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Most of us have real lives away from the markets and don't have the time to watch every tick. In fact, even the most hard-core trader should take a step back at times and watch the action from a distance. The trick is figuring out how to stay in touch without paying too much attention to the market minutiae.
Longer-term positions enable us to trade in harmony with everything else that goes on in our lives. But watch out, because it's easy to get carried away by all the short-term twists and turns. Make sure your primary motivation is making money, rather than the thrill of the hunt. There's a big difference between the two. You'll still need timely access to your positions when trading at a distance. If you can't get a timely update through your work interface, invest in a PDA that hooks into your broker system. This handy tool will pay for itself in very little time. Here are 10 powerful techniques to trade remotely but effectively: Read the weekly patterns. Long-term patterns are perfect for those who are unable or unwilling to watch the short-term markets. They also require that you look for trade setups lasting for weeks or months, instead of hours or days. The trick is finding a timely entry that lets you take advantage of the long-term trend.
Lower your position sizing. You don't have to be a heavy hitter to turn long-term profits. Take smaller positions and then get out of the way. This lowers the noise level and lets price moves wiggle around without shaking you out of good trades. Even 100 shares can book a very nice profit when held for weeks or months.
Apply careful position choice. Lower your beta. Forget about trading those Chinese Internet stocks or small-cap biotechs. Limit your portfolio to slower movers that are less likely to exhibit sudden or violent price movement. Take positions in more lethargic groups such as utilities, food companies or conglomerates. Keep in mind that most lower-beta stocks trade on the NYSE, as opposed to Nasdaq.
Focus on exchange-traded funds. ETFs let you play the market and still sleep at night. When you start trading these instruments, limit your positions to less-volatile sectors such as consumer durables or health care. But consider this: Being short one unit of the Nasdaq 100 e-mini futures contract last Friday would have cost you about $1,000. The same rally translated into a hundred bucks if you were caught short 100 shares of the Nasdaq 100 tracking stock, or QQQs.
Customize your stop-loss management. Remote traders need a nightly review to look at their charts and move around stop losses. They shouldn't place stops in the same way as a daytrader or short-term swing trader. Keep those stops very loose and out of the way of the current price movement. Make sure they'll only get hit when there's been a real change in the underlying trend.
Look at weekly Bollinger Bands. Apply Bollinger Bands of different time frames to locate hidden support, and enter positions at the start of favorable market turns. Bollinger Bands yield different patterns in different time frames, and you can learn a lot by comparing the two. Your job is to look for convergence events where both sets are good for a major move. A column of mine from a year ago examined this technique in detail.
Execute at the edges. Use deep limit orders to enter positions. Look at the chart and see where price might stretch to shake out weak hands. This is where you want to place your order. Of course, you won't get filled all of the time, and you'll miss out on a few good moves. But you'll be surprised how often this technique gets you into good trades at perfect prices.
Apply dollar-cost averaging. Longer-term trades are price-sensitive because of the broad territory between closing bars. One way to approach this challenge is to combine investing and trading techniques. Build your position over time using dollar-cost averaging, but line up your entries with larger-scale support and resistance. For example, add to the position each time the market pulls back, to test support after a breakout.
Play the cycle. Traders learn the hard way how easy it is to be right but still lose money. Learn to negotiate the minefield of conflicting trends with a smoothed relative strength index. Place a 14-day RSI, smoothed by seven-day periods, under the daily chart. Then watch for major turns below 20 and above 80. These cyclical shifts are highly predictive and tell you when to establish longer-term positions.
Sit on your hands. Staying on the sidelines until the time is right is one of the best ways to trade the long-term markets. It's easy for a remote trader to feel out and start chasing the market. This compulsive behavior leads to overtrading and poorly timed entries. It's a tough flaw to overcome, because it doesn't disappear with experience.
Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. At time of publication, Farley had no positions in equities mentioned in this column. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback and invites you to send it to Alan.Farley@TheStreet.com.
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