If I may self-journalize for a moment to make a point, please grant me a little slack: One of my cardinal rules for a trade is that I must be able to see a path to making at least 20 cents per share in two minutes relatively easily. For instance, if AAPL is near a high or low of day, I for one find it much easier to put fewer shares on of that stock than trading decent size of a stock like Cisco (CSCO). I actually discussed this in last Fridayâs blog when I noted that trading too much size tends to inhibit profitability because most traders tend to freeze when carrying too much size. I am an absolute zealot when it comes to trading things in which I feel that I can make that 20 cent per share target. Obviously, every profitable trade (much less every trade overall) does not result in at least a 20 cent a share profit, but the point is that this is the universe of stocks I focus upon and wholeheartedly encourage 99% of day traders to focus upon as well. The reason for this was hammered home to me yesterday. For the first time this year, I went against this rule in trading shares of Oxford Industries (OXM). Between 10:15AM and 12PMish, the stock traded in a very narrow range on very light volume. As OXM had bad news out there (its earnings) and the stock had come up a great deal in recent days, I felt that the stock could go to the 5 to 5.25 area. However, I thought instinctively it could take awhile and did not feel itâd be smooth, but I thought itâd happen and went ahead with the trade. When it touched a new low of the day at 5.60, I shorted several thousand shares of the stock. So, what happened? We can all guess. It fell to a new low of 5.53â¦and then rallied 50 cents in the next 15 minutes on nearly no volume (and almost a dollar over the course of the hour). While I did not hold the stock for that entire time, it did result in my worst loss of the year in any one stock. It took away about two days of work; it is nothing I cannot recover from by the end of the week if not by the end of the day today, but why should I have to fight to get back to where I was instead of adding to my 13-day winning streak (the loss was $50 on the day I lost 14 business days ago)? Two definitive points which I hammer home for myself and for anyone reading this: first, if you have a set of rules, stick to them. I preach and preach and preach and preach and preach and preach this tenet yet I deviated literally one time and it resulted in financial pain. Second, when I say most people (certainly including me) cannot day trade stocks in a compressed time horizon unless the things have the capacity to move at least 20 cents easily, it is trades like this which result in me harping on that point. I have to believe that there are a select few out there who can buy and sell 20000 shares of CSCO at will yet after 21 ½ years of trading (13 of those years full-time), I have yet to meet that person. So, I lay my own failing trade out there in an effort to keep anybody still reading this to understand why I work/trade the way I do; deviating from a plan and trying to capture something that cannot be attained relatively easily is not a way to achieve success in day trading. Markets were mixed again in Asia overnight with Tokyo up 3% and Hong Kong down 1%. However, amidst the heels of negative publicity in Britain re the upcoming G-20 meeting and renewed bank and GM worries, the bourses in Europe are uniformly lower by about 1% across the board. State-side, futures are lower as they have been overnight, but not dramatically so. As the dueling forces of economic worries and 401k money/tax refunds pouring in at the start of the quarter war, so will the markets likely war today. With a relative dearth of news, look for another choppy day today, with trading on both sides of unchanged in a relatively narrow range. Use the banks and rumors about the mark-to-market meeting tomorrow as your benchmarks in what looks to be a very difficult day trading session. Reiterating- Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea. If the whole story is not there - If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified- Good- The following stocks have good news and/or a strong technical pattern STT- strongest of the banks in closing near high of day LVS- CEO bought 7.839 million shares CLUB- rallied violently on the close in closing near a high of day FMER, CAT- mentioned on âMad Moneyâ last night Bad-The following stocks have bad news and/or a weak technical pattern APOL- beat earnings slightly, but not convincingly and after its huge run-up, it needs a substantial good report to keep going BW- warned on earnings ZOLL- warned on earnings AAPL- reversed in closing near low of day CELG- warned on quarterly earnings; GILD and other biotechs likely will be down in sympathy CPD- announced intra-day yesterday that it was recalling batches of its Digoxin heart drug; stock closed near a low of day TBSI- had great earnings Monday afternoon with the stock well higher, but reversed late yesterday afternoon in closing near a low Earnings: WED APR 1 BEFORE WOR WED APR 1 AFTER none Good luck today. Erik R. Kolodny
The ADP came out even worse than expected; financials broke and took the broader market with it...so amending the market forecast lower needless to say...as noted yesterday, this is the least important thing to me as I simply trade what I see, but the picture originally envisioned an hour ago is not one to be painted today.
Erik, I noticed that you recommend the reading of Stock Market Wizards and the Jesses book in your blog. Do you have other book suggestions, specially for daytrading?
Wyckoff's "Day Trading Bible" is good too. But the Livermore and Schwager books are the ones to establish a rudimentary beginning. And Schwager has more than one of those books out there; they are all good.