A couple of questions for a day trader...

Discussion in 'Trading' started by bcheary, May 12, 2007.

  1. bcheary


    Does anyone out there play trends as a result of up and/or downgrades from analysts? Just watching the info on briefing.com, it looks like (with a handful of exceptions) that the equity in question usually reacts in the direction of the up or downgrade. Just curious to see if a day trader considers this info -- I'm sure it's a rookie question - I'm just learning.
  2. I don't trade stocks so I can't answer your question directly.

    But here's a thought:

    Start a database, going back as far as you can getting the information on the UP/DOWNGRADES, and begin developing a system of trading which utilizes it if it has good positive expectancy.

    If it works, I'll bet you dollars-to-donuts someone is already doing it.

    Good trading,

  3. ess1096



    Hopefully that link works. Not because I have any respect for Michael Parness but what he has to say about analyst in those pages is true.
    I tried playing the Briefing dot com upgrade MoMo when I was starting out. Now I trade on technical analysis and I notice that analysts are almost always late to the game. Analysts are usually fundamentalists. If you are daytrading you have to be a technician. You'll find that you'll always know when the analysts are about to upgrade the position you just took. :D
  4. Analyst ratings almost always occur AFTER significant company news is released... News about positive earnings usually results in an upgrade, warnings result in a downgrade, and so forth.

    It's better to filter a news stream (Dow Jones, AP, Vickers, Reuters) and watch for those events, followed by price changes (to weigh the quality of information). Identifying concurrently occurring news events (e.g., positive news -> upgrade) will improve the reliability of your forecasts.

    P.S. If you attempt to automate this, trust me, phrase searching doesn't work. You need semantic ontologies based on conditional probabilities.
  5. It depends on who upgraded the stock and what the stock is doing at the time of the upgrade. If Goldman upgrades a stock that has been a little weak or slightly flat, and once Squawk (Trade The News, or any other news service that is quicker than briefing) announces the upgrade, the stock hasn't moved much or at all, I'll be quick to buy and sell into the pop resulting from the upgrade. I'll also do the opposite if it's a downgrade - if I can get short before the stock has moved as a result of the downgrade, I will do so.

    Once the move has occured, I'll usually look to mean-revert; when a stock is upgraded, a lot of the time someone uses that as a selling opportunity. If I was informed about the upgrade after the move has happened, I'll look for refreshing ECN sellers or pure market shorts as clues to get involved on the short side; again, I'll do the opposite with a downgrade - if the stock has already fallen a good bit, I'll look for refershing ECN buyers or offers getting taken out as clues for a reversal.

    Pre-market, I'll look for fades if the stock has over-reacted to an upgrade/downgrade. My opinion of that is subjective, and can be wrong, but generally some analyst running his mouth shouldn't affect the value of a company by 3%, or whatever, and if it does, I'll look for a quick fade once the market opens.

    Before any upgrade or downgrade hits the wire/public news, somewhere a trader or group of traders has accumulated a position to sell into the move. That's why it's dangerous to buy a stock intraday when it has been upgraded if it has already made a move, no matter how small.
  6. bcheary


    I agree with not getting into a trade after the stock has already made a move -- It would be foolish (and not to mention probably costly) to assume the stock would continue to climb (or fall) after the initial trend.

    I have been compiling data using the up and down grades on briefing.com. My plan is to look at a month's worth of data and compare to see if (for example) one analyst company has a more significant effect, or if one category (hold to buy) has more of a likeilhood to increase and by how much.

    Thanks to all for the input -
  7. Very subjective question and there are a lot of variables:

    1. Stock's move prior to the up/downgrade

    2. Who up/downgraded

    3. Did they up/downgrade from Buy to Neutral(ok) or Neutral to Sell(not good if you're long). I think there is a degree of change that could be factored.

    4. Are they a lone analyst in their up/downgrade. Often these moron analysts move in packs and only up/downgrade at the same time.

    5. Their reason for up/downgrading. They might say that they think the chip sector could be weak next year which probably won't move the stock, or they could say that they see a competitor about to crush this company...that's a good one to follow perhaps.

    The other thing one must worry about is the level of manipulation. Some of these brokers might upgrade a stock and have funds backing them that will buy 10% of a company's daily trade volume. Look at AMZN recently, that isn't short covering in my opinion, it's funds buying it to prop the price...I think it's nearing collapse, although there is clearly systems helping pump money into it as well.

    I think you could never program anything to trade up/downgrades. It's highly subjective and I find there are better objective measures to use...just my opinion.

    Good luck.
  8. razor99


    i play upgrades and earnings;i can tell you it is very difficult because what you are essentially doing is buying gap ups. you have got to pick your spots and exits before you put in a buy order. also,not all upgrades result in a stock being up.thats why looking at charts is extremely important. so back to your question,playing upgraded requires lots of experience.you can actually lose much more money playing earnings and upgrades.many traders go broke trading this why as it can result in devistating loses. ask those that bought NTRI the day after the reported when the stock gapped up to 66 but only to sell off to 62 that day.my advice is to try and learn breakout plays with volume.
  9. razor99


    let me give a great example here..a month ago URBN was upgraded at wachovia to outperform..the stock closed at 25 and was trading at 26.20 pre-market. i saw resistance at 26.50 and figured it would go there but needed the stock to pull back to 26 or 25.90 for me to get a good entry. as the stock pulled back to 26.05 i saw large bids offering me support at 26 so i bought at 26.05. about a minute later Goldman Sachs also upgraded URBN to buy and the stock was now at 26.25. i had a .20 profit but knew it would see the 26.50 area.after all,two upgrades from tier 1 firms,how could i go wrong. anyway,at the open the stock dove from 26.35 to 25.95 in a heartbeat so i bailed with a .10 loss. then it started selling off big time to 25.50..i said wtf!!! guess who was on the offer from the open with large size? Goldman Sachs,the one that upgraded..more shocking was the fact that they were'nt even hiding anything.they kept showing 100,000 offers,its was blatant and not even using an ecn,they were using goldman.anyway,i jusy waited for the selling to be done and as soon as goldman dumped about 1,000,000 shares i jumped in at 25.77 and sold at 26.17. it did go straight to 26.50 as i originally thought but it was blatantly obvious that Goldman upgraded URBN just so they can dump all those shares. stranger,was that weekend,i saw a report where the ceo of URBN dumped over 1,000,000 shares of URBN on friday. obviously Goldman dumped those shares for the ceo. moral to the story,always take what an analyst does with a grain of salt.
  10. Joab


    Well done !

    I think that this post explains the depth of knowledge that one must have to day trade like this.

    To encapsulate:

    1. Have a good understanding of technicals

    2. Know how to read L2 properly

    3. Patience and dicipline.

    Thanks for the post feel free to add more razor.
    #10     May 12, 2007