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Strategies & Market Trends : Momentum Daytrading - Tricks of the Trade

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To: Ken Wolff who wrote (285)	1/17/1998 1:45:00 PM
From: Ken Wolff	of 2120

DETERMINING THE UPSIDE POTENTIAL (Part II) (continued...) Suppose stock XYZ opens up (gaps up) one dollar from the previous day's ending price. Yesterday it closed at a price of $7.00. It opens at $8 and trades up to $8 1/2. Now I would expect 8 1/2 to be the high of the day and the current UPSIDE POTENTIAL is 8 1/2. I WOULD NOT buy the stock unless it came back to about 7 5/8. The reason I need a good pull back is because it will not usually make the high again but I would expect it to go a little above 8 1/8 because of narrowing oscillations being the rule. So when you consider having to clear your spread there is not a lot of potential profit left in this stock. The opposite is true if you intend to SHORT SELL a stock. The downside potential is calculated by knowing the previous low. If XYZ traded down to $7 1/2 and then rose to $9, my downside potential would be 1 1/2. Calculate the downside potential and if it is worth the risk, short it at the top. Many times you will find stocks that oscillate enough every day for you to make nice profits. Experienced traders follow these stocks and only trade them. They know the intraday patterns on these stocks like the back of their hands. Remember RISK and REWARD. Do not risk your money for a very small potential. Many daytraders will spot a stock being bought at the high of the day and because of the heavy buying only to see a small increase in price and then a quick fall. A smart trader will patiently allow the Market to bring high percentage trades to him. Ken mtrader.com

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