Hond Financial

Posts Tagged ‘daytrading’

Have you ever watched a newscast? In know that's a silly question. Of course you have, right? And you've noticed that line of numbers running along the bottom of your screen. You probably told yourself that's just stock market stuff, and ignored it. All over the place people are paying attention to the "stock market stuff". Yes, fortunes can be made day trading the stock market, but they can also be lost of you don’t understand some basic concepts.

First of all, the stock market deals in the trading of shares. Shares are the units actually offered by companies on the stock market, and the money that the company makes from these sales are called stocks. So you don't actually buy any company's stocks. What you actually buy on the stock market are shares, which is why you're referred to as a shareholder.

There are a number of major stock markets globally, but the most famous stock market is undoubtedly the NASDAQ; the first electronic based stock market. This stock market is based in the United States and has the distinction of trading more shares daily than any other stock market in the world. Therefore, it is this stock market which can exert the most influence on stocks. The Dow Jones Industrial Average, commonly referred to as just Dow Jones, is another key US based stock market.  Both are used extensively by day trading robots and other traders to make a living.

You're not expected to invest in the stock market on your own. There are professionals who can do it for you. They are referred to as stock brokers and usually will have a great deal of experience in how the market actually works. Becoming a stock broker can be a very lucrative career move, but you must understand all the ins and outs of the stock market. This is because every transaction in the stock market carries a commission, so every trade done by a client pays you a fee.

While it is nice to have some help, everyone should learn to invest on their own as well. If you’re serious about investing or day trading, you’ll want to learn to trade and invest on your own. This way you will start to get a good idea of what is happening. A great way to get started in the stock market is to find a reputable broker and some good research to start learning. Searching online you will find a bunch of free research providers who will help you with advice on what to invest in.

Trying to figure out the best stop loss when day trading is always a hard thing, even for more experienced traders. One thing is for sure, if you don't use a stop loss and try to become a trader, there is almost a 100% chance you will lose 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. Do not pay attention to what the indexes are doing, it is what many stocks over various sectors are doing overall and how they are trading in general. 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 sure fire way to figure out odds, if you watch what other stocks are trading like 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 high to low over the last 20 minutes. Do not pick the most calm period of time, as this tends to not stay constant. If current times are super calm, go back on the chart to a more volitile period for the day (or another day) and then figure the range. It does not have to be exact, an approximation is fine. Once you have this range, that is your maximum risk.

What the best thing to do is to try to lower the max amount to a much lower 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 starts to push the last few times it reached a high turning point, then it is probably 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 current price is at around 40 now, you would look to place your order at 39.75 to go long. You will most likely miss some trades doing it this way, but have to ignore the urge to chase the prices. If the pattern is on a lot of names (by eyeballing) you have to be especially careful.

The second way to lower the risk is to split your order into 2 parts. So if you want to buy 500 shares, only buy 200 now. Wait until the price moves up a decent amount, including past the point where normally they would fade a breakout, and then look to add the remainder on a small dip of 5-15 cents or so. Move your stop price up higher .45 now (figuring you have a 1.00 stop to start) on all of it. 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 max stop remains the same on all 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 easiest way around this situation is to lower your share size - when upredictability sets in, trade only 1/2 your normal size. 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 is is very difficult to actually tell that trading conditions are improving without actually trading, it is a very good idea to trade with less shares until you visibly see conditions look better over time.

Figuring out the proper stop loss when day trading, whether experienced or novice, is always a tricky subject. 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 large difference in not only the stop placement, but in the overall risk level for the trade. 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 more volitile conditions are present, using a smaller stop is a really bad idea because of the significantly higher odds that even a smaller than normal oscillation in price will hit your stop.

The way you figure the odds in a stop happening when day trading is somewhat straightforward. Look at the average range high to low over the last 20 minutes. Do not pick the most calm period of time, as this tends to not stay constant. If current times are super calm, go back on the chart to a more volitile period for the day (or another day) and then figure the range. It does not need to be an exact amount, we are just looking for an approximation. 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 accomplished in 2 different 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 most likely miss some trades doing it this way, but have to ignore the urge to chase the prices. If the pattern is on a lot of names (by eyeballing) you have to be especially careful.

The second way to lower the risk is to split your order into 2 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 price up higher .45 now (assuming you had a 1.00 stop to start) on the whole thing. The other alternative, if the market tends to fade the push moves, is to buy 200 shares now, then put the balance of your order .25 above your stop price level (figuring it is 1.00). The max stop remains the same on all 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 easiest way around this situation is to lower your share size – when upredictability sets in, trade only 1/2 your normal size. The name of the game is preservation of capital first and foremost (hence the stops), but second its to avoid easy loss situations. While is is very difficult to actually tell that trading conditions are improving without actually trading, it is a very good idea to trade with less shares until you visibly see conditions look better over time.

Once someone has mastered the basics of trading, the biggest hurdle is actually finding good ideas to watch for a trade.  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 key advantage to a day trading robot is its ability to be unbiased and apply the same set of rules every time.  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.  Of course in this situation, you could just let the day trading robot trade your account for you, but I know a lot of traders are really uncomfortable with that notion and they like to retain 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.

Anyone looking to use a day trading robot should be aware of limitations and plan to use it as a part of an overall trading plan.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.Anyone who has created such a tool would never in a million years license it or sell it because of the amount of money it would generate.In order to get the maximum benefit from using a day trading robot, you need to have realistic expectations for performance.

Just a year ago (May 2008) My Trading Robot day trading service was launched.  My Trading Robot allows users to watch a real day trading robot live in action every day.  The robot day trades stocks that are in the S&P 500 and Nasdaq 100 indexes.   Added features to improve the day trading experience over the last year include allowing users to create custom watch lists that can be saved and loaded when needed,  improvements in the statistics associated with each signal, and enhancing the display of information to include maximum draw downs while a trade is active.

“I am very excited to celebrate the 1 year anniversary,”  its founder said, “The robot has been extremely consistent, and has adapted to this very difficult market with ease.It still works terrific each day finding some decent winners, with a simplicity that is not matched anywhere.  We are still the only day trading information service I know of that broadcasts in real time over an instant messenger to subscribers.”

My Trading Robot day trading software is fully hosted, so there is nothing for users to download or install.Because there is so little to setup or do, it is probably the easiest software by far for day trading anyone has ever used.All that is required of the user is for them to tell the robot which stocks it should trade and show signals for.The robot will send out its entry signal, its target price, and its stop loss to users over instant messenger.Additionally, a majority of the entry prices for each trade are done using stops that are away from the current market which gives traders plenty of time to look at the idea.

“I am busy working to implement some terrific additions, which will include a low price trading service that will day trade stocks priced from 1 to 12 dollars a share only,”  Trader X said, ” and also at the same time My Trading Robot is launching a swing trading service for those who do not have the time to day trade or it is just does not suit them.”  These should be online soon and available to all users.Every person subscribed to My Trading robot will have access to all three products, and all of them will work in a similar fashion to each other.

My Trading Robot day trading robot is currently still in beta (ending soon) and is free to all users who wish to sign up and try it out.  Historical archives for all day trading activity can be found at http://www.my-trading-robot.com

More than ever before, computer trading is taking over the markets.  There are trade algorithms to execute orders for funds, scalp pennies 1000s of times a day, and even algo's that are designed to trip up other algo's by exploiting weaknesses in the way they work.  There are hundreds of companies that have created sophisticated charting packages to help day traders find ideas, including day trading robots.  All of this points to the same thing:  computers are here to stay, its up to you as a day trader to figure out how to get the best tools to find ideas to make money.

This does not mean throw thousands of dollars at every "hot" product - this usually does nothing to generate anything useful.  In addition, each trader can only focus on so many things at a time, so you have to pick and choose the tools you trust to help you very carefully.  Some people like to use a day trading robot to help, others like to put together a set of indicators with some basic useage rules and that works for them.You need to establish a decent regimen for finding ideas that is followed the same way each time so that ideas are considtent.  Those are not consistent at all and are not able to be proven as valuable in the long run because of the sporadic nature of how that works.

When it comes to computer tools to help you, there is an additional thing to consider:  you can get a program that allows you to custom write your own rules and indicators and then apply them in real time.This is a good options if you are a more experienced trader and have the programming knowledge (or want to learn) to get the job done.This ends up being very time consuming, as you often spend days of work only to discover that the theory is not valid.  In fact, if you go down this path, this will happen quite often but is part of the learning and development process.  Some day traders who go down this path will do part of it themselves, then get an outside person to help them finish some difficult parts.  Indicators are quite simple as far as complexity, and then you have the other end of the spectrum which is a day trading robot which usually is quite complex because of all the parts that go into creating such a tool, so plan your time accordingly.

An odd thing happens if you put up a stock price chart and ask a bunch of people what the trend is.  Even when its completely obvious to someone like me, as in not any question at all, you will still get many different answers based on the exact same chart.This results from people not knowing how to find a trend on a price chart with any speed or accuracy.  It is actually quite simple, and is a key thing to know if you want to learn to trade.

The first thing to do is to size the chart properly.  There is no point of putting up 5 years of data if you are looking for a daytrade to hold for 5 minutes – that is completely pointless.  So here is a guide for what you need as far as time loaded on a chart:

Daytrade:

1. 1 min chart:  Have at least 2 hours of data (120 bars) on the screen but no more than 6 hours (1 full day).
2. 2 to 5 min chart: Make sure you have at least 3 hours of data up, but no more than 2 days.
3. 10-15 min chart:  Have at least 3 days of data up, but no more than 1 week.

For swing trades, which are a longer term hold, you will want a 10 to 30 minute chart on your screen, and additionally about 10 days of data.

Once you have the data up on the screen, make sure you are looking at a "bar chart" and not a "candlestick chart".  This is easier to see the trend.Start by looking for every V bottom area.  Anytime there is a low with a V bounce, make note of it.  In addition, look for / top areas where it spikes up then sells off.Focus in on the major ones where it moves significantly away from that area in a short period of time.Next you will want to get your charting draw tool and connect the V to each other V you see.Connect the / to each other /.Connect the low areas on the V, and then the highs of the /.  Again, this is a key to learn how to trade.

Lines that slope from the lower left up to the right means the stock is in an uptrend.  Lines that slope from the upper left down to the right means the stock is in a downtrend.Another easy method: Go to the first bar on the left, and then to the very last price on the right hand side.  Draw a line between the two.  If the line is sloping up – its an uptrend.if the line is sloping down to the right, then the trend is a downtrend.  The other key thing to look at is the oscillations around this trendline.Does it go up and down 2pts, up and down 1pt, up and down .50 etc - on average, not exact.This is how you can tell in general the strength of the trend.  The lower the oscillation, the stronger the trend.  The theory here is the buyers (in an uptrend) or the sellers (in a downtrend) are so strong that it hardly budges against the buying or selling.

Another thing to keep in mind the more you practice, the faster it gets – the lines are no longer necessary.I can glance at a chart and know the trend and approximate strength within seconds.  In addition, you will always want to know the trend on the next higher timeframe than you are trading.  For example, on a 5 minute chart the trend might be up, but on a 15 minute chart it is still down.  This needs to be paid attention to, because the longer term trend can push the shorter term trend back into a downtrend.  In general, you want a higher term chart to be a multiple of 3 vs the chart you are trading.So the way it works is if on a 1 min chart, you also want to look at a 3 minute chart - if you are using a 5 minute chart, you want to look at a 15 min chart also.  Once you can easily tell the trend of any chart, other aspects of learning to trade become much easier.

Once you get through all the books and courses you might take to learn to trade, it comes down to finding quality ideas in a timely fashion.  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 key reasons to use a day trading robot is that it applies a set of formulas in exactly the same way every time and is unbiased by outside factors.  The real key is finding a day trading robot that is reliable in its stock picks and is easy to use.  Of course, this is no easy task as there are a lot of imposters out there or more likely, stuff that used to work but no longer does because of changing market conditions that the day trading robot cannot adapt to.

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 is of no help to use a day trading robot that scalps stuff so fast that you cannot even get an order in if you wanted to follow it.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.Anyone who has created such a tool would never in a million years license it or sell it because of the amount of money it would generate.In order to get the maximum benefit from using a day trading robot, you need to have realistic expectations for performance.

An interesting thing has happened in the last 6-8 weeks.  There are almost no sellers.  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.As most traders find out - fighting the market is pointless, all you can do is react to what you are given.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 favorite pattern lately has been to break down below a support (or even key support) and then out of nowhere a massive burst of buying comes in to rescue the market.  It happens so often I now expect it to happen.Most of the time this results in a new low being made, followed shortly by new daily highs as the buyers chase like crazy.

Even in the height of the bull market, we would repeatedly have 10-15+% corrections in the market that would last a month or so.   And this was when everything was just perfect (or everyone thought so).Because of this I am not sure what is actually going on.  Several theories are in play that I think about:

1. 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.
2. The level of manipulation appears high.There is a group of funds or banks backed by the Fed and Treasury whose goal it is to push the market higher to form the opinion that the economy has turned.  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.
3. Traders are mostly gone, and computer algorithm trading takes over.This can happen also - computerized trading has taken over more of the futures market, which in turn drives stocks.Since no one tries to fight this trend, with all of them doing the same thing it just feeds on itself.I like this theory too because the actual price variance is so unusually low on these large pushes higher.I have seen the DJIA futures push up almost 100pts in 20 minutes with hardly a retrace at all, even at the high.Of course this type of thing has happened before, but not nearly as often as it does now on a daily basis.

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.The market could hit 9.000 or 10,000 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!

When looking to trade the market, most people don’t realize there is a difference in the time of day that definitely affects how stocks act. Not using this information makes it harder to make money through any type of trading, short term, long term, or even day trading. In addition to time of day, whatever method you employ, whether a trading system or just some tools, will also have certain times of the day where they tend to work better or worse. This type of action can only be discovered by tracking the signals or stock picks that are flagged, then seeing over time when the best use is.

The first 30 minutes is usually the craziest time. Stocks can have bigger swings up and down as there are not a lot of established orders from bigger funds in the market yet. It is a great time for daytrading and short term trading of stocks because of the increased volatility, but with that also comes increased risk of a stopout. Also there really is not much in terms of support and resistance created yet, but you can look at the last hour of the prior day for clues. Sometimes using a stock trading system can be of assistance when the market has increased volatility, assuming you have thoroughly researched and tracked the trading ideas it might send out.

From 10am EST until about 11:30-45 EST is prime time for trends to develop. Of course the times are not exact, but a time range where a decent, continuing trend will try to develop. Also the volatility calms down alot, making it easier to put in a stop that is closer to the actual price when day trading. For longer term investing, usually this is not the time to make a decision on entrance, its too early in the day. An exception would be any entrance based off a daily breakout, or some other key fundimental news that is just starting to push the price of the stock. Entry when that happens is ok during this time.

From about 11:45 until 1:15pm EST stuff usually slows down alot, and fake moves can happen. Fake moves refer to price action where something is acting weak then moves up out of nowhere and vice versa - making it easy to get stopped out. Most of this is just due to decreased volume and liquidity. Program trading bots and algorithm day trading bots love this period of time in the market. Every move that gets started seems to fade, or they can create the appearance of X happening, suck some traders in, and then do the opposite. This also makes it very difficult for most traders, as it will seem just when a move gets started, it abruptly ends, especially hard for those learning to trade. Of course there are enough names that do really move and keep going, but these are impossible for the most part to sort out from the ones that stop and reverse until the move is too late.

Stuff will generally pick up after 1:15 for about 45 min or so, then slow down again near 2pm EST. Often, 2:30pm EST is a key time to watch - reversals often start here. Countless times the market will put in a top or bottom near this time and then reverse into the close. Does it happen all the time? no. But it does happen enough of the time its well worth paying attention to. Volume should pick up after about 3-315 EST into the close, whether there is a 2:30 reversal or not. This is again a good time for day trading, AND its good for watching for longer term additions as you can see if the stock is holding gains, pushed above key resistance, has made a major reversal on daily chart etc.

One thing to note here, is in recent times they have shifted the 2:30pm stuff to the last 45 minutes of the day (meaning instead of 2:30pm est, they do this at 3-3:15 est).Success comes from noticing patterns of behavior and anticipating what might or should happen.  A big part of trading is not just knowing what trade setups happen in real time, its anticipating patterns of behavior.