The Trading Day
Stockscores.com Perspectives for the week ending December 5, 2009
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In this week's issue:
The alarm clock sounds off at 5:30 am. A few years ago I decided to move to the Pacific Time zone which means the market opens at 6:30. If I am going to trade the open I have to get up early. Every morning I question my decision to be a westerner but it is not long after I get up that I remember why. The view from my bedroom window is pretty nice.
I then begin the long commute to my office. Down the stairs and across the hall and I have arrived. Some days I am showered and dressed, some days I am not. It's a trader's life for me.
Move the mouse around on the three computers that I use for trading and each comes to life. The darkness of morning is brightened with the ethereal glow of monitors. My daughter once told a friend that I trade stocks for a living. When her friend asked what stocks are, she answered that they are "green and red lines on his computer screen". Soon it will be time trade those little colored lines.
The open of the market is affected by trading in Asia and then Europe. I check the premarket trading in the S&P 500 to get a clue about where the market is likely to open. I don't care too much whether it is up or down, a lot can change by the time the market opens. I do care if it is abnormally up or down. If there was something major happening in the foreign market there could be a big gap in the North American markets.
I don't really like big gaps in the overall market to start the trading day; I find it limits the number of trading opportunities that I can find. I trade stocks that are trading on their own story. If the overall market is trading abnormal in one direction or another, it will outweigh the action in the individual stocks. That makes it harder to trade the strategies I prefer.
However, most days, perhaps 95 days out of 100, the market will not be abnormal enough to over power the individual names that I want to trade. And so, most days I will go through my normal process of building a watch list.
But wait, there is still a half an hour till the open, I have time to grab some breakfast first.
With 10 minutes to the open, I sit down in front of my screens and get ready to trade. On the computer immediately in front of me are three screens displaying my real time charts, watch lists and price quotes. To my right, another computer with my trading platform displayed. Between the two, a third computer that I use for email and fill the slow times with some work for the Stockscores website.
At this point, my focus is on the three screens directly in front of me. There is not much to do until the market opens, I can't really build my list of stocks to watch until the market opens for trading. I will check the premarket movers but this work is a bit of a waste of time since these stocks will come up when I do my first scan of the market.
The bell rings and I go to work. Unlike most traders, I trade a different list of stocks every day. I believe that you have to trade break downs in market efficiency. Most stocks, most of the time, are efficiently priced. I only want to trade the stocks that have the best potential.
That means I focus on the stocks that are trading with abnormal volume. There is something significant happening with these stocks and they have the best potential to make big price moves from a predictable pattern.
I have some routines created to find stocks that are trading abnormal volume inside the first couple of minutes. Stocks that open with much more volume than normal is what gets a stock on my watch list, provided they are also trading very actively so that they have the liquidity for me to move in and out very quickly. I reduce the market from 7000 stocks to the 50 or less that meet these initial criteria. All this is done in the first few minutes and I will repeat the process a number of times in the opening hour and then at least hourly as the day progresses.
My process for finding opportunities is quite simple. I have that list of abnormal stocks that I watch for chart pattern set ups that I like. Using two or three different strategies, I am focused on 20 or so stocks, waiting for stocks to satisfy my rules. On a typical day, there might be 10 trades worth taking. Some days it can be much busier, other days are slow.
The greatest challenge I have is to maintain my patience for good trading opportunities. When you are sitting in front of the screen all day, there is a desire to make things happen, to force the market. This can lead to over trading; taking trades that don't quite meet all of the criteria. You can make more money by trading less.
The middle of the trading day will tend to yield the fewest opportunities but losing focus can often cause a bad miss. There will be the odd big mover that starts in what many people consider the dead zone of the trading day. I am trading abnormal stocks which are often marching to their own drum so I don't subscribe to the view that there are no good entry signals through the middle of the day.
However, the best follow through will come in the last hour. The amateurs open the market, the pros close the market. Stocks that want to go higher will do so late in the day as the big funds take positions. The stocks that have problems and are being sold will often see an acceleration of the selling pressure in to the close.
I don't like to initiate day trade positions in the last half an hour simply because the trades tend to run out of time to develop. However, swing and positions are often best entered at this time and so I like to run market scans for different strategies and possibly take positions in the dying minutes of the trading day.
Work is not done when the closing bell rings. I like to review the trades that I did but also figure out what good trades I missed to understand why I missed them. After 20 years of doing this, I am still always learning. That is what keeps trading interesting.Back To Top
The Stockscores Simple is my preferred position trading strategy, it is the one that I use more than any other. This strategy seeks stocks with breaks from predictive chart patterns and use the Stockscores indicators to help find them. If the Signal Stockscore is above 80 and the Sentiment Stockscore is above 60, we check to see if there is a good chart pattern.
A good chart pattern will have a break through resistance, from optimism, from low price volatility with abnormal activity. Optimism exists in a chart with rising bottoms.
Finally, we check to see if the stock has enough upside potential to the next level of resistance to justify the downside risk. We want twice the reward potential for the risk we have to take. The risk is the difference between the entry signal price and the support price.
I ran this scan on Friday and found a few stocks that I liked, the one included below had enough liquidity to be featured here.
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1. CMVT
CMVT is breaking from an ascending triangle pattern. If you look at the chart over the past six months, you can see that price volatility is diminishing over time with rising bottoms toward resistance. The stock broke through resistance on Friday with abnormal volume. Support at 8.73.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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