A Question For The Veterans
Q: This is a question for Gary or Millstox, or someone of similar experience. I do some daytrading, mainly small cap stocks with a mixed success and not for a very long time. The problem is this, It happens to me fairly often: A stock goes down soon after I get in. Doing it by the good daytrader's books (cut your losses), when it dips under some level that I set for myself, and it's even deeper than most recommend, I sell. I sold, only to find out the same day or day after, that the stock not only recovers, but even goes up to a new highs. Any good suggestion for me?
A:
You also need to learn to read the larger market. You need realtime
instrumentation. Level-2 is a good aid for beginners, but it's
pricey; realtime intraday charts are a must for any daytrader who has
to go to the bathroom occasionally. You need to pick a few solid
stocks that are long-term gainers and have a high daily trading range,
you start throwing away real money. I am talking about serious
quality high dependability predictable stocks like: AMCC, TQNT, QLGC,
BVSN, stocks that move at least a million shares a day but preferrably
not more than a couple million shares a day or so. Choose between
NYSE and NASDAQ because they move differently, learn one well. My
observation is that NASDAQ stocks have larger daily trading ranges
than NYSE stocks. Don't fuck with daytrading small-caps until you get
really, really good because you need a stock with a large number of
trades per day; don't even consider trading stocks less than around
$50/share. Don't pick the 4 stocks I mentioned, find your own and
learn to read them.
First, you should be using your level 2 screen AND your time and sales screen
to make your entry point (and exit). Use the time and sales as a guide for
your level 2 screen (the market makers can be tricky, however if you see alot
of people buying on the offer on your time and sales screen you are better off
and can feel a little more confident about the demand for the stock).
Second, use the price chart to determine where the support for the stock is.
Combine this with the figures on level 2. Be extremely careful though, that
once you pick your support entry level, that the price does not cut all the way
through the group of market makers at that level. Try and catch it on the way
up as indicated on the time and sales.
Third, you need to coordinate your timeframe periods. How long are you holding
this stock? You say it goes up "days" after you have sold. Sounds like if you
plan on holding it that long you need to loosen up that stop order to allow
yourself a little more wiggle room. The longer the holding time for the stock
the looser the stop loss. For daytrading stop loss should be set pretty
tight(or as the situation calls for).
Use your monitor for the S&P futures and the spread between the futures and the
cash index to learn when the stocks might get some heavy selling and buying.
Probably most important, you need to learn a good bit about how the stock has
moved over that last few days to judge exactly where to get in. Know where
your stock came from to know where it is going.