Saturday, January 29, 2005

Getting Prepared for the Trading Day

With the great challenge of facing the stock market each day and the hope of pulling money out of it on a regular basis, a trader can do few things more important than prepare adequately. It should be no secret that many of the brightest minds in the world are at work to make their living in the stock market, and such competition cannot be taken lightly! Furthermore, while traders should not be in the prediction business, we must certainly have a game plan.

As time progresses, a trader will inevitably learn from his mistakes. This experience is the foundation for laying out a game plan in preparation for the trading day. Merely being a student of the market and of one’s own results will teach a trader to react certain ways to market conditions or events. It is this foundation which should be built upon in order for the trader to elevate his game to the next level (and it IS a game).

In order to develop a trading plan, a trader must begin with his personal style in mind. Swing trading involves a plan that may evolve over the course of a few days to a few weeks, while day trading can be faster-paced and more spontaneous. Personality, patience, and profit objectives will play a large role in which style of trading one may wish to employ, but the trader should choose his method as he plans for success.

Once the trading style is known, the trader must take into account current market conditions. Are recent days or weeks characterized by lasting trends, or by narrow ranges and choppy action? Knowing the answer to this question will put you miles ahead of many other traders who walk in each morning without taking current conditions into consideration. The market will catch you off guard as it changes its rhythm or volatility, but recent history serves as a guide until things change. This means choppy, low-volume, range-bound markets should likely be approached with smaller positions and the expectation of taking profit more quickly and in one piece. A trending market with larger range days and greater volume allow the trader to take bigger positions in hopes of scaling out in pieces as the market moves in the trader’s profitable direction.

Whether after the market closes or early in the day prior to the market’s open, some time should be spent determining an IF/THEN strategy for the upcoming session. Some traders may subscribe to a swing trading newsletter or converse with other successful traders, while others prefer to do their own research. One excellent way to find the following day’s trading list is to screen for stocks which meet custom criteria for price, volume, volatility, etc. An affordable stock charting software program will quickly narrow a large list of stocks down to a specifically filtered handful of trading candidates. Worden Brothers, Inc.’s TCNet is one such program, and it will scan thousands of stocks in just seconds or sort them by more than 100 included criteria or unlimited custom criteria. By screening for a handful of potential trades, the decision-making process is simplified and a plan is easier to carry out.

Consider finding a list of trade candidates for both the long and short side of the market, setting specific entry and exit prices, and then simply execute that plan. IF the long candidates rise to your entry prices, THEN purchase them. IF the short candidates break the levels of support you see, THEN short-sell them. IF none of your trade candidates trigger their entry prices, THEN do nothing! This kind of game plan will allow you to effectively respond to market conditions without having to predict direction or hope to be bailed out of losing positions. Approaching the market with the IF/THEN mentality also will help the trader to execute a plan, rather than fight the emotional urges to find excitement or force trades. Sometimes things will work exactly as planned and other times the market will whipsaw you right out of positions. Meeting the market with a game plan and sticking with it will undoubtedly allow the trader to work with less stress and emotion, which are two of the worst negative forces that traders face.

Feeling well physically is a very important trait which must be present for a trader to profit. Staying healthy and rested allows the trader to work with a clear mind and focus on the task at hand. Additionally, personal relationships can play a large role in a trader’s effectiveness. When life is rocky away from the trading screens, the successful trader must be willing to cut back on trading size or even back away from the market entirely. A prideful ego will not only cause rough waters on the home front with relationships, but it will also damage the trading account! A clear conscience allows quality rest and a fresh start each morning for returning to the market sharp and ready. Make the most of your weekends to catch up on personal to-do’s and relaxation. When Monday arrives, if you aren’t at your best, don’t expect your trading to be!

Finally, as the morning breaks and the market’s opening nears, follow a routine to get into the proper state of mind for following your plan. This may include reading up on current events, reviewing your charts one final time, grabbing your morning caffeine, or listening to your favorite song. Whatever it is, find what works for you when it comes to getting into the best mindset to extract profits from the market. Remember, the competition is serious and fierce, sharp-minded, and most of all, prepared. You should be too!

The Stock Bandit

Wednesday, January 19, 2005

Swing Trading Education

Being a full-time swing trader is not a typical job. I trade from my home and have a commute of less than 10 seconds. I have no boss looking over my shoulder, and the actual stock market hours are less demanding than a host of other jobs. This means I also don’t have someone coaching me or teaching me the ways of the market and how to pull money out of it. Here in the central time zone, the market closes at 3pm, which leaves plenty of time to pursue other interests. But with lofty goals and a strong desire to succeed in the market, I have spent a great deal of time educating myself once the trading day is over. Books, magazines, web articles, and especially poring over my own trading results keep me learning.

I have read many books and magazines about the stock market and about trading. Because I am self-employed and therefore self-motivated, I find it necessary to always be searching for helpful information to continually improve my approach. I want something that I can connect with, something that grabs my attention in a way that may sharpen my skills, develop my method, or make me aware of new trading industry developments.

Among the books I have read, I found the most helpful to be the Market Wizards series by Jack Schwager. These books profile highly successful traders in an interview format. Learning from great traders and the market conditions that fit their approaches is a good way to improve your own results. These interview-based books help you get into the mind of a great trader, which is always a learning experience.

Another learning process is to analyze your own trading approach and the results it generates. If your method of trading is producing consistent profits, then there may be no need to tweak it. But even during times of good trading, there are ways to improve your returns. If your method is giving you mixed results, then you might want to take a closer look.

When I first started trading, I wrote down every single trade, even if it was just a scalp. My entry time and price, my exit time and price, number of shares, and gain or loss on the trade were all recorded on a simple grid sheet. Writing my trades gave me a good record of not only my trades, but the context in which the trades were placed. If losing days were a result of overtrading or pressing when I was down, the evidence was right before me.

At the end of the month, I would sit down and review the sheets and see what I could learn. Calculating my win/loss percentage, the size of my average winners and losers, and of course my profit or loss gave me good numbers to evaluate. If my win/loss ratio was unsatisfactory, then I was probably taking the wrong kinds of trades. If my average winner was not significantly larger than my average loser, then my discipline (cutting losers quickly) needed adjustment. Staying on top of these numbers can really shed light on areas that need improvement, and I would certainly consider this process to be an important part of the self-education process. I still do this in times of struggle.

Finally, stay in touch with other traders. It can be very helpful to stay aware of what trading styles are working or not working. Some of my best trading stretches were a result of knowing certain approaches were just not working. Other traders are a great resource for sharing ideas, and the cheapest way to learn is from another’s mistakes.

Trading is my job, and I realize that over time, I will likely get out of it what I put into it. I am very willing to apply myself in order to continue learning about my tendencies and the market, and I know as time goes on it will continue to pay me dividends. I have never regretted investing time in learning how to improve. Writing a
swing trading newsletter also helps to keep me on my toes.

If you want to achieve more in your trading, commit to educating yourself with current industry events, the continual evaluation of your method, and the experience of others. I think you will discover more ways to profit!

The Stock Bandit

Saturday, January 15, 2005

Swing Trading thoughts

Good evening Stock Bandits!

I have started this web log to share additional thoughts that are frequently not in my swing trading newsletter. Each night, I send out the letter containing some market commentary and a number of stock picks, but rarely address other trading topics such as psychology, position sizing, goals, training, routines, capital preservation, trading styles, focus, winning streaks, losing streaks, and many other things not found currently on my swing trading site. I might even list a movie pick!

From time to time, I will post here and address these items and more. Your feedback is welcomed and I would be happy to occasionally take chart requests to state my opinion on them. Check back often to see what has changed, and let me know if you are finding value in what you read here.

To my subscribers, I appreciate your input and hope that you are trading better now than ever. To the tire kickers, stop by for a free trial and check it out!

Good night,

The Stock Bandit

As on my site, my disclaimer states that I will not be held responsible for investment actions you take as a result of stocks mentioned here. Your investment actions are your own, and should be done after careful research and consideration, as well as with the advice of a registered professional.