How To Trade While Away

Some of you have asked me how I trade when I'm away, and my answer is that, I simply don't do it. If I'm away, I'm out of the routine and that puts me in a severe handicapped position.

When I'm home and working you can literally set your watch to the trading routine I have every day. Having a consistent approach to how you manage your investments is important. While you can't possibly control what the market and your portfolio is doing, you can control how you approach it. Every successful trader I know has a set routine and does not alter it very often.

That being said, a few years ago Alan Farley wrote an excellent article that outlined the 10 tips for effective remote trading. In that he provided the following tips:

1) 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.

2) 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.

3) 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.

4) 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.

5) 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.

6) 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.

7) 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.

8) 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.

9) 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.

10) 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.

That's very good advice Alan! In fact, many of these suggestions are appropriate for those of you who can't stay on top of the market as much as I can most of the time. A common theme you'll find here is the importance of customizing your strategy and approach to the time, skill, and effort you can put in. In short, you can't trade like a master if you're putting part-time hours and effort in. However, you can still do quite well if you recognize and adjust to your own limitations and preferences. Like yesterday's quote, if you don't know who you are, the stock market is an expensive place to find out!