Monday, May 02, 2005

Resisting Urges

Watching and trading the market full-time offers tremendous opportunity to capture profits. Something is always on the move, and to profit, you only need to catch a piece of it. With daytrading buying power being 4:1, there is also leverage at your fingertips to place the big bet when you think it has arrived.

The past couple of weeks, the market has flopped back and forth on pretty much a daily basis. As I write, the prior 9 sessions each went different directions! This is not the kind of environment where I find it appealing to place the aforementioned big bet. The market is never easy, but there are certainly better times to have a trading bias than right now. Television guests are willing to make big claims about where the market is going for the next few months, but the truth is that none of them know. I am purposely leaving my television off to avoid listening to such opinions for most of the day. I might catch some pre-market news or the economic releases, but I have no interest in listening to Joe Fund Manager who simply wants to beat the market (even if that means a negative return). My objective is profits every month, not to simply “outperform” the S&P 500 by the end of the year.

Range-bound markets have a way of getting traders to force trades, which rarely works. Avoid the urge to be in trades just for the sake of activity in this choppy market. Avoid the urge to place the big bet in hopes of catching the absolute bottom of this year’s down move. Avoid the urge to guess how the market will respond to earnings on a particular stock for the overnight home run. The fact of the matter is, for every home run you get lucky on (and earnings plays are about luck), there will be a number of strikeouts to offset that isolated success.

So, as we watch this market go back and forth and we wait for better signals that a larger move is coming, I want to stress the same thing I’ve been saying for weeks now: BE PATIENT! A lasting move, a REAL move will offer plenty of chances to jump on board and deploy capital into the market. Until then, resist the urge to be active and book giant profits, because they are much harder to find at the moment. Quality chart patterns are much harder to find in this environment due to the complete lack of momentum. Instead, begin to plan how you will react to market moves once they do arrive. That is likely the best use of time right now unless you are scalping the small moves intraday. Soon we will have our chance for swing trading larger and more aggressively, but right now the current environment simply calls for lighter trading and more planning.

Have a great day!

The Stock Bandit


Anonymous Anonymous said...

With 50% Reg. T margin requirement, how is daytrading buying power 4:1?

Also, is not classification as a "pattern day trader" very quite punitive as far as capital requirments for the trader?

"With daytrading buying power being 4:1, there is also leverage at your fingertips to place the big bet when you think it has arrived."

6:36 PM  
Blogger The Stock Bandit said...

Please reference for details.

Yes you must be classified as a "pattern day trader" with a minimum account balance of $25,000, and the intraday margin is 4:1. Overnight you may hold only 2:1 to borrow against your account value. Therefore, as a pattern day trader with a margin account of $25,000, the trader can enter up to $100,000 worth of securities intraday, which is 4 times the account value. Hope this helps! Email me if you have further questions.

The Stock Bandit

7:25 PM  
Blogger The Stock Bandit said...

You may also do a quick Google search for "day trading buying power" and there are plenty of links which explain this in detail.

7:33 PM  
Anonymous Anonymous said...

I can't tell you how impressed I am by your calls. I have been studying charts for several years and I usually get into breakouts , breakdowns, know my cup and handle and different triangles but I have always held that the best moves are from the subtle patterns -- if everyone and their uncle is watching same number often it doesn't work and as I sit here and watch your UNH 97.5 call and how perfect it was I just am in awe -- you are really really talented and I am grateful you share this with us --not only for making money but for learning. You're the best out there, better than Zanger. Keep it up. Be healthy :-)

8:08 AM  
Anonymous Anonymous said...

p.s. I got a point on half UNH and the rest stopped out just below entry -- still a nice trade. Tough market and your picks help me navigate it! We get an easier market after this and we're going to rock. keep up good work SB.

1:32 PM  
Anonymous Anonymous said...

Dear SB -- I feel v frustrated as I have completely missed out on this rally and now do not want to play catch up (which has landed me quick losses in the past) and know that I have to just be patient and wait for the setups. The stocks I have liked have been GOOG RIMM for ex but even as they went higher I just never saw good intraday points to enter and now feel like its too late. Have you done this and how have you dealt with it? Thanks.

1:18 PM  
Blogger The Stock Bandit said...

This rally has come right off the low in pretty much a straight line. I have for the most part missed it like you, save for a few longs such as MSO, ORLY, VNO, LCAV, etc. Of course it would have been quite fun to be loaded on the long side for a straight-up bounce like this, but the fact is that catching this move would have required getting heavily long while still in a technical downtrend. This breaks my personal rules, and therefore I can deal with it better.

Keep in mind that there are plenty of times when we find good winning trades while the market goes nowhere. Other times, like this, the market makes a huge move mostly without us! Our job is to stay patient, wait for quality setups to emerge, and then hit them as they trigger. The market had been in a downtrend, and by waiting for it to prove that THIS was the low, I did in fact miss calling the low. However, I have had numerous opportunities this year to attempt catching a low, and it has served me well not to anticipate those to have played out.

As for me, I think a lasting bull phase will offer many chances to get on board, so if this rally has legs, we will have lots of setups. Our job is to make money each week or month or year, and not necessarily to catch every single market move. Sometimes they just happen without us, but hopefully we will continue to book profits regularly which outpace the slower markets.

I hope this helps! Feel free to email me or reply here, have a great week!

The Stock Bandit

12:06 PM  
Anonymous Anonymous said...

Very well said and I must say --seeing that you missed the lows makes me feel better (so true about the misery loves company!) You're right -- not our job to catch the bottom but to make money consistently over the year. This is a really tough job and discipline has to come number one. Thanks for your words SB and let's go get'em !! Fantastic call on MSO btw -- nice little run. ANTP this week might be the same. Good Luck, thanks for the great work.

1:15 PM  

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