Best Of Both Worlds
Q: Ok, so I've been following the threads about day trading, and why short term traders lose, and so on and so on. But there is a way (and I'm giving away one of my "trade secrets" here) to more or less get the best of both worlds. (except for the tax advantage)
A:
First of all, I day trade for a living. I am not one of those high roller
guys with $100,000 to play with. Everything I do is on a much smaller, and
much slower scale. Where the typical successful day trader might try to
make $1000 or $2000 a day, I quit when I'm $200 up for the day. That's all
I need. But I can do that consistently wi
and trading slower stocks where the ticks are measured in 10 - 20 minutes
not 10 - 20 seconds. Eventually, if I get better and better at it I may
start to scale up, slowly and cautiously. But for now, it's small
transactions in slow moving stocks. I need time to react and adjust, to get
my orders entered in a cheap, slow online brokerage account, and most
importantly, to learn how to do what I do better. Also, when I take a
REALLY BIG loss, I'm not out $30,000, I'm out maybe $750 or so. At the
level I play the game that hurts bad enough to teach me something I need to
learn from the experience without bankrupting me.
I start out screening by price. I just feel more comfortable with stocks in
the 4 to 8 range. I understand the way they tend to move, and I have all
the necessary mental calculations down pat for stocks in this range. I
wouldn't know how to interpret a +1 3/8 move in a stock priced at 105.
Besides, it takes $105,000 to trade that stock hoping to capture a 1/4
point. It only takes $8,000 to trade 1000 shares of a stock at 8. And you
know what? If the stock at 105 goes up a quarter you made $250 on your
$150,000 investment. But if the stock at 8 goes up 1/4 you've made $250 on
your $8,000 investment. You make the same profit while tying up a LOT less
capital.
I like stock with average daily volumes between 100,000 and 800,000. I know
most high roller day traders like to see volumes in the millions, but this
is my niche. This is the kind of stock whose price behaviour I understand.
The high rollers need that volatility to make their 8, or 10, or 20 trades a
day. I typically make 1 to 3 trades a day. Some days I might not trade at
all. If nothing clicks, then I just watch.
Before I trade a stock I want to be REALLY familiar with it's moves. How
does it do it's dance? I want to know where it's been, last week, 3 months
ago, two years ago. What is it's price history. I look at charts for all
time spans; from 3 year charts to 1 day charts. I don't want to jump into a
stock trading at 6 1/2 today just because it looks hot, and THEN find out it
was trading at 2 last week, and hasn't really been at 6 1/2 long enough to
"certify" that price as "real". I've seen stocks like that drop right back
to their pre-spike levels in big a hurry.