Jaytee: When I first became interested in the stk. mkt. (about 40 years ago) I became a student of the Graham and Dodd methodology [fundamentals, intrinsic value, etc.]. Back then, that approach was valid. With the advent of technology, however, the "efficient market hypothesis" has seemed to have taken hold: i.e., everything that is known, or can be discovered, about a security is already discounted in that security's price. There are thousands of analysts out there (many of them specialists) pouring over and digging up financial info on virtually every company in existence. What, pray tell, could anyone possibly come up with that could be considered new?
Still, with all such info available, almost instantly, the prices of some equities continue to fluctuate, sometimes violently and hourly. I can only attribute such actions to crowd think; and, the only way that I know of to qualify and quantify that is through TA. So, as was stated in an earlier post, rather than be a contrarian, jump on the band wagon (but be sure to jump off when you have reached your goal).
Momentum trading is somewhat similar to betting on a football game, with some distinct advantages: you can place your bet when the team you like has already scored; and, you can take your bet back any time you want. E.g., Tues. I liked DELL, but I never try to play the opening bell. Sure enough, in the first 15 min. DELL went 73 1/2; in the next 30 min. it rose to 75 on huge vol.. So, in essence, DELL scored 1 1/2 pts. in the early min. of the 1st quarter, and I placed my bet. Wanting to limit my exposure, I placed a trailing stop at 73 1/2. So, if the other team [crowd think] scored 1 1/2 pts. I cancelled my bet. They didn't, and DELL went to 92; I, however, pulled the plug at 89 1/2. In reality, I stayed in longer than I normally would have, but my charts said that the momentum was still there.
When I first started day trading I used enough cash to be able to purchase 200 shs. of a 75 stk., and placed very tight stops. I figured that if I lost that 15k, I would pack it in until I learned more. And, like irby said, I treated it like a game, but very mechanical (I took all the emotion out). I took another 15k and used it for (what I called) modified day trading. In other words, if I felt strongly enough about a stk., and it did not rise (or even dipped), I took it home (or parked it) until it did rise. I still do that on occasion with some penny stks.; but on large and mid caps I don't. Too much can happen overnite.
I would say that 25k is a good number to feel your way around with. Place tight stops so you can stay in the game for awhile. Read all you can, and keep things as simple as possible; I use just 3 Moving Averages: 5 day, 10 day and 50 days. I use the 5 and 10 day MA's because they seem to track a trend closer than the longer ones. |
