November 19, 2009
Why not learn about day trading
Every informed investor is looking for that next get rich quick scheme. It is practically an American institution. But there’s a basis why they dub it a plot, which characteristically means a deceitful or covert arrangement of action. The simple fact is that most schemes that promise to make you millions with day trading, most likely have about as much success as spinning roulette wheel. Ya, it is correct that many day trading systems are few more that informed gambling, but they are gambling all the same. Day trading itself is a form of gambling, as you are betting you can time the stock to enter and exit in a few minutes or seconds with a profit.
What will it take to make a good day trade? To begin with, you need to understand that there is no such thing as easy money. You should not approach day trading with the expectation you will make millions. Day trading is all about making small profits several times a day which eventually add up. A day trader that know what their doing will proceed quite cautiously on any particular day trade. Instead, they buy small numbers of shares of companies that they’re familiar with.
How can you figure out which stocks you should trade? Most commonly, traders will choose stocks that they are familiar with. Having analyzed and monitored the numbers over a few a weeks a trader gets convinced to trade a stock.
Though there are a number of different strategies that day traders employ, most day trading strategies rely heavily on technical analysis. Technical stock analysis means that traders believe that he can detect patterns in the way a stock trades by looking at charts. For example, a trader may discover that a certain stock tends to move in a tight trading range most days. This might mean that a stock only moves a few points a day. For example, one day it can open at 33, move to 36, then fall to 34. A day trader closely watches these types of trades and looks for any day to day patterns in their activity.Watching the patterns of how stocks trade day in and day out will really pay off for anyone looking to get into day trading.The real key is to try to concentrate on just a few select stocks in the beginning so that you do not go down the path of information overload.
This strategy may seem a bit simplistic, but it is a proven winner. All a trader has to do is to concentrate on one particular stock and watch its movements each and every day. After a little while, the trader will have the confidence to make a day trade. While this approach probably will not help you to become rich overnight, you should be able to earn some profit numerous times throughout each day, which can add up to a significant income over time. In fact, some day traders trade the very same stock hundreds of times a day. This is because they believe they have discovered the secret to the successful day trade and that the more they trade the more they will make.
November 18, 2009
Swing Trading Without Stops Is Suicide
Trying to figure out the best stop loss when day trading is always a hard thing, even for more experienced traders. One thing is most certain, those traders that consistently do not use stop loss orders face almost a 100% chance of losing a significant amount of money, if not all of it. Even the prudent use of stops, if they are placed in the wrong area, will result in consistent losses no matter how good the stock idea is. In addition, adding positions before market moving news events occurs can assure increased volatility and increased odds of stopping out.
The major thing to concentrate on is the current market conditions - this is very important. Not what the Dow Jones Average is doing, it is what many stocks are doing overall and how they are trading. What is the general volatility level for the day, is stuff trading slow and steady or are they whipping up and down quickly on a slight move in the futures market? This makes a huge difference is not only your stop, but the risk level involved. Most people assess risk by the amount one can lose when day trading or swing trading. What most people fail to think about is the actual odds of that loss happening.
While there is no easy formula to figure out the odds, if you watch the pattern of behavior of how similar stocks are trading, you can get a pretty good idea. If current conditions are calm, you can usually use a smaller stop amount and still have decent oddsit will not get hit. When conditions are frantic, a smaller stop is almost assured to get hit - meaning the 30c stop has a 98% chance of getting hit even on the exact same name.
The way you figure the odds in a stop happening when day trading is somewhat straightforward. Look at the average range over the last 20 minutes or so, the high to the low area of the bars. Do not pick a very calm period of time, as this calmness tends to lead to increased and unpredictable volatility. If the price action currently is very flat and calm, go back on the chart to a more volatile time of the day or prior day and then figure out the range. It does not have to be exact, an approximation is fine. Once you have this range, that is your maximum risk.
What we want to do is to lower this max amount to a lesser level. This can be done 2 ways. The first way is to study the pattern of trading behavior for that stock locallly when it reaches a prior high level - does it normally fade back or does it have momentum and push through? If it tends to push (last few times it reached a high turn point), then its ok to buy the stock on strength. If it tends to fade or try to sell, better off to see it push, then put your order 1/4 of the range you computed earlier, lower than the high its at now. So if the range was 1.00, and the stock was at 40 now, you would put your order at 39.75 to go long. You will miss some names like this, but resist the urge to chase. If a similar pattern is occurring on a lot of other stocks (in general) you have to be extra careful.
A second way to remove some of the risk is to split your entry order into 2 different parts. So if your trade size you want is 500 shares, just buy 200 shares now. Wait until it pushes a decent amount up (meaning it has pushed enought that it has moved past the fade the breakout move area), then look to add the other 300 on a 5 or 10c dip. Move your stop up .45 now (figuring you have a 1.00 stop to start) on the whole thing. The other choice if the price tends to fade after pushing higher is to buy 200 shares now and then place the balance of your order .25 above your stop (assuming it is 1.00). The maximum stop loss level should remain the same on all the accumulated shares. The difference here is if market conditions get poor for going long when day trading for a period of time, you are going to lose a lot more averaging when its selling because you will get filled on the add, then stopout 2 minutes later on all of it.
The way around this is to simply cut back size - when the market gets unpredictable, play ONLY 1/2 normal size or less until it starts to act more predictably. The name of the game to being more profitable is to preserve capital with stops, and secondly to place the stops in the right way to avoid making a loss too easy for the market to hit. While its impossible to tell when conditions improve unless you are actually trading, there is nothing wrong with playing less shares until you see it look better over time.
August 9, 2009
Theories On The Market
An interesting thing has happened in the last 6-8 weeks.There appears to be very little sellers present. Literally.The market has made a massive directional push up and really just holds up and does not correct now.It seems almost funny now how difficult it is to short anything for more than maybe 20 minutes or more. Obviously you cannot fight the market - its doing what it wants how it wants.This action sure makes trading hard, the guys that are really getting the most out of it are the buy and hold.
One thing I know is that no matter what these guys do that are chasing and then bidding the market so it does not sell - it will sell eventually. The only way you actualy make money, whether day trading or longer term investing, is to lock in profits. Until then its just a fantasy. At some point they will tip the tide to the point where a majority are actually fearful of losing gains and then the selling is real.
A key pattern lately has been to break below support and then out of nowhere a massive burst of buying jams the market back to the highs.This sort of thing happens so often now, its completely expected. Often this can result in a new daily low (the break) , only to see a new daily high 30 minutes later as the buyers relentlessly chase the market (im sure shorts are in there too, trapped like dogs).
Even when the economy was plowing along at full steam, we would have 10-15% corrections all the time. And this was when everything was just perfect (or everyone thought so). So I am not sure what is going on now. Several theories are in play that I think about:
- Shorts are completely or mostly out of the market. The SEC messing with the short rules before caused a panic, and now there are many proposals again in regard to uptick rule and shorting. Rather than get caught, they are staying away from day trading and longer term positioning.
- Manipulation factor on high. There is a group of large banks or funds that are pushing the market higher at the Fed's and Treasuries request to try to turn the economy out of the recession by making it appear as if the stock market has it figured out. The way the rescues happen like clockwork, the ramps into the close every friday, and other very odd trading behavior gives this some credence imo. Would be easy for the government to just give these guys money to push the market up.
- Traders all gone, algo's take over. This one can happen as well - computers have taken over more of the futures trading which drives the market.Since no one tries to fight this trend, with all of them doing the same thing it just feeds on itself. This one I like too because the actual variance of price during the rally pushes is actually uncharacteristically low most of the time. I have seen the dow futures push up 100 pts in 20 minutes with maybe an 8-9 point max retrace the whole time. Sure this happens - but not this often as it does now.
Whether any of these theories are true or not, I have no idea and may never find out. All I know is the trading action is very odd and I expect at least half if not more of this gain to be gone when this is done. Note - I am not predicting a top, I am saying that when this is done, these idiots will undo this much faster than it actually ran up as everyone heads for the exits. We could hit 9k, 10k etc. I really dont think 10k is possible, with GM dust, C is dust and a few others they just dont have the fuel for the DJIA to actually push up that high in the short term.
Maybe everyone just needs to learn to trade again – this is the new market to stay!
June 6, 2009
Find Better Trading Ideas With A Day Trading Robot
Once you have learned the basics of trading, it comes down to how many quality ideas you can find during a trading day. Some people subscribe to chat rooms with other traders, some people like to watch real time news, and others like to program computers to scan the market or use a day trading robot to help them find ideas in real time to make money.
One of the advantages of using a day trading robot is that it is completely unbiased in its ability to find the same patterns over and over. The real key is finding a day trading robot that is reliable in its stock picks and is easy to use.This is of course no easy feat, because there are a ton of impostors and stuff that used to work but now is of little use because the market changed but the robot was not able to adapt.
One key component of any day trading robot that should be essential is the ability to find stuff in real time, but give you enough time to actually act on the information it provides. It does no good to use a day trading robot that scalps something so fast that you cannot even get an order in should you choose to follow what it is doing.You can always choose to let a day trading robot have control of your account, but a lot of traders are uncomfortable with this type of situation and like to keep control. In addition, there are always nuances that occur each trading day that a computer program cannot take into account but a human trader can.
Overall, anyone looking to use a day trading robot to help find ideas should realize the limitations and the fact that it should only be used as a tool to enhance a traders own judgement and trading prowess.It is fantasy land to expect a trading robot to be right 90-95% of the time, or for it to make 40% every month in your account. I can tell you 100% anyone who has such a tool would never sell it or lease it out - they would be living on a private island off the wealth it creates daily. This does not mean day trading robots are not useful, you just need to have realistic expectations to get the maximum usefullness out of them.
