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The Search For The Day Trade |
| Category: Technical Analysis, Trading Activity |
Published: 14-12-2007 |
By: Traph |
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Morning Troopers 
We have come a long way from first analysing an intraday chart
in an attempt to pick entry and exit points. So how are we likely to locate that
illusive day trade?
Some will call it the Holy Grail of opportunities.
Even an entry under $10k could easily realise 10% in an hour or even in minutes.
But how do we locate this stock and anticipate it's run?
Every
trader will have a style and organisation of their own. These styles will differ
from person to person but there are basics that MUST be followed and one must
have the ultimate ingredient within! The urge to succeed no matter how small the
move is!
Day trading differs from Swing trading in that the time frame
for Swing trading will differ much from the volatility
of a single session of a day trade. It is very different in that the day trade
is extremely short in the life of a stock and the trader. It is like running a
marathon with the least oxygen available! Swing trading is less volatile and if
picked correctly can realise a much higher return over the span of the trade,
however the day trade introduces excitement and the prompt realisation of quick
profits.
So what does one need to basically look for that illusive day
trade and how can one pick a stock that will be volatile enough to realise
profits from the swing of half a cent?
The majority of the best day
trades are found in speculative stocks and stocks of low price range. After all
we are looking at small movements with least outlay so we would be unlikely to
day trade a stock in the price range of a few dollars because the return would
be very limited and very small.
For example, a 1 cent return on a $5
share which equates to 0.2% return is not the same as a 1 cent return on a 10
cent share which equates to a 10% return, hence the capital outlay plays quite a
large part in this.
I use 2 forms of scans. The first using
incrediblecharts and the second using my protrader 2 platform once the market is
open and within each hour during the day.
Using incrediblecharts scan
capabilities I search for the following criteria as a matter of
preference:
1. Scan the market based on a price range of interest, say 1
cent to 1 dollar.
2. Look for Volume spikes over the last day trading
exceeding double the 50 day Volume EMA.
3.
Look for the RSI
70/30 signal crossover over the last 5 trading days indicating a bullish
signal.
4. I look for MACD (26,12,9) Signal crossover over the last 5
trading days indicating a bullish signal. MACD is constructed by default of 2
moving averages long period 26, short period 12 and a signal line.
Using
protrader 2, the market watch screen provides timely and current scans. The most
important part of the screen is the "Gains in percentage" then once the screen
is loaded, I look for traded volumes and trade quantities. Volume alone is NOT
indicative and one needs to know how many executions resulted for the relevant
total volume.
Doing a scan tonight as specified above returned the
following stocks of interest:
Gold sector returned BDG and TKL.
Oil
& Gas explorers returned AOC, ERH and PRE.
Once the stocks of
interest are located they are placed on the intraday for the following trading
day and watched for signals. Also some may be discarded due to small volume
turnover and when watching the bidding queue one may find that the sell pressure
is too great to realise a possible gain so this is where the basic criteria
enter the equation.
Now I am not very familiar with other platforms so I
can not comment, however I am sure if you use another platform or software all
relevant information in this discussion may be adapted to suit.
The
basic requirements for volatility
1.
Sensitive news announcements.
2. Bidding queue needs to be BUY heavy at
the upper level of the queue.
3. Discard any bids in the buy queue below
20% and any bids in the sell queue above 20%. This will provide a better gauge
of the bidding.
4. As per (3) above take note of dummy large volume
bids.
5. Look at the opening, closing price and volumes for the last
couple of trading days. Good indication of what to expect.
The Do's
and Dont's
1. Try to concentrate on a single stock if it is very
volatile, you may be surprised to find a few traders in a single day.
2.
No one is SMART enough to fully grasp news, so be very watchful of sensitive
news and try to understand the objective of the announcement.
3. Try to
buy at support, this is critical as you are able to pick the bottom of the
day.
4. Try to sell at resistance, this is likely to be the TOP. The
intraday MACD becomes extremely useful in this instance being above or below
ZERO.
5. Avoid buying at open at any cost even if it looks irresistible.
90% of the first 15 minutes of trading sees stocks spike.
6. If this is
not the first day of volatility
for this particular stock, remember that price has a memory!!! look for
occurrences if the resistance or support is reached, what happened
next???
7. Above all, trust your initial instinct. hesitation introduces
confusion and mostly fear.
8. Trend reversals during the day are mostly
NOT instant, they take time to build, so use that as an advantage.
9.
Look for lower lows and higher highs, these indicate the current pressure and
the trend.
10. Sideways action achieves nothing and is a waste of time,
look for another stock in the early hours of trading.
11. work the action
using MACD. Watch for the MACD separation from the signal line, how vertical and
steep is the signal line, the more vertical the crossover the more the pressure
on price.
12. A good practice on the day is to buy in the second low and
sell in the second high, the rest is HISTORY.
13. Finally, YOU ARE NOT
ALONE!! beat them all to the punch line be first to take profit
otherwise you may well end up last taking a loss!
The best way to
tackle this and become successful with least mistakes is to watch the intraday
of a volatile stock, day after day after day. Never will any stock behave in the
same manner as another. There are no defaults and there are no systems, but
there are BASICS. These basics allow us to minimise any mistakes if
anything!
The basics are there to protect your capital. There is nothing
worse then overcommitting and finding the entry was so poorly executed that
rather than a small 10% profit we just realised a 50% loss. I know because I've
been there!
We must learn from these mistakes and poor entries and not
let a bad day get the better of us. There is always tomorrow when we are able to
utilise a poor decision result and turn it around to make it into an experience
not to be repeated.
before getting into day trading I urge anyone
contemplating this idea of making a living to watch and learn first, take plenty
of notes of what you experience on the day and play with some dummy bids first
in a notepad placing buys and sells at certain times, then look at the end of
the day and see how you faired.
It took many months if not years of
practice and I still get it wrong at times. Not intentionally of course but with
the volatility
and extremely short time frame for execution of trades, I can assure you that at
times I will miss an important signal which negates all other
signals.
After all it is the combination of signals and indicators that
one must be aware of and the lack of time for decision making may at times lead
to the wrong decision being made simply because you're in a hurry. The trick
here is to correct the mistake in a timely manner, and that can be easily
done.
I wish all good luck and I feel Monday is likely to bring some
pretty good day trading opportunities either to watch or to execute
have a great
weekend
Cheers
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