first of all, I haven't been playing dead cats, yet, we'll see. I haven't been using "stop" limits yet. I usually check the wire in the last half hour before market open and if I'm buying on news, I set my Buy limit price and submit the order. If it fills fine, if not fine. I might also put a sell limit in at the same time or after the order fills, depends on the stock, my motivation and mood (long term vs short). I've pretty much given up on a got to have it attitude, too much emotion, thus too much chance to get burnt paying too much (Netscape is a great case study). If I can't get it for my price fine, it beats paying too much. Also, the bigger, more known and more highly followed and analyzed stocks are much harder to beat the big boys into on news. I've done well on NASI, on the OBB and also PTH.GB the sheep cloners. But both are small-micro cap (nano cap in NASI's case) issues. And in the case of PTH, I think the Brits aren't too good at jumping into speculative issues. In both case I took my profits pretty quickly, about 4 market hours on NASI ($1.81 to $2.62, but it kept going to $4.50 and sits at $3-3.50 now) and 1 week on PTH (one day too long, ($6.02 to $7.40) missed the peak (mid $9s) by quite a bit) getting the foreign trade executed was a bit slow too. I'm holding a portion of each long term (gotta have the sheep cloners, a matter of biopride).
I screwed myself on a MAGN buy, which closed at 8 1/4, had news and I put in a market order for 5000 shares (figuring max of $9). Well I got them, at 9 5/8 at the open, and as it turns out the high for the day. Well, I have a good long term view of MAGN, but 5000 (about $45K) is too much concentration for me to hold long on one high risk venture capital biotech play. Great lesson about after hours run up and using market orders very carefully though. MAGN fell into the 7's at times, but I waited it out. I've since unloaded 1000 at 9 1/4, 1000 at 9 3/4 and have an open sell limit for 2000 at 9 7/8 to thin my position at essentially a break even. The remaining 1000 I'll probably hold long or for a good gainer if it spikes. But, I'll never use a market order at the open like that again.
Re: not being at your machine at the close, the dead cat doesn't have to be at the close, just track the big losers of the day as they happen and try and guess the bottom. A good example yesterday was SMTG, it dropped way back and started bouncing well before days end and closed at 6. Just checked, today it's down 1/4 to 5 3/4 with a days range of 4 3/4 - 5 7/8. Thus, at this point a loser from the close of 6, but a winner if you got in near the trading low yesterday. If you have a real life and can't hover over the quotes I would be wary of using this strategy. Also, if you don't have REAL-TIME quotes, get them (Lombard is who I use for this very reason, unlimited realtime quotes), these things happen fast. Nothing pisses me off more than missing a 15 minute peak because of the damned 20 minute delay. A lot can happen in 15 minutes (I've been down $50K in 15 minutes - irrelevant $50K because it was in my principle long term stock and I wouldn't have sold even if I knew for sure it was going to drop, but $50 K in 15 minutes nonetheless). This delay is just another way for the big NASDAQ traders and Market Makers to screw the little retail traders who don't have decent access or have to get a broker on the phone - the stocks won't wait while you are on hold. Well, you can now get REAL-TIME free with the right service and join in on the screw the retail trader trend.
I see the concept here as not being about rigid timing, but of buying at the bottom of a self-fulfilling sell off - market overreaction, and then selling when it comes off the bottom. These are high risk scenarios though, there probably is a good fundamental reason for at least part of, if not all of the drop. The idea is too make a profit, even if it is small, don't get too greedy, take your 1/8 or 1/4 or whatever and call it a day and run with it. If anything, maybe pick your downside loss tolerance and put in a Stop Loss sell limit to keep it from getting too ugly.
If you don't have a LOT of time to watch stocks, I wouldn't use this strategy, too easy to get hurt if you can't react fast.
What do the rest of you think of this advice?
Dave |
