programtradingtools.com

The Welcomed Return of Emotion

Man, this market has been boring. Up a few points every day it seems! The bulls took control back in the summer and they haven’t relinquished it since. The 4-month gain has been impressive, but it’s occurred in a very dull fashion without intensity.

On longer timeframes, the climb has been incredibly steady, but new buys along the way have been harder to find if you like to buy pullbacks. After all, about the only “dips” we’ve seen these past few months have been a few days of rest before the next wave of buying begins. Finding new buys for the most part has been like jumping on board a moving train like the one pictured at the top of this page – not easy to do.

That’s why this week has been so refreshing to see. Take Monday for example. This market was due for a good shakeout, and it’s already improving the trading environment for us short-term traders. Whether it proves to be a one-day wonder or if it’s the start of a little larger correction remains to be seen, and as usual I’m making no predictions. It will either end up being just a dip within the uptrend, or it will be the start of a change of character for this market. Either one is fine by me, I’m just glad to see a return of volatility and more important, EMOTION!

This has already been my best trading week of the month, thanks to plays like VSE. I noticed this energy stock over the weekend as it recently broke a lengthy trend line and since then has been stair-stepping higher. It had formed a bullish ascending triangle which looked ripe for a pop, and I went long at $23.00. Here are two looks at this stock’s chart, first the original chart given to members at TheStockBandit.com on Sunday night, and then a look at it today as it reached our Final Profit Target for a 14.78% Gain:

As you can see, there are some great setups out there for the taking, and I think the recent volatility will only serve to create more short-term trading opportunities for those of us who are day trading and swing trading.

I’m excited about the market conditions heading into the end of the year, regardless of which direction things move. Just the fact that some emotion has again entered the equation will no doubt mean more chances to exploit profitable opportunities.

5 IPO’s and How to Trade Them

Earlier this week in the Free Newsletter (sign up in the sidebar at TheStockBandit.com) we discussed trading IPO’s, but let’s go a little deeper.

IPO’s are making a comeback these days in the market. With the indexes climbing steadily higher, new issues are garnering attention as sexy trading vehicles once again. Back in the day, trading IPO’s was a wild ride which everyone wanted in on. The trading world was fully aware of what was due to begin trading on a given day, and you were sure to find some heavy action in those stocks once they opened and for the first few days of trading.

Times have changed, and so have the ways which IPO’s are being traded. It’s a given that today’s IPO’s are a far cry from those of 1999 and early 2000, so naturally that means they require different trading methods.

I’m a big proponent of monitoring the “personality” of stocks before I trade them. How else can you set your expectations for how a stock will move, where to place your stops, and how aggressively to trade them?

There are still some great moves out there taking place in IPO’s, but generally I’m finding the best moves are secondary rather than the primary (or initial) move.

The way we trade IPO’s at TheStockBandit.com is to let them make their initial moves, settle down a bit, and get set up for a secondary move. I like to see IPO’s trade for a few days so that I can get a feel for how they’re moving and what kind of volume they have (what is the overall interest in this stock?) and then take them for a trade on a secondary move.

Many IPO’s will have some initial excitement and then begin to consolidate. Volume falls off and the stock moves horizontally, creating a base from which a secondary move can launch. The majority of the time these bases come in the form of a bull flag pattern, a cup and handle pattern or a bullish ascending triangle, and that makes it very clear what the pivot point should be for getting long. Let’s look at a few examples of IPO’s which fit the description.

There are a ton of ways to profit in the market, and swing trading IPO’s as they emerge from traditional chart patterns is one of them. We trade some of these at TheStockBandit.com, and even if you’re on the free trial I’ll show you what I’m seeing in the charts and outline my trade parameters along the way. If they fail, my bail out will be close by thanks to the pattern, so it’s no big deal. And if they work, well it’s blue sky above and there’s no telling how far they might run!

Trading Strategies – What’s Right for You?

It’s the age-old question that so many traders ask themselves and each other: which stock trading strategy should I follow? Does day trading offer better rewards than swing trading? Should I scalp or hold positions? How can I best limit my risk, yet still generate the returns I want?

Like others, I have often wondered whether I should be day trading or swing trading. I have found ways to do both, and each style has its advantages and disadvantages. Ultimately, I think it’s a question traders should continually ask themselves, rather than just once early in their trading careers. Isn’t adaptation the key to successful trading over time?

The adaptive trader is always evaluating current conditions. Always be asking yourself questions. Is the market in an uptrend? Is the market in a downtrend? Is the market trending at all? Are the intraday moves smooth with good volume, or are they narrow, choppy and drifting on light volume? By staying aware of current conditions, a trader is able to determine which trading style will suit him best in the near term, allowing him to limit risk and maximize the rewards of profitable trades.

As you consider the best way for you to trade, be sure to evaluate your own personality traits. By employing a trading style that corresponds with your personality, you are essentially being your own best friend (a cheesy phrase but a necessity for traders). If you’re patient, consider a longer timeframe. Your personality will help you to stay in positions while you wait for the outcome to develop. If you are hyper-active with lots of energy and a short attention span, you may be better of day trading smaller incremental moves on a short term basis. Take stock of your personality when contemplating the best trading strategy for you, and soon you’ll be on the right path toward claiming the profits that have your name on them.

Once I am faced with a losing streak, whether it is a few days in a row or a couple of weeks, I take a serious look at what needs to change first. Simple mathematics and my experience both tell me that decreasing my size while going through an account drawdown will minimize the severity of it. I typically cut my trading size in half to begin with, which gets me thinking less in terms of total dollars and more in terms of am I right or wrong with this trade. If a trade begins to work and gains momentum, I can always add to it and get more aggressive. However, if I find little follow-through or my trade reverses, I not only give back less open profit, but I am less prone to fall into “hope mode” as is common with positions which are too large for my own good.
The second change I make when my trading mojo disappears is that I take fewer total trades. I become much pickier as to which setups I am willing to trade. I get more disciplined with how the market needs to be acting in order for me to press buttons. Basically, I sit on my hands more. This also helps to curb losses when I am not trading my best, but it does more than that. I monitor my trading results closely, and by just getting more selective with the trades I do take, it helps to eliminate many varieties of trades which may be costing me. By simplifying my approach, I am able to find the light more easily.

Finally, remember that there are more important things in life than trading! Try to get out more often. Catch a movie. Work out. Play golf. Lighten up! This too shall pass!

So, the next time you find yourself in a trading funk, remember to trade smaller and less often. These surprisingly easy adjustments will not only help to soften the blow to your account, but they will help you find your way faster than a stubbornly aggressive approach.

The Losing Streak – Lighten Up!

Trading full-time certainly has its ups and downs (pardon the pun). The hours can be great, the pay can be nice, and there is always a challenge if you are up to it. On the flip side, it can be a lonely profession, and there are the losing streaks to contend with. Our egos are often tied to our results, and it is in our best interests financially and emotionally to avoid losses when we can. The tough thing to accept is that losing is part of the game!

Every trader goes through times of success and struggle. Just as the market tends to have a rhythm with the way it moves, so can your results be as a trader. Sometimes, you will see things more clearly and anticipate moves correctly. Other times, it can feel as if the light at the end of the tunnel is still many miles away. Losing is an inevitable part of trading, as I mention in several places on my swing trading website. Ultimately, your success as a trader will be determined by how you are able to deal with losing.

I try my best to keep close tabs on my trading results. It is important to know where I stand, whether for the week, month, or year. This helps me stay aware of my equity curve, whether it is climbing, falling, or just moving sideways. When I trade well, I get more aggressive. When I am losing money and my win/loss ratio slips, I know rather quickly from my results that it is time to make a change.