which is nice, so you should have a steady flow of candidates to suit your needs.
See what I meant in Part 1 when I said trading allows you a custom-designed approach?
Go Big AND Go Home
Next, decide on a risk amount per trade, in terms of potential dollar loss – not in terms of cash outlay. Think in terms of “real risk” or what you’re truly risking before exiting on the downside. This is the amount you’re willing to lose if/when you are wrong.
That sounds negative, but it’s crucial. Whether it’s $200 or $500 or $5,000 doesn’t matter, so long as it’s a suitable amount of risk for your unique situation. The amount itself is of secondary importance to simply having an amount. It’s a starting point for every trade.
Too many traders fail to begin with an amount of risk they can stomach, and they trade too big and pay the price. That’s no good, so always aim to trade within your means so you can survive and make good decisions.
For example, let’s say your risk amount is $200 per trade. This is what you’re willing and able to risk (lose) if the play doesn’t work out.
So take a trade in XYZ with a pattern that suits you, like an ascending triangle pattern. A breakout might be at $18, and a failure might be at $16. So you could go long this hypothetical trade at $18 with a $16 stop. That’s a $2 per share stop, and you’ll risk $200 per trade, so you could buy 100 shares. Easy math. It doesn’t have to be complicated to be helpful to your trading.
See how knowing *the number* for you can help you understand how much to be trading? The strategy itself is based on the pattern confirmation (entry) or failure (stop loss), but your position size comes down to what you’ll risk per trade. Few traders incorporate this into their plan, but if they did, they’d be miles ahead and avoid many painful trading disasters as well.
In part 3, I’ll wrap this up with some specifics for your overall process. Until then, decide on some basics which suit you and figure out your ‘number.’
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
YOUR Trading Plan, Part 1
June 13, 2011 at 12:42 pm
You are unique (and you don’t need me to tell you that). The desire to find a trading plan that’s right for YOU is of paramount importance, because we are all a little different.
When it comes to your chosen trading methodology, you need to determine a number of things about yourself before going forward. These are things like your trading timeframe, risk tolerance, directional bias, and desired setups to pursue.
That’s the beauty of trading, you know. The market offers you the ability to custom-design an approach that works for YOU. Ask yourself questions such as…
* Will you be day trading for smaller but more frequent profits, or will you be entering positions for several days or weeks?
* Will you be comfortable keeping tight stops of just a few percent, or are you comfortable allowing more breathing room for trades in order to reach a more distant profit objective?
* Are you comfortable short selling, or do you prefer to only buy stocks?
* Are there specific patterns which you really like to trade or have found success with, such as buying dips within uptrends or perhaps buying breakouts?
These kinds of questions which can only be answered by you, but you MUST determine those answers in order to be effective. Those answers are paramount to your finding the proper strategy for YOU. I cannot emphasize that enough. Otherwise, you’ll be chasing different strategies by the day, but never knowing what’s working best and what to completely avoid. And if you’re dabbling in strategies which don’t suit you, you will not trust them or commit to them.
So when it comes to your trading plan, the more clear you can be on who you are, the more clearly you can define what it is you should be trading – and (equally important) what you should NOT be trading. That last part gets many traders in trouble, they stray into unfamiliar territory and find themselves making poor decisions which prove costly.
Since this is Part 1, there’s obviously more to come. But before the next part arrives, you have some homework to do – answer those questions above. I don’t want to know the answers to them, but you’re going to need them. Otherwise, the info to follow will carry no significance to you, rendering your time (and mine) completely wasted. Don’t be “that guy!”
I’ll see you in Part 2.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
