Being a pattern-based trader for most of my stock plays, I care a great deal about the appearance of a chart.

But…looks aren’t everything.

Take this stock, for example.  Bull flag pattern.  Excellent momentum ahead of the rest phase.  Strong upside volume accompanied the rally, and volume has gotten relatively quiet as price moves laterally.  That’s all great and exactly what I like to see:

Why I Use TC2000

 

But a closer look reveals a glaring problem:  total volume.  Before we discuss “the number,” let’s glance at the 5-minute chart just to get an idea of activity (or lack thereof).  Note the many dashes.  Those are each 5-minute periods where price made no move at all, and in some cases saw ZERO volume!  That isn’t the kind of issue you want to be focusing on in trading if you expect to be able to stay remotely nimble:

Why I Use TC2000

 

I’ll reveal the mystery here… WIRE is the ticker. Average daily volume over the past 21 days (1 month) is just over 89,000 shares.  That’s just not enough liquidity to consider it to be a tradable stock (and by ‘trade’ I mean be active in it with the ability to efficiently enter and exit).  Volume has ramped considerably over the past month, as a month ago it was below 42,000 shares on an average day.  So it is moving the right direction, it’s just not ‘there’ yet.

Why I Use TC2000

 

Here’s the point:
Always consider total volume as a key measure of liquidity (bid/ask spread is certainly another). Total volume gives you an idea of just how much involvement there is for any given day.  It should be one of the very first things you look at when you pull up a chart.

I don’t want to be a big player in any name – I want someone else making the waves and I just want to be able to hop on for part of the ride. When liquidity is this thin, there ARE no big players! That means price can gap easier intraday, and it takes far less to move the stock in either direction.  One poorly-timed market order can run price a few dimes, resulting in awful executions.  One decent limit order could spook prices the other way temporarily.

Thinly-traded stocks might have their place, just be sure you stay extremely small if you’re planning to remain active and you want to participate in them.

I share my trades with subscribers all the time, and I only stick with liquid names (usually 500k or heavier daily average volume). Check out the trial if you’d like to kick the tires.
Trade Like a Bandit!

Jeff White
Take a trial to our Stock Pick Service to get our trades.

Follow @TheStockBandit

My high school golf team used to have a challenge every winter during our off-season.  Coach would allow us to pick any 3 clubs we wanted and we’d play 18 holes with only those 3 clubs for low round and a little reward (plus bragging rights).

Those of you who are golfers are probably already thinking which clubs those would be, but it took some deciding.  On our team were a number of great players, yet very rarely would you find 2 players who selected the same 3 clubs.

It came down to some imagination by those who could hit multiple types of shots with a single club to add versatility.  Putting with a wedge.  Chipping with a 7-iron.  Hooding a 4-iron for maximum distance.

Every club in the bag has its own purpose, and fortunately, in our real tournaments we were allowed to carry 14.

Likewise, there are many different trading styles to choose from, with each one having its own purpose.  You might have your handful of favorites, but there’s no limit to how many different styles you can employ.  It’s a matter of understanding conditions, understanding yourself, and utilizing the best strategy given those circumstances.

Know the purpose of each setup you trade.  Have a plan for why, where, and when you’ll enter and exit.  Understand which situations it works the best, and use that setup at that time.

Build your abilities along the way…add more ‘shots’ to your repertoire after mastering the basics.

By the way… one of my friends shot even par 71 my junior year to take the title.  It was December and only about 45 degrees, and he had 3 clubs.  He was extremely talented and very creative, but when the spring came and conditions were challenging, he felt even more prepared and equipped to play his best with 14 clubs in his bag again.

Don’t make excuses for your trading with all the resources available to you!  Equip yourself properly and see what happens.

Trade Like a Bandit!

Jeff White
Take a trial to our Stock Pick Service to get our trades.

Follow @TheStockBandit

Maintaining hard stops on positions can prove to be a valuable safety net.  Not only can they prevent damage in a fast-moving market, but resting stops also benefit traders who struggle to take action when it’s time to cut a position loose.

Sometimes a time stop can be appropriate, too.  One of the biggest advantages of trading is the flexibility it offers when it comes to how your capital is allocated.  Having capital tied up in a stagnant position means exposure to risk without reward, and can also mean missed opportunity elsewhere.

The type of play being taken can certainly warrant varying expectations in terms of how quickly a trade works.

For example, breakout plays should move rather quickly due to the fresh momentum found once a key level is cleared.  Those are typically found within existing trends, so the continuation of that direction tends to persist.

On the other hand, a reversal play within a trading range can deserve a little more time to work, simply because inherently a trading range lacks decisive price action.  Prices tend to drift back and forth, so those plays naturally may require greater patience while waiting for a move to develop.

In my own trading, I won’t compromise on hard stops, so when a level is broken I’ll close it out.  However, sometimes I need to decide whether a time stop is appropriate and in those cases I’m considering the type of play first.  Next, I’ll ask some critical questions, such as:

Am I spread a bit too thin and now my capital is needed elsewhere for another good opportunity I see?  Do I have very little exposure and therefore have the ability to remain patient with this play?  Does the price action warrant staying with this trade for now (ex: I’m long and there are more positives than negatives in the price action or volume).

Here’s an example.  You caught a nice runup and then price shifts into a digestion phase.  It’s now basing and could eventually lead to higher prices (should it break out to the upside).  However, for now, it’s doing nothing but tying up your capital.  When another setup with some appeal comes along, it’s decision time – is the trade still worth staying in, or should you roll your capital into a setup that looks to have imminent potential?  If you choose the latter, it’s easy to set an alert upon a breakout in the current name to re-enter once it’s back on the move.  In the meantime though, your capital may actually be working for you elsewhere.

As you place your next trade, have some expectation for how it will unfold.  Be realistic, because while we’d all love to see our final targets met within the first day, it’s likely we’ll have to wait longer than that.  And as the trade matures, continually ask objective questions to determine if it has become dead money or if instead it deserves a little more time tying up your capital.

Related:
Implementing the Time Stop

Trade Like a Bandit!

Jeff White
Take a trial to my Stock Pick Service to get my trades.

Follow @TheStockBandit

Among active traders, there’s a bit of a split decision when it comes to trading the same stocks over and over.  Some are for it, trading only a few tickers out of familiarity, while others don’t necessarily see it that way.

Personally, I’m trading a very broad variety of stocks at any given time.  After closing out a position, it may be weeks or months before I’ll trade the same stock again, or it may only be hours or days.

It all depends on how it’s acting.

There’s nothing at all wrong with going back to the well for a repeat trade, provided two things are kept in mind:

– You have an entry designated, along with an exit plan (for both your stop and target levels).
– Your plan is based on price action (not simply because it’s been good to you in the past).

So long as you’re observing those two things, have at it.

Just be very careful returning to a stock you’ve recently traded because it’s easy to revenge trade if you recently took a loss in it, while it’s easy to be overly-hopeful if you’ve just booked a nice winner in that same stock.

With any trade, it’s crucial that you’re staying objective and have a plan in place.

Trade Like a Bandit!

Jeff White
Take a trial to my Stock Pick Service to get my trades.

Follow @TheStockBandit

Probably the single most-often asked question of me pertains to determining the timeframe for a trade.  Once you find a quality chart pattern, how do you decide whether to take it for a swing trade or a day trade?

I never hesitate to provide an answer to this because it’s such a great question and one that every trader faces. Of course there’s no right or wrong way to determine this, but for me there are a few things which play a role in my decision.

First and foremost, anytime the market is generally choppy, I’m less-inclined to initiate new swing trades (multi-day trades).  As a result, during those times I’ll usually shorten my timeframe and go with intraday trades as a preferred timeframe.

When it boils down to just the charts though, for me it comes down to 2 major elements.

Quality of the Base

If the base isn’t quite completed or it looks like it needs more work, I’ll take the trade for a single-day play rather than a multi-day swing.  For example, an ascending triangle which isn’t yet completed (needs tightening) will entail a much wider stop loss.  In that type of situation, I’d prefer to participate in the initial breakout rather than hold for a larger move that may involve substantially more risk.

The history of the stock also plays a role here.  If XYZ has in recent months proven able to generate good follow-through from similar patterns, I’ll go with it for a swing.  However, if it tends to be a 1-day wonder type of stock, I’ll usually opt for the single-day play.

Here’s an example of a stock with a recent history of making 1-day moves as it clears key levels, making it better-suited for single-day plays rather than tying up capital for days or weeks at a time without reason to expect movement:

Potential for a Sizeable Move Relatively Quickly

I want my capital tied up as briefly as necessary in order to get paid for the risk I’m taking.  So a sluggish stock has less appeal to me, knowing that I’ll have that capital committed for a potentially longer period of time and for a potentially smaller reward.

Additionally, if there’s resistance (key levels or prior relative highs) not far above the base in question, I’ll likely lean toward a single-day trade timeframe and just aim to capture the initial breakout.  Here’s an example of that with price challenging a recent level (blue) and a pair of prior levels (red) not far beyond which could interfere with lasting progress on the upside:

For those who are able to watch the market intraday, single-day plays can prove supplemental as a cash-flow strategy.  Risk can be managed closely for those who aren’t prone to gambling or overtrading.  Intraday strategies can also provide the best approach during times of extreme volatility, when overnight gaps are happening frequently, or when high levels of cash are being maintained on an overnight basis.

Swing trading and position trading can tack on big gains quickly in an account when times are good, but having the flexibility to operate on multiple timeframes is an excellent way to diversify as a trader.

Finally, it’s imperative to understand the timeframe you most favor and seek to operate primarily on that timeframe.  If that’s intraday, do it.  If that’s on a multi-day basis or a multi-month basis, do it.  Know which style you favor and which style favors you, and aim to make the bulk of your trades on that timeframe. At the end of the day, we must all trade in accordance with what we’re comfortable with, and that’s something that only you can answer.

Related Posts:
Trading Timeframe Influences Position Size
Trading Roadblocks

Trade Like a Bandit!

Jeff White
Take a trial to my Stock Pick Service to get my trades.

Follow @TheStockBandit

When it comes to the software I use with my trading, it’s important to me that not only does it meet my needs now, but that it’s constantly improving.

Two of the main software programs I use daily in my trading are TC2000, which keeps getting better, and TOS (which also keeps getting better).

Over the weekend, the latest update to TOS added a few items, but a couple of the Watchlist Column features stood out as particularly useful.

The first is a Range indicator, which allows you to see at a glance where a watchlist item (index, stock, future, etc.) stands in relation to the relative high and low for the Day or the Year.  In the example below, the first item is at 14.61%, which means it’s in the lower 1/7 of the Daily Range right now.  For the Year, however, it’s at 98.63%, which is to say it’s right near the high of the year (only 1.37% off the high).  This is very useful to quickly identify strength or weakness across a couple of key timeframes.

Another feature that was unique will apply to option traders, which is the ability to display the Extrinsic and Intrinsic value of an option at any moment.  Intrinsic value is the share price less the strike price for calls, or strike price less stock price for puts.  Extrinsic value shows the difference between the last price for an option and the intrinsic value.  Traders watching specific options can utilize this to see in a different light how much of an option’s value is ITM and how much of its value is being derived by time and volatility.

Here’s a look at the features:

It’s hard enough to find tools you trust with your trading, but when you do, make sure they’re built by people who are committed to continually making them better.

Trade Like a Bandit!

Jeff White
Take a trial to my Stock Pick Service to get my trades.

Follow @TheStockBandit

“Don’t step in the bucket!”

That’s a phrase I remember hearing from my little league days as the pitch would come in and I’d step toward third base with a swing of the bat.  Whiffing the ball was a near-certainty when stepping left, and my Dad would remind me of that.  I needed to be stepping toward the pitcher if I wanted to get a hit.

It’s fall baseball season around here, and right now we’re doing coach pitch with my oldest son.  Last season was t-ball, so it’s a bit different for many of the kids to see the ball flying toward them while in the batter’s box.  Some of them are flat-out afraid of the ball, and they make the same mistake I did – they “step in the bucket” to get out of the way of what they think could be a dangerous pitch, or they back off only to realize it had been a strike all along, ideal for hitting!

Traders are frequently afraid too…

Getting into trades is hard for some.  For others, it’s about staying in their trades and not bailing out too soon.

Here are 3 things I’ve found to help eliminate trading fears:

Get smaller.  This promotes clarity of thinking because the money is no longer by far the greatest focal point.  The smaller the position, the lighter the damage could be if it fails and the smaller the profit will be if it works.  The advantage of that is that it forces a return to the process of good trading, of making quality decisions based on what the price action warrants.  It’s far less about reacting to P&L.  This breeds confidence and helps to eliminate fear.

Trust your preparation.  Working the charts and arriving at a trading plan for every position are two major aspects of preparation.  There’s more to it than that, and for each trader the specifics may vary, but there’s something freeing about pulling the trigger on an order with the confidence of knowing where you’ll get out – for better or for worse.  Make the time to make that plan, and you’ll feel less fear knowing you’re ready for multiple scenarios.

Remember that freak accidents are rare.  Yes, they can and sometimes do happen, but they’re called ‘freak‘ accidents for a reason.  Outside of a scheduled earnings release or corporate conference call, huge gaps are truly rare.  Yet, the thought of holding a position overnight strikes fear in the hearts of many traders.  Some are simply meant to be intraday traders, which is fine, but if you’re a swing trader, coming to grips with the likelihood of a big gap is a necessity.  It might happen, and it might be a gift or it might be painful.  But there will be a ton of trades which never gap huge that are ultimately the difference-makers for your trading success or failure.  Think in terms of sample size, and understand that the outlier won’t skew your results much at all over time even if you do come face to face with that overnight haircut.

Stepping in the bucket is a habit, as is bailing out of trades too early or staying sidelined indefinitely.  Getting out of that habit will take some intentional effort on your part, but it can be done and I hope these 3 steps help.

If you have found other ways to eliminate trading fears, let me know on twitter or Google+!

Take a trial of the Stock Pick Service to get my trades.

Trade Like a Bandit!

Jeff White

Over the weekend, I heard from a trader who was midway through a cross-country move of 2400 miles.  Some 2000 miles into the trip, a wheel flew off his trailer while driving 75mph on a rural highway.  With the trailer skidding and the possibility of losing control of the vehicle (and his life), he was able to pull over and stop without harm.

After being towed to the nearest mechanic, he was told the rear axle was made entirely of poorly-welded pipe(!), that it was a miracle he made it 100 miles, much less 2000.

This trader told me the following:

In my excitement to move, after purchasing this trailer 2 weeks ago I didn’t go through the proper checklist, I didn’t have a buyers inspection performed as I would if I’d bought a used vehicle etc. And holy moly did it bite me. Much the same way I’ve remember back in the day having bought into a stock or two as I’m just finding it for the first time right as it’s breaking through some big resistance, without doing the proper “buyers inspection” checking when earnings are and news and everything else, and it can end up biting pretty hard too.

What a great point!

As you trade today, be sure you have a checklist you’re utilizing for entries and exits, and once you do, follow it.  It’s likely to prevent you some serious pain!

Take a trial to my Stock Pick Service to get my trades.

Trade Like a Bandit!

Jeff White

Follow @TheStockBandit

It was unprecedented.  Never before had it happened to me or anyone I’ve ever seen.

A mid-toothbrushing sneeze!  Never even heard of one.  Didn’t even know it was possible.

But there I was…mouth full of foam, a clean mirror before me, and the sudden realization that both of those things were about to change.

Did I panic?  Did I pout?  Did I argue with my sinuses and declare “you can’t do that, I wasn’t ready!” or anything along those lines?  No, because none of those routes could prevent what was already in the process of happening.  I just went with it and did the best I could to minimize the damage.

Trading can be much the same way.

An unexpected downgrade, a sudden gap, a news-pending halt, a buyout bid, FDA approvals…the list is long.  You cannot possibly foresee all of the scenarios that might play out, but you can be as prepared as possible and commit to making level-headed decisions.

When it looks like it’s going to be bad, go the route of damage control and make the most of it.  Surprises are a part of life and surprises will happen in trading.  All you can do is to be in the habit of moving forward the best way you possibly can.

Take a trial to my Stock Pick Service to get my trades.

Trade Like a Bandit!

Jeff White

Follow @TheStockBandit

TheStockBandit University is something I put together to equip traders for everything the market can throw at us.  It’s been a lot of fun to see the proverbial light bulb go on for those who have completed the course, and has been extremely rewarding to see the difference it has made in their trading.

Profits are certainly nice for them, but it’s the enthusiasm and freedom I see them obtain that I find most satisfying.

Take Jay, for example. He’s been a professional money manager for 2 decades and recently sent me the following note after going through the courses:

Hi Jeff,

I wanted to drop you a quick note regarding my completion of the Stock Bandit University.

As you know from our numerous conversations, I have been professionally managing money for about twenty years using longer term “investment” strategies using equities and options as hedge instruments for income generation. I inquired about The Stock Bandit University to hone my shorter term “trading” techniques, specifically “day” and “swing” trading.

I’d like to let you know your course is by far the most in depth and educational course I’ve ever taken. And believe me, I’ve had a ton of professional training in my twenty year career. The structure of your course is perfect for beginners and more experienced traders alike. It touches on important issues regarding a “trading” career; topics such as proper position sizing, money management techniques, and trading psychology and most importantly, a trading plan. As you know, I purchased the course for myself although my son, who is currently in college and has no trading experience, has been studying your material as well. I believe your courses along with some coaching will allow him to start his own trading business. In short, I would highly recommend your courses to anyone who wants to start or improve their current results from short term trading. The material is invaluable.

Lastly, I just wanted to thank you for your dedication to making yourself available as a personal coach and mentor. It’s apparent to me that you have a gift of helping others. I really appreciate your enthusiasm for trading, but more so your willingness to help others. I really enjoy working with you and I look forward to continued success.

Best Regards,

Jay Sivel
President
Sivel Capital Management, Inc.

Wow!

I’m honored that someone with such extensive market experience sent me this.  I’ve spoken with Jay several times and he’s all class.  It’s highly rewarding to know that I’ve helped put him on a better track going forward.

As the second half of 2013 arrives, it’s a perfect time to look back at how your year has gone so far.  For most, some adjustments are in order.  It’s time for a change that promotes growth and improvement and better skills.

If you’re looking to make the rest of 2013 great, this is the place to get the ball rolling.

We’d love the opportunity to help you as well. Whether you’re just transitioning into trading and need to be brought up to speed through our Basic Course, or if you’ve got some experience and just need help getting to the next level with our Advanced Course, we’ve got something for you.

Best part is that you can start accessing the course materials in just a few minutes and gain lifetime access.  I’m also here to help along the way and it comes with zero risk to you if you’re interested in kicking the tires.

Have a Happy 4th of July, and here’s to your improvement in the 2nd half!

Trade Like a Bandit!

Jeff White
TheStockBandit University