The Ins And Outs
Daytrading With TheStockBandit's Jeff White
by Jayanthi Gopalakrishnan
Jeff White, founder and chief technical analyst of TheStockBandit.com, started trading the markets in 1998 and has since gained extensive experience in both stocks and options. His trading style has gradually evolved over the years, including, as he mentions in the interview, understanding the true usefulness of the exchange of ideas for an individual's trading.STOCKS & COMMODITIES Editor Jayanthi Gopalakrishnan (JG) and Staff Writer Bruce Faber (BF) interviewed White via a conference call on January 7, 2008.
JG: Jeff, how did you get interested in trading?
My wife and I put some savings into mutual funds in the summer of 1998. That third quarter the market corrected and we lost money. So I decided that I would rather learn how to do it myself and turn to individual stocks rather than just mutual funds. That is when I became a trader.
JG: How often did you trade starting out? How long did you hold onto your positions?
Back then, I would hold onto things one to two weeks at a time. We got into a period not long after I started when the market saw a lot of what turned out to be excessive momentum, with the NASDAQ virtually tripling in the next year and a half. So it was a good time for momentum trading. I found that I liked to grab stocks as they were starting to break out of patterns. Because I was trading short term, I turned away from fundamental concepts and went purely into the technicals based on the price action. As I saw resistance levels being broken, with demand increasing for a stock, I saw that was breaking through ceilings, and that was how I was basing my entries. I would take my entry and ride the move as long as I could until it fizzled out. Then I would move on to the next idea.
JG: It sounds like it is extremely simple, but we all know it's not. First of all, you mentioned that you were looking for stocks that were breaking out of patterns. Are there any specific patterns you like to look at?
I look for classic chart patterns like bear and bull flags, wedge patterns, triangles, and consolidation-type patterns like rectangles or channels. Those are the ones I key in on. It is not that I've found they work so much better than some other method. What they do is keep me disciplined. They make things black & white for me as far as when to be in and out of trades. That is what is most important to me because I try to approach my trading with a survival orientation. I want to preserve my capital first and foremost. Yet I put that capital at risk in order to turn a profit.
JG: So how do you balance capital preservation and risk?
I have to determine which possibilities give me opportunities for profit
but limit potential risk. These patterns give me clear-cut entries and
exits, most of which are consolidation areas where there has been a move
preceding the pattern itself. Then we get a period of rest or basing action
where the stock will quiet down and settle into a miniature trading range.
A continuation move out of that range is what I
play. I prefer the continuation type of pattern, which is why the flags,
wedges, triangles, and consolidations are the ones that I favor.
BF: You said you used the triangles, wedges, and so forth to get in. What is your sell pattern?
A failure of that pattern. Depending on how narrow or wide the pattern is, to me a failure is going to be a breakout that stalls and then falls back into the base. Let's say we are looking at a rectangle within an uptrend. So a stock may break the upper trendline of a bullish consolidation. A breakout to the upside would be my entry. A failure, either back into the base or back beneath the base depending on the width, is going to be my stop-loss, at which point I know the pattern is no longer valid. That is when I am going to be stopping out of the trade.
...Continued in the March 2008 issue of Technical Analysis
of STOCKS & COMMODITIES
Excerpted from an article originally published in the March 2008
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2008, Technical Analysis, Inc.
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