It’s part of my trading style to like more mature patterns for swing trades.  Generally, smaller patterns/bases produce moves of shorter duration that larger patterns/bases, which can produce longer-lasting moves.  For this reason, I will take smaller or less-tight patterns for single-day plays and the more mature or tighter patterns for swings.

I’m conservative either way though.  My first priority in each trade (and in my overall trading) is to protect my capital.  That’s why I like setups with nearby stops, and it’s why I like to maintain resting stops as safety nets on my positions in case price happens to undergo a distinct change of character post-entry.  My second priority – which I feel is best attained when the first priority is being met – is to find profitable trades.

Some traders go in the reverse order, and take on considerably more risk than I do.  They may get paid for it too, or they may pay dearly for that added risk at times.  What matters most is consistency in your approach.  Regardless, these traders will often turn to the most volatile stocks in the market because that’s where the big moves will tend to happen most frequently.

Personally, I prefer to only venture into the more volatile names when conditions are exceptional.  By that I mean when there’s a well-defined pattern, it’s tight, and price appears coiled for a nice move.  I don’t throw caution to the wind and abandon my risk tolerance, I just make sure my sizing is appropriate for the distance between entry and stop, and make sure the pattern itself is tight and a move looks imminent.  All key ingredients (I feel) for a good swing trade.

This week, there were some nice trade setups in YELP and FEYE – both of which are lively stocks on the more volatile end of the range.  They’re liquid, but both move a lot.  YELP has had multiple $15 moves just YTD.  FEYE has proven to be very fickle and reversal-prone lately.

So when these setups emerged, I liked the patterns and the risk/reward for each, and set up trades in both.  However, once they triggered and got going, you may have noticed I was pretty quick to adjust my stops – aggressively.

With YELP, the initial breakout didn’t blow me away, so with the broad market hesitant to continue its recent run, I’ve felt it was important to ratchet up my stop as the trade progresses.  So my adjustments there were tied to both the individual stock’s behavior and the overall market.

With FEYE, it broke out in a more convincing fashion, closing well above the descending trend line and on nice volume expansion.  I tightened to a multi-day low after the breakout day, expecting follow through based on the first day’s action and sensing a chance to right away reduce my risk in the trade.  Then it reached target 1 on just day two (Tuesday), leaving it within reach of target 2.  I like to take off 1/2 at target 1.  Then I tightened again but this time used intraday support in order to secure more of my open profits should price happen to reverse.  It had been an excellent move, so why not raise the safety net while waiting for a little more?  It hit target 2 on day 3, which is the same rhythm it has shown on a few other occasions so far in 2014.

I am willing to passively leave my initial stop in place on many occasions until price has made a significant move, particularly when the stock tends to be steady and has not been prone to reversals.  However, I’m quicker to make adjustments to my stops when the character of the stock warrants more active management.

Trading can be scientific and methodical, but experience helps teach you the ‘art’ side of it.  My hope is that by sharing these thoughts with you on two examples from this week that you can make better decisions in your own trading when choosing between being more active vs. passive.  Let the chart serve as your guide!

Trade Like A Bandit!

 

Jeff

 

The information provided by TheStockBandit is for educational purposes only and is not a recommendation to buy or sell securities. TheStockBandit is not responsible for gains or losses incurred as a result of your decision to trade stocks listed here, and trading involves risk which can cost you money. The information given is intended to be an aid to your own investment process, and your investment actions should solely be based upon your own decisions and research. Copyright 2013 TheStockBandit.com.

I don’t even know how many charts I’ve read over the years, but there are a couple of commas involved. I’ve been able to identify quite a few patterns and benefit from them, and of course I’ve been wrong a lot too.

What’s funny is that in this game, as long as you’re managing your risk well, you can sometimes be dead wrong on the pattern and still make money. Let me give you an example.

A few weeks ago, I noticed HAR as a stock which had cleared an important area ($42 in early August) and then had settled into a rest phase. I drew my trend lines and recognized a wedge, which was also a pennant after the advance in price. I set up a buy for $46 to get long on a return of strength.

Here’s a look at the chart of HAR when I set up the trade:

Why I Use TC2000

That buy triggered the next day, but the stock couldn’t get going. It actually churned for the next 6 sessions, including a test on day 5 of my stop, holding just a short distance above it to keep me in the trade. That dip was a test of support, but I was leery because I considered this to be a failure of the pattern and I expected to be taken out of the trade for a small loss.

Here’s the HAR chart at that point in the trade, and I began to realize the pattern was now a large channel and still intact:

Why I Use TC2000

This gave me a bit more confidence in the trade when the next day price lifted to create a little breathing room to my stop. It showed a bit more follow through, then held for a few days before hitting Target 1 on Thursday for a 5.2% profit.

Here’s a look at HAR after the return of strength:

Why I Use TC2000

This gave me an opportunity to lock in some gains and tighten my stop for remaining shares, which I did. Then on Friday, the stock rallied again, but hesitated $0.14 shy of Target 2, which was set at $49.60. Rather than hope for an extra few cents while risking more than $2 (my stop had been moved to $47), I booked the 7.4% winner and notified you Bandits of my adjusted exit.

Here’s a look at HAR as it currently stands:

Why I Use TC2000

This stock may still hit Target 2, but with it being up now over 9% in the past 7 sessions, it’s due for a rest and it has approached a congestion zone from late spring.

When you’re setting up a trade, you evaluate the price action. But that evaluation doesn’t stop once you’re in. You have to keep asking questions of whether the risk/reward is worth staying in the position. This one had come to a point where stretching for a tiny bit more wasn’t worth the risk, so I took the solid profit with a smile. After all, my initial diagnosis of the setup was wrong, but I was still able to book a nice gain.

Trade Like a Bandit!

Jeff

If you’re looking for excitement, this isn’t a post for you.

This is a recap of a trade which actually yielded nothing – but there were some good lessons tied to it. Plus, I certainly wouldn’t be bragging about a breakeven trade.

The Setup

Let’s go back to August 12th, the day I originally listed AMGN for a swing trade buy. The stock had outperformed the NAZ since June 11th with a 22% gain (vs. the NAZ up 7.5%). It clearly had momentum and had been able to put in some well-deserved rest for two weeks. I noticed the descending trend line from the high, and set up a buy upon a break of that trend line at $83.00 and shared it with you in the Broadcast.

Here’s a look at the chart of AMGN when I set up the trade:

Why I Use TC2000

That buy triggered on Aug. 14th, and over the next few weeks the stock grinded higher but never really gathered momentum. Three times it posted a new 52-week high, only to immediately hesitate afterward.

Adjustments

Having sat in AMGN for a few weeks with limited progress, I tightened my stop loss from $80 (initial stop) to $82 on Sept. 3 in order to reduce risk. The stock had just completed a multi-day pullback and it was appropriate to tighten up after strength returned. I tightened it again to $83 a week later after the stock had tagged the prior high to the penny, only to reverse lower. This looked ominous, so I tightened to my breakeven.

The AMGN chart with my stop adjustments along the way:

Why I Use TC2000

This gave the stock a little wiggle room to keep me in the trade should it turn back up, but it eliminated my effective risk in the trade. A stop out wouldn’t pay me a thing, but for a trade which never took off, neither would it cost me anything.

The Exit

I was taken out of the AMGN position at $83 on Wednesday, and since then the stock has broken down further with a solid breach of the multi-week uptrend line. Where it goes from here, I don’t know, but I sure don’t view this action as bullish so I’m out.

Here’s a look at AMGN as it currently stands:

Why I Use TC2000

On some trades, breakeven isn’t bad. You enter a great setup, you give it room, you stay patient, and it just doesn’t ever get going. This was one of those.

Hopefully by looking back at this trade, it’ll help you manage your next position better when it acts sluggish. If you’re seeing modest rewards but after ample time you’re really not getting paid, tighten up. Odds are, if it turns lower you’ll be glad you did.

Trade Like a Bandit!

Jeff

Thursday allowed me to close out an excellent 11-day trade in JCP which paid 12.9%.

As simple as that sounds, there were several steps involved, including patience, so I wanted to walk you through the process of this trade from beginning to end in hopes of helping you with your next position.

Perking Up

With JCP having endured a significant downtrend from February to July, the stock sat more than 55% off its highs. That alone is never reason to enter a buy, but it can indicate the shorts are overconfident and the stock has become beaten-down enough to produce a bounce.

So, after seeing a short-term higher low established in early August, it was placed on my watch list. Not for a trade, but simply to monitor in case this developed into a change of character.

Here’s how JCP first looked when I noticed it and put it on watch:

Why I Use TC2000

Pressuring Resistance

Having then rallied past resistance, JCP then entered into a narrowing base just beneath a short-term level. Dips were getting bought a bit more aggressively, creating some higher lows over the previous few sessions.

I set up a buy for $24.80, which triggered on Aug. 23. Here’s a look at the chart I shared with you when I listed the trade:

Why I Use TC2000

Producing Gains

The initial trigger wasn’t met with great enthusiasm, but neither did the stock fail its breakout attempt in grand fashion. It was quiet, so I stayed with it without panicking. Just a few sessions later, Target 1 had been reached for a pretty quick 8%.

The stock pushed just 8c past that level before seeing some mild profit-taking, which ultimately allowed me to tighten my stop for remaining shares. Here’s a closer look at the chart as of Target 1:

Why I Use TC2000

Pausing Before Payoff

The profit-taking was mild and took place on quiet volume, which meant virtually zero pain but also required a little patience. This stage of trades always brings on the questions… “is it done?”… “should I just book this and move on before it pulls back deeper?”.

It’s normal to wonder those kinds of things, so if you had those same thoughts, understand it’s part of the process.  Don’t ever let down your guard and stop evaluating the price action – it’s good to question whether a trade is worth staying with!

But I stayed with my tightened stop and waited for the stock to either roll back over and stop me out or push higher and prove itself. That resulted in the final push, worth 12.9%.

Here’s a look at the rest phase before the pop to Target 2:

Why I Use TC2000

This was an excellent swing trade which paid off quite nicely. It took some good initial analysis to detect the play, it took proper management of the position once it was on, and it took a little patience to stick with it through the mid-trade lull before the final pay day.

Trade Like a Bandit!

Jeff

Week 18 is in the books, and overall it was a solid week of trading.  Despite not taking a lot of trades, it was a profitable week thanks to caution on the long side and some shorts which fared well in the decline.

I wanted to offer a video recap of the trades as I have so far each week this year.

This show-and-tell look at the trades I took this week should give you a feel for not only how I managed my trades, but also the kinds of setups which have been working well of late.

Be sure to view in HD (720P) and full-screen mode for best quality in the video.

Trade Like a Bandit!

Jeff

Week 17 is in the books, and overall it was a solid week of trading. The indexes held some important levels and rebounded sharply, putting the bulls back in the driver’s seat.

I wanted to offer a video recap of the trades as I have so far each week this year.

This show-and-tell look at the trades I took this week should give you a feel for not only how I managed my trades, but also the kinds of setups which have been working well of late.

Be sure to view in HD (720P) and full-screen mode for best quality in the video.

Trade Like a Bandit!

Jeff

Week 16 is in the books, and truth be told, I would have been better served to have sat on my hands!

I wanted to offer a video recap of the trades I took. As you’ll see, I was stopped out several times on head-fake types of entries with stocks showing extremely limited follow through in either direction.

On weeks like this, it’s nice to be limiting risk. Each of us will encounter stretches where failed trades happen more often, and this was that week for me. I found a few winners, but the key for me was limiting my losses in order to maintain my objectivity and minimize the damage. This is where setting ego aside can truly save you in your trading, as backing away with smaller size on messy weeks will leave you digging shallower holes by digging with a smaller shovel!

This show-and-tell look at the trades I took this week should give you a feel for not only how I managed my trades, but also the kinds of setups which have been working well of late.

Be sure to view in HD (720P) and full-screen mode for best quality in the video.

Trade Like a Bandit!

Jeff

A Bandit subscriber recently asked me about dealing with gaps on swing trades. This was a great question, so I wanted to be sure to share this exchange with you in hopes of you adding your thoughts on this as well.

Background on the Situation:
This question came in reference to a swing trade I had listed here on Sunday night. MGA had fallen below an ascending triangle pattern the previous week and bounced back up to test the breakdown area only to stall out. This appeared to be a potential short-term lower high (and failing bounce), so I listed it as a short sale heading into Monday’s session if it broke the rising trend line at $45.20 (see chart).

This was to be a swing trade, which is an overnight position – at least until target or stop levels had been hit. My swing trading strategy allows for some gapping beyond my intended entries, but then I scale back my size the further a stock gaps. This helps offset the added risk with a wider discrepancy between my actual entry and my initial stop loss.

In the case of MGA, it gapped 2.8%, warranting only a partial position of 1/4 size. The gap was filled quickly, and I ultimately stopped out Tuesday as the bounce continued, taking a loss on this very small position. Nonetheless, that’s the setting here under which this trader asks the following questions.

Question:
Jeff, most of the time when I set up my bracket orders for swing trades my initial trigger to open a position is a stop limit order. I use the limit order portion when I am working during the day and cannot actively adjust for gaps, as this way I don’t by default enter the trade in less than ideal conditions. In the case of MGA which had the immediate pullback, I was in moments after the opening. So my question is in general trades like MGA that return back to the original trigger levels should I let the trade continue or would I be better off passing on the trade?
Thanks

Answer:
Great question. I take it from your question you have mobile access or some way to get in and make an adjustment to the trade once you’re in. Some brokers offer several levels of sophistication with regard to managing orders like this, but if you are not inclined to complicate things then I’d say on trades like this just pass on it. The best trades for me tend to not come back to the trigger or go against me right off the bat. That is more characteristic of the losing trades I make.

I’d say to keep things simple, if the stock gaps beyond a certain amount you specify, then just skip it, or next-best scenario would be to just close out the position as soon as you notice you were filled. Either you got a price you didn’t like or you have more shares at that price than you want, but the point is you recognize it’s not the trade you had intended to take. Closing these out may mean a small gain or loss, but I suspect those will wash out over time and overall you’re sticking with an overall gap strategy which is suitable for your unique needs.

How do you manage gaps on entries when you’re away from your screens?
What would you tell this trader?

Trade Like a Bandit!

Jeff

Week 15 is in the books, and while it was far from impressive for the overall market, our trades fared well.

I wanted to offer a video recap of the trades I took. The previous week wasn’t great for me, but week 15 was worth trading and I was able to limit losses on failed trades while booking some solid gains in those which worked.

This show-and-tell look at the trades I took this week should give you a feel for not only how I managed my trades, but also the kinds of setups which have been working well of late.

Be sure to view in HD (720P) and full-screen mode for best quality in the video.

Trade Like a Bandit!

Jeff

Week 14 is in the books and it wasn’t very exciting. Overall, the market slid a little and we saw a lack of momentum. I took fewer trades than usual, based partly on some setups gapping through my intended prices, and in other cases it was a matter of some patterns simply never confirming to trigger an entry.

I wanted to offer a video recap of the trades I took, and I gave back a little ground on a net basis. However, my focus on risk management left the damage at a minumum, so I’m eager to get to next week and make up the difference.

This show-and-tell look at the trades I took this week should give you a feel for not only how I managed my trades, but also the kinds of setups which have been working well of late.

Be sure to view in HD (720P) and full-screen mode for best quality in the video.

Trade Like a Bandit!

Jeff