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Short Selling in a Strong Market

Short selling includes the word “short” for a reason……you’ve gotta be quick! Stocks tend to fall faster than they often climb, for a few reasons. One reason stocks fall quickly is that high trading volume is not always required (in the form of a large seller) to push them lower – bidders can simply step out of the way and cancel their orders. Another reason is that owners of the stock can be prone to panic selling or capitulation once things begin to turn ugly.

In uptrending markets, shorting stocks gets tricky. One approach to shorting in a strong market is to look for rising support in the form of trend lines. Shorting in situations like this is best done in a day trading situation to catch a quick move down rather than fighting the market trend.

Wednesday night in my stock newsletter, I highlighted SNDK as a weakened stock which looked to be completing a minor bounce. This created a potential short sell situation to be played as a day trade in spite of the climbing NASDAQ. Additionally, SNDK has been prone to gapping a number of times lately, preventing it from being an ideal swing trading stock. A small rising trend line provided the trade entry, which was a downside break of $50.65.



Today as the stock broke the support area at $50.65, SNDK headed south in a hurry, falling more than $2.00 in just an hour. This made for a very nice day trade, which lasted only a short time (pardon the pun).



When you short sell in a market that isn’t downtrending, be quick and take profits when you have them. Then get back to your shopping list and find some long exposure!


Jeff White
President, TheStockBandit, Inc.
http://www.thestockbandit.com/

Dealing With Idle Time as a Trader

Many people think of full-time trading as a super exciting career and never a dull moment. This is certainly not always the case if you’re trading for a living! Perhaps new traders swing for the fences day after day, but they won’t be able to for very long. To trade successfully, you must learn that there are some very slow and quiet times when trading the market. Whether you are waiting for the right conditions to establish new trades or if you’re waiting for trades you are in to develop, dealing with the idle times in an effective way will put you miles ahead of others on the road to profitability.

Markets and stocks spend time in uptrends, downtrends, and consolidation modes. Your method as a trader will dictate which of these market conditions are best, and when it’s best to sit on your hands or get away from your screens completely. If you trade continuation chart patterns, the trending markets are your time to be active. Recognizing a trendless market or a channeling stock will help you to avoid getting chopped up by initiating trades in narrow trading ranges. If you prefer reversal chart patterns, then the slower market days lacking a trend will be the times when you will be more active, and you’ll want to avoid the trend days which can be costly to a fade trade approach.

Once you have established your trading positions, you absolutely must allow them to develop according to your original trading plan. Many traders fight the urge to micro-manage positions, and it’s easy to with direct access brokers which provide hotkey orders and dirt cheap commissions. What ends up happening when you over-manage your trades is that you either don’t give a stock enough room to move and you get stopped out too early, or you are afraid of any pullback which may temporarily erase some open profits, so you sell too early and lose your position in a good trade.

How does a trader avoid micro-managing trades? For some, it might mean setting conditional alerts and walking away completely to tend to other matters. Maybe you go play golf or head to the bookstore. One of the best traders I have ever been around used to sit in the row behind me on our trading floor. He had a big account and would patiently wait for his favorite conditions to develop so that he could establish some large trading positions. I can recall several occasions when he was up 6 figures for the day and you would have thought he was asleep in his chair, rocked back with his hands behind his head and eyes closed. He forced himself to relax and think about something other than the giant profits on his screen which he may have been tempted to take had he been watching every tick.

Regardless of whether you are day trading or swing trading, there will be idle times as a trader which you must learn to deal with properly. Wait for the right conditions, enter your trades, set your exit parameters, and find a way to let the trades develop without interfering.


Jeff White
President, TheStockbandit.com
http://www.thestockbandit.com/

When to Raise Stops

Trading rules are a must if you want to trade for a living. Only by following a systematic approach will you be able to find trading success. Most of the time, stocks require some room to move, and tight stop loss orders don’t offer a lot of upside potential for swing trading. However, on rare occasions, you can book greater profits by knowing when to raise stops and pay yourself with big gains.

Recently, the market has been tremendously strong. We’ve had a number of big winning stock picks, and it’s important to know when to tighten stops. Because the market has moved almost straight up (nearly a parabolic uptrend), it's time to get more conservative and raise stop loss orders on open positions. Markets don’t move in straight lines for very long, so it’s important to recognize when an uptrend is getting a bit tired and due for a rest. It’s at times like this when a stock trading strategy can use some conservative adjustments to capture profits.

Last week, instead of following my swing trading strategy which gives my trades room to move, I raised stop loss orders aggressively to lock in big gains. Whereas most of the time it’s best to follow your stock trading strategy, occasionally it’s wise to get a bit more conservative when the market is on the verge of some consolidation. With the DJIA having rallied 800 points from the October lows and the S&P 500 and NASDAQ moving virtually straight up (7 straight sessions worth of gains), it’s only prudent to take some profits off the table and patiently allow new trades to set up. The move up earlier this year from the April lows was followed by several weeks of horizontal price action, which is a possibility here as well. This provides an excellent area to raise cash and await the next market signal.

As the market corrects from this bull run, more stock picks will emerge in the coming weeks for swing trading. Right now, I’m willing to let the market come to me rather than chasing extended stocks for new buys, and I’m raising stops and cash in the meantime.


Jeff White
President, TheStockBandit.com
www.thestockbandit.com

Trend Lines: Good Areas to Buy Stocks

Trend lines define and confirm trends by connecting a series of highs or lows. Trend lines offer excellent places to buy stocks within an uptrend, because they offer a natural stop loss area just below them.

Right now, the stock market is trending higher. We’ve been swing trading aggressively on the long side during the past few weeks, but the virtual straight-up move lately offers little in the way of new stock picks for buying. While the trend remains solidly up and we’re expecting additional rallies in the coming weeks, we’ll be looking for pullbacks to uptrend lines to establish new positions.

One example of an uptrend stock is AAPL. We highlighted AAPL in our stock newsletter on November 10th with a buy price of $61.25. Wednesday it reached $67.98, which is a very nice gain of 11% from our buy price in less than 2 weeks.



This stock and many others will be on our radar to highlight for additional buys in the near future as they find rising support at their uptrend lines.


Jeff White
President, TheStockBandit.com
http://www.thestockbandit.com/

Pet Stocks

It’s easy to fall in love with a stock when it treats you right. We all want a little TLC, don’t we?

In my trading past, I would make a good trade and, once I was out, couldn’t wait to get back into the same stock because it had treated me so well. After all, I must have really figured that one out. Yes, it was a quality chart pattern. Yes, the stock was in an uptrend. Maybe I just have a real feel for that stock, I would tell myself.
I still see this regularly in other traders after they pull a few points out of a trade from my stock newsletter and immediately ask when they should get back in. The answer is, maybe never!

If the object is to make money, which it is, then we have no room for pet stocks. Why show favoritism toward a stock which worked in the past but may not be the best place to put cash right now? If your trade produces a winning stock, congratulations! Keep an eye on that stock, it may set up again soon. Just don’t be captivated by every tick, itching to get back into it. Don’t decide after one good trade that you must have that stock figured out. Such an attitude is bound to cost you, and you may find that you become a stuck holder for a little while if you jump back in too early.

Trade only the best technical setups. Put your trades on, and keep a stop-loss order in place. Let the trade develop, and when it’s time to take profit, be willing to move on to the next trade.

There’s no room for favorites in the trading game. If a stock keeps setting up for good risk/reward trades, then by all means continue to trade it. The trading error occurs when your fond memories of a profitable trade in XYZ stock cause you to forget your trading rules and buy under imperfect conditions.

At TheStockBandit.com, we find the best setups for swing trading and list them when their chart patterns indicate it’s time to buy. Sign up today for your free trial to our stock pick service and find out how we make our living as traders!


Jeff White
President, TheStockBandit.com
www.thestockbandit.com

Day Trading ETF's

Day trading limits the potential return on any given trade, but it certainly has some advantages. I spent several years purely day trading, wanting to go home in cash every night. It allowed me to wake up with a carefree attitude and no market bias. Watching the futures leaning one way or the other in the pre-market had no effect on me. Naturally, I could trade the market in whichever direction it moved on a given day. But during the past few years, market ranges have contracted, leaving fewer opportunities for a day trading strategy, while opening the door for swing trading larger moves over the course of several days.

I still like being able to day trade when I find good opportunities, though. This year, the bulk of my day trading has been in ETF’s. These exchange traded funds (ETF) trade like stocks, with several of them tracking indexes and a number of them serving as baskets for individual market sectors. The one I prefer to day trade most often is IWM. IWM is the Russell 2000 tracking stock, and of the 3 most liquid ETF’s (QQQQ, SPY, IWM), IWM has the largest average true range. Average true range measures how much a stock moves each day, so IWM is the best moving market index ETF to trade. IWM has had average volume of over 32 million shares per day the past several weeks. This is more liquid than DELL, making it very easy to get into and out of with very minimal slippage. The high volume also allows for large positions.

Trading IWM can be done through the American Stock Exchange, but I find that execution on ECN’s such as ARCA or INET is instant, making the ECN’s my preferred trade route. ETF’s allow for short selling on a downtick, which makes them prime candidates when looking for a way to catch a market move to the downside. While I don’t mind trading the long side, I do also like the ability to hedge long positions almost instantly by shorting IWM, being that it is tied to a major market index.

If you’re a day trader who usually just trades whatever is in play for the day, you might consider adding ETF’s like IWM to your trading list. You can jump in and out or reverse your position very quickly with the high-volume ETF’s, and they really are an easy way to trade the market indexes. IWM offers the most bang for the buck, and day trading it is a great way to quickly get long or short in a liquid trading vehicle that offers plenty of movement.


Jeff White
President, TheStockBandit.com
www.thestockbandit.com

Direct Access Trading & Hotkeys - A Necessary Convenience

Convenience is a driver of our society, as well as trading. Every trading publication seems to have advertisements offering an easier way to trade. The most convenient way to trade is through a direct access brokerage. In fact, if you aren’t trading through a direct access brokerage, you should be.

Having traded in day trading firms for several years, I have grown quite accustomed to trading through a software application rather than placing orders on a broker’s website. My platform of choice is the CyberTrader Pro platform which I've been using for over 2 years, and it offers me everything I need all in one place. I have multiple chart windows, watch lists, level 2 quotes, news headlines, real-time position P&L, trade alerts, and many other bells and whistles which are important to my trading style.

My favorite feature of trading with such a platform is that I can enter orders with a single keystroke. I set up hotkeys to route my orders through different venues, such as ECN’s like ARCA or INET, and separate market orders from limit orders. This way, when I locate a trade, I can hit one key and buy or sell with the push of a button. Particularly with Nasdaq stocks, I usually have the shares in my account by the time my finger comes off the hotkey, it literally is that fast. The number pad on my keyboard has different share sizes assigned to each number, so I can also easily adjust my lot size if my default is different than what I wish to trade. Hitting the ESC key will cancel my order. This is way faster than a browser-based order entry which requires new pages to load or refresh while waiting for confirmation of a fill or cancel. While I use trading alerts to automatically place orders for positions I intend to hold, hotkeys give me incredibly fast fills on discretionary trades like day trades. If you aren’t using hotkeys, you’re a step behind.

Hotkeys also allow me to “scalp” with ease, day trading stocks for small intraday moves. Direct access also usually offers commission pricing plans on a per-share basis, rather than per trade. This has saved me untold thousands of dollars, and has allowed me to trade much more frequently when the market is moving. While I prefer swing trading, the cheap commissions and instant order placement lets me employ a day trading strategy to capture intraday moves. This is a nice alternative on days when my overnight positions are not moving much, but when I still find opportunity (such as a trading range or channeling stock).

My trading platform allows me to constantly monitor my account value, my P&L for the day, and how much buying power I’ve used and have remaining. I also can see exactly how much commission I’ve spent, how many shares I’ve traded, the market value of open positions in relation to my account, the long market value and short market value of open positions, and many more stats.

If you’re a full-time or very active trader, I highly encourage you to convert to a direct access trading platform such as CyberTrader Pro or something similar. You’ll likely enjoy cheaper commissions, faster order entry and fills, and many more tools at your fingertips designed to make your trading better. I can’t imagine going back to a browser or web-based trading method! It would make the already tough game of trading more difficult.


Jeff White
President, TheStockBandit.com
www.thestockbandit.com

The Difference Between Positive Thinking and Denial

The market requires our very best every day. We have to show up with our game face on, ready to go from the opening bell. Preparation is a necessity and part of trading confidence, but that all happens long before stocks start moving. Once that bell rings, it’s all about execution and having the proper mentality.

Positive thinking has been a hot topic for a long time now. What I do know is that thinking positively is certainly needed for good trading results. Pulling the trigger to initiate a trade is based on confidence, and learning to be a profitable trader begins with preparation and confidence. But on the flip side, stubbornly fighting a losing battle is denial. Where do you draw the line?

When you do your homework and locate good trading setups that fit the current market environment, it’s easier to be confident. You might find trades on your own by screening for chart patterns, or maybe you get your trading list from a stock newsletter like our Bandit Broadcast. Either way, your preparation is part a part of your trading plan which should give you confidence. Developing a stock trading strategy entails knowing where to get into a trade and where to get out, and is also part of a complete trading plan. Having a trading plan for each of your ideas gives you confidence to hit that stock once your trading criteria have been met.

Thinking positively includes not only hitting trades once they trigger, but also being willing to upwardly revise your trading target in a stock with excessive momentum. A profit objective that is met faster than expected may be a signal that you found a big winning stock, allowing you to stay in on the profitable side of the trade for longer than you planned.

Denial is the other, dark side of the coin. Denial is when you blow stops and insist that you’re right on the trade, in spite of your P&L yelling that you are in fact wrong. You’re wrong when your stop loss is triggered, so exit the trade. Your P&L may be a scoreboard as to how well you’re doing, but it also can be your magic 8-ball to tell you whether or not you’re correct on a trade. Accept that you’ll be wrong a good deal of the time, and learn to manage losses appropriately rather than deny that you’re wrong.

Show up each day with your very best. Have a game plan. Know your exits. Think positively, and accept the results.


Jeff White
President, TheStockBandit.com
www.thestockbandit.com

Finding Stocks to Trade

Producing a stock newsletter every night requires finding good chart patterns on a regular basis for members of my service. My inbox is frequently full of inquiries of just how to go about finding chart patterns for trading. The short answer is that I look for them!

Each afternoon following the market close, I use TCNet by Worden Brothers to scan for stocks which meet a variety of criteria. This tool is essential to my finding good trade setups for my own trading and for my newsletter. Because I trade the stocks in my newsletter, I want to find and highlight only the best technical setups.

The scans I run are basic, filtering out the low volume stocks and cheap stocks which don’t move enough for short-term trading. I generally will cut out all stocks below $10.00, and will rarely look at a stock with less than 250,000 shares/day average. This leaves me with a large list of stocks which have adequate volume for getting in and out of trades with minimal slippage, as well as stocks which have a larger range of movement.

From this point, I sort the list according to how strong or weak the stocks closed that day. Stocks which finished at their highs for the day are at the top of the list, and stocks that closed at their lows of the day are at the bottom of the list. Sorting stocks by this method helps me to find more long trading candidates at the top of my list, while finding more shorting candidates (weak stocks) at the bottom of my list.

Finally, it takes time. TCNet allows me to quickly scroll through all stocks in the list by hitting the spacebar. I generally will end up with about 1500 stocks in the list, which takes me a little over an hour to manually review. The rate at which I go is fast, because I am flagging stocks as I move through the list. At the end of the review, I am left with around 40 stocks which I will look more closely at to locate my swing trading picks for the following day. My final selection is based on market direction, the momentum of the stocks in the list, and how clean each chart looks to me as a trading candidate.


Jeff White
President, TheStockBandit.com
http://www.thestockbandit.com/