Last week I closed out a trade in BAX from the long side, as it hit my raised stop to take me out for a 1% loss.  This is a closer look at the trade in review, knowing it will offer us some lessons and reminders which will aid us going forward.

BAX had been acting rather well.  Following a sizeable selloff between April and late-May, the stock was able to stabilize.  It briefly broke lows on July 1st, only to reverse higher along with the overall market.  From there, a slow but persistent uptrend began, with a solid series of higher highs and higher lows being established on the daily chart.

More recently, the stock was coiling just beneath short-term resistance, and a breakout appeared imminent with potential for some upside acceleration to occur if so.  With an uptrend in place, a well-defined entry, and a stop loss not far below, I liked the setup and the potential for reward relative to the risk I’d be taking.  Here’s the original chart I posted with the play back on August 8th:

Chart courtesy of StockFinder

It triggered an entry the following day, and started to gain some upside momentum.  Then it stagnated, pulling back to repeatedly test the breakout area for the next several sessions.  On August 17th (last Tuesday), it began to turn higher once again, but with limited enthusiasm.  That proved to be a short-lived attempt, and soon after I was stopped out as my raised stop loss was reached.

The problem with BAX wasn’t that it was sending mixed signals, but rather that it was requiring so much time to get going. I realized before I put the trade on that it would likely be a slower mover, but that revealed the biggest challenge with this trade:  walking the line between staying patient with the trade and recognizing that it was going nowhere.

The best way I’ve found to deal with that is to essentially implement some time stops.  By that I’m not referring to hard-and-fast dates whereby if I’m not stopped out or up a certain amount that I just blindly close out the trade.  Rather, it’s more of a finesse process.  It’s about gauging the day-to-day movement with what should be expected.  In the case of BAX, it had already rested as much or more as it did on previous pullbacks, yet the breakout yielded only a fraction of the upside which previous advances had shown.  That was one cue.  Another was the fact that volume remained light on attempted advances once I took the trade, signaling there was less momentum and lighter overall interest in the stock.

So through time stops, when some time goes by and the stock stagnates, I nudge my stop higher.  In this particular trade, twice I adjusted my stop loss to reduce risk.  It’s as if I’m trying to “crowd” the trade in such a way that either it gets moving, or it takes me out.  The idea is not to leave capital tied up in a position that’s going nowhere.  Some patience is necessary, but in this case with multiple other factors confirming that the trade wasn’t progressing as originally expected, a little impatience helped me manage the trade.

It’s no fun being wrong, or getting stopped out for a loss (no matter how small), but as traders, it’s imperative that we keep moving.  We can’t become married to a stock that’s going nowhere, and we don’t want to.  The whole idea is to put capital at risk when there’s an expected reward.  Anytime that expected reward isn’t panning out – especially when given multiple opportunities – it’s probably time to tighten up or lighten up in the trade.

Ultimately, BAX proved it wasn’t ready to go, and I took a very modest 1% loss in the trade.  As I write, the stock still hasn’t reclaimed the breakout zone, and continues to sit range-bound with a lack of momentum.

The Lesson: keep a close eye on not only the price action and volume, but also the clock.  If a trade idea has been given ample time to do its thing, and it’s not happening, perhaps it got stuck in the mud and isn’t going anywhere quickly.  Tighten up your stops aggressively to reduce your risk in the trade, and be willing to take a small loss if necessary.  It’s likely you can make that up elsewhere rather quickly.

Trade Like A Bandit!

Jeff

Lately we’ve had more day trades highlighted here than anything else, so I wanted to take an opportunity to share some thoughts on that.

The recent market conditions simply haven’t allowed for doing much swing trading. We’ve seen limited follow through, and with the exception of 2 downward moves, the action has resembled what we saw late last year with slow grinds higher and low volatility. That’s not ideal for swing trading, although we have still had some listed here lately.  As a result, I’ve frequently been focused on the shorter timeframes (day trading) by using setups which look good for a quick pop but not much else.

Why I Highlight Day Trades in the Bandit Broadcast

Those day trades are what I’m eyeing for my own trading, and therefore what I’ve been highlighting in the nightly Bandit Broadcast for all of you. Many days I can grab a few nice trades and make a day’s pay while waiting for opportunities to put capital to work for slightly longer timeframes with the swing trades. Other days I may take a few small hits, but overall it has proven to be a good income strategy for me.

While the market conditions will change (hopefully soon), the way I personally manage my day trades will generally not change.  That isn’t to say that I won’t adapt, but rather my day trades will still fall under the umbrella of some broad guidelines that I want to share with you here.

I’ve been clear that TheStockBandit.com isn’t intended to be purely a ‘day trading’ site, so the purpose of the site is not to exclusively discuss or highlight day trading opportunities. Additionally, the format of the site has intentionally not been structured for the focus of day trading or day trading education (no chat room for example). However, day trades are still provided here when that’s the best thing available, and entries are offered with them so that you can at least see what I’m looking to trade and where I’m looking to enter. They are intended to be for traders who have some experience day trading, and do not need assistance in getting out. That’s for time efficiency on my end, honestly because I want my focus on the market during the day and not on a chat room (just to give you some background).

But with all that said, I am happy to shed some additional light on my day trading so that you can benefit from it. I don’t see a daily ‘day trade review’ feature being added here, but I can address trades when asked and I’m glad to do that. I have a number of people who email me intraday asking these exact kinds of questions, so you can also feel free to do that.

Previous Resources

When it comes to general trading guidelines for day trades, here are a few links you’ll find useful. There are some articles and some videos, but they offer insights into how I go about managing my day trades and the rationale behind some of them.

https://www.thestockbandit.tv/2009/05/tsbtv70-day-trade-management/
https://www.thestockbandit.tv/2009/01/tsbtv7-gauging-intraday-momentum/
https://www.thestockbandit.net/2009/09/03/stack-the-odds-for-daytrading-success/
https://www.thestockbandit.net/2009/11/09/managing-day-trades-effectively/

Here are a few additional guidelines for my day trading I think you’ll find helpful:

* I enter at the prices specified in the video from the night before. I’m going off the daily charts for entries, and going off the intraday charts for exits. Is the stock trending? Is it creating higher highs/lows or lower highs/lows? Is key resistance or support being established, or is the stock approaching those kinds of levels? If it is, I’ll need to take that into account for the sake of risk management and look to ring the register. I’m watching for intraday patterns to emerge as well (exhaustion, rounded tops/lows, support/resistance, continuation setups where I might even add if I feel aggressive, etc.).

* I don’t want to chase a stock beyond that level, so if it gaps through my intended trigger, I’ll avoid the trade entirely since my risk/reward profile for the trade will have changed. There simply are too many stocks on the move to get married to one and chase it beyond a prudent entry.

* My stop loss from entry is most of the time going to be 1% (as outlined on the day trading strategy page). That limits my losses significantly, and allows for a risk/reward in most cases of about 3:1. Most stocks will make a good move intraday (when they run) of about 3-5%, so a 1% stop offsets that nicely and gives me ample reward for minimal risk. A more lively stock that might move 5-10% on a given day will get a wider stop (like 2%), but often those are either highly volatile stocks or the single-digit stocks, both of which are listed here rarely. So in most cases 1% is enough for me.

* I’ll aim to book profits based on both the intraday price action and the profits I’m looking at. If the stock is clearly losing momentum, I’ll take at least 1/2 my shares off. If the stock has approached a key level, I’ll exit. If it’s climbing at a sustainable rate with plenty of blue sky above, I’ll look to sit tight and just adjust my stop to an appropriate level.

* My stop does get adjusted during the trade. If I’m up 1% in the trade, I’ll usually tighten my stop to breakeven. And as the trade climbs more, I’ll make incremental exits (for example, often when I’m up 2% I’ll take off 1/2). Essentially I want to keep a tight initial stop, monitor the intraday chart (anything like a 2-minute, 3-minute, or 5-minute chart will suffice), and see how long I think I can ride the trade. I’ll use excessive strength to my advantage and offer out some shares, and I’ll tighten my stop with the arrival of consolidation phases.

So while I might not be able to post every entry/exit each day, or review the day’s trades since the Bandit Broadcast is a forward-looking newsletter geared toward tomorrow’s price action, I still am willing to discuss day trades and hope you’ll feel free to ask for help anytime you have questions.

I will not always be right.  I will have losing trades and losing days, but I’m always happy to help out.  And feel free to share your comments with me here on this, I’d love to hear it!

Jeff

Trading Lessons are a feature here in The Bandit Hideout where we take a look back at a trade and see what we can learn from it. It might have been a winner which paid us nicely, and we’ll want to know what it was about that play that worked so well for us. Or it might be a trade which performed poorly for us, thereby offering us another valuable lesson which we might can apply going forward in hopes of avoiding a repeat mistake.

Whatever it is, the aim is to use the old ‘hindsight is 20/20’ adage to our advantage. We can learn a lot from the past! There’s no reason to ignore it when it can help us improve as traders.

Trading Lesson for 1-8-2010:

This week, I took a swing trade in LEAP.  It had finished 2009 acting well, and was coiling just beneath a trend line.  The expectation was that a push north of the trend line would free up the stock to begin another leg higher, and with a logical stop loss not far away, I liked the risk/reward profile for the trade.  And although the move it was of the pop-and-drop variety, it still netted a 4.5% gain.

I’m going to take you through this one in video format, so I hope you enjoy it. If you have questions or comments or anything to add regarding this play, please feel free to share it down below!

Trading Lesson Video – Click to Watch!

Remember, watch for volume to confirm any major behavioral shifts you’re seeing in price.  When that doesn’t happen, it’s probably a clue to tighten things up a bit just in case.

Trade Like A Bandit this week!

Jeff

Trading Lessons are a feature here in The Bandit Hideout where we take a look back at a trade and see what we can learn from it. It might have been a winner which paid us nicely, and we’ll want to know what it was about that play that worked so well for us. Or it might be a trade which performed poorly for us, thereby offering us another valuable lesson which we might can apply going forward in hopes of avoiding a repeat mistake.

Whatever it is, the aim is to use the old ‘hindsight is 20/20’ adage to our advantage. We can learn a lot from the past! There’s no reason to ignore it when it can help us improve as traders.

Trading Lesson for 12-12-2009:

This past week, I caught a decent trade in ILMN, and wanted to take a look at it with you.  This one triggered in an unusual way, but it worked, and I hope you were able to profit from it.

I’m going to take you through this one in video format, so I hope you enjoy it.  If you have questions or comments, please feel free to leave them down below!

Trading Lesson Video – Click to Watch!

Remember, monitoring a stock’s behavior as compared to your original expectation for a trade can help you manage it well enough to profit, even if the stock doesn’t do exactly what you thought it would.  The aim is to profit, so be alert and flexible for maximum gain.

Trade Like A Bandit this week!

Jeff

Trading Lessons are a feature here in The Bandit Hideout where we take a look back at a trade and see what we can learn from it. It might occur weekly, or more or less often, and it may be written or video format.

It might have been a winner which paid us nicely, and we’ll want to know what it was about that play that worked so well for us. Or it might be a trade which performed poorly for us, thereby offering us another valuable lesson which we might can apply going forward.

Whatever it is, the aim is to use the old ‘hindsight is 20/20’ adage to our advantage. We can learn a lot from the past! There’s no reason to ignore it when it can help us improve as traders.

Trading Lesson for 11-13-2009:

This past week, I liked how MON was acting. The stock had been trending lower and after validating the $70 level as support in July and late-October, it has bounced back lazily to that area and failed to clear it.  The bounce had also created a bit of a bearish wedge beneath that broken support level, setting up what I felt was a good potential play on the short side.  It was a bearish pattern within a downtrend, which is exactly what I like to see.  Here’s the chart I highlighted with the play:

Chart courtesy of StockFinder

I took the short entry on Tuesday as MON undercut the $68.70 level with the break of the rising trend line, but there was no follow through.  The stock bounced back a bit to stabilize within its wedge pattern once again, but it did remain negative on the day.

Mid-afternoon, MON exploded higher, quickly reaching my stop loss level to take me out for a 2.6% loss.  The loss itself wasn’t bad, as that’s a manageable amount which can easily be recovered.  The unnerving part was how sharply the stock rallied, indicating not only had the direction changed with force, but that something fundamental was behind it.

Indeed it was, as the company had just reaffirmed their guidance for fiscal year 2010.  With the new confidence that the company could perform well in the year to come, investors piled into the stock and took it quickly higher.  Here’s a look at MON after the day’s trading:

Chart courtesy of StockFinder

Trading and holding stocks involves risk, and this MON trade highlights one of them, which is fundamental news from the company.  It was not scheduled (they had earnings and their conference call a month prior).  The inability to see it coming means it cannot be avoided, and it’s just one of those things that can occasionally happen.  I did walk away being reminded of a couple of key lessons though.

First, it’s crucial to always have a stop in place – just in case.  I never know when the landscape might suddenly change, so I always want my safety net in place in the event that things shift suddenly.  In this case, I didn’t have much time at all to react, as the stock was sent flying and I was short.  But my resting stop loss order was in place, and it eliminated the need to think quickly in the heat of the moment.

Second, sudden headlines are going to occur, and they may not always be negative.  Just as in this case the news had an adverse effect on my position, down the line some other stock may have a very favorable reaction to unexpected news.  It’s my view that over time, the headlines will even out, so while I was caught on the wrong side of this one, the next one might be an unexpected gift.

Getting taken out of a trade abruptly for a loss can be irritating, but it’s going to happen sometimes.  Some stocks will work quickly, others will fail quickly.  The key is to keep taking the good plays as they come, and let the law of large numbers work in my favor, trusting that technical analysis will do its job.

Trade Like A Bandit this week!

Jeff

Formerly referred to as the Trade of the Week, this is the first post in what will now be known as the category called “Trading Lessons.”  This will be a regular feature here in The Bandit Hideout where we take a look back at a trade and see what we can learn from it.  It might occur weekly, or more or less often, and it may be written or video format. [Read more…]