Here is a discussion we had in the room on Thursday... sorry didnt have time to edit, but it may be of some use... lately we have been learning about indicators and how to trade off them..
Good Luck
Ken
www.mtrader.com
MTrader Class - 09/10/98 (C) Copyright 1998 The Momentum Trader
[12:32] <KenWolff> 9:32:51 I would like to discuss how I find my
indicators today:
[12:32] <KenWolff> 9:33:12 "FINDING THE DAYS INDICATOR"
[12:33] <KenWolff> 9:33:51 1. Pretend you are about to watch a steeple
chase where there are various types of horses..
[12:33] <KenWolff> 9:34:10 You must first of all "group" your horses
together...
[12:34] <KenWolff> 9:34:43 race horses will not perform like quarter
horses and quarter horses will not possess the stamina that arabians will..
[12:34] <KenWolff> 9:35:18 so you take your stocks and group them
according to your expectations of the performance on the day...
[12:35] <KenWolff> 9:35:31 For example:
[12:35] <KenWolff> 9:36:03 Lets say a stock is under HUGE momentum on
very, very good earnings the day previous to the open..
[12:36] <KenWolff> 9:36:38 Ok.. Now we must assess the "OPEN" because it
is what will effect the general momentum on the day...
[12:36] <KenWolff> 9:37:08 We expect a very good ride on the stock based
on the previous days action... BUT lets say the day is negative like we saw
today..
[12:37] <KenWolff> 9:37:43 We get a downticking on the momentum
stocks..... THAT BECOMES NORMAL..
[12:38] <KenWolff> 9:38:41 So I begin to gather my "momentum" stocks and
put them all together beginning with the "freshest" and lastly the stale
ones that had acceptable swings the day before..
[12:38] <KenWolff> 9:39:22 NOW.. the fresh horses will have the most
momentum and staying power... or "endurance"
[12:39] <KenWolff> 9:39:38 You MUST PLACE THEM TOGETHER ..
[12:39] <KenWolff> 9:39:46 on your quote screen...
[12:39] <KenWolff> 9:40:03 NEXT I will place the horses that are all
lame...
[12:40] <KenWolff> 9:40:26 all in the same place together on my quote
screen... they are all the dumpers...
[12:40] <KenWolff> 9:40:47 first day.. again they will have more endurance
than the 2nd day stale dumpers..
[12:40] <KenWolff> 9:41:17 Next I place all the stale gainers together..
that will have acceptable price swings and allow some profits..
[12:41] <KenWolff> 9:41:35 Ok.. "in the starting gate we now have"
[12:41] <KenWolff> 9:42:02 1. Fresh gainers (PERI,AVNT,IPLY) today..
[12:42] <KenWolff> 9:42:27 2. Lame horses (TRDT,GSTRF,DLIA)
[12:42] <KenWolff> 9:42:55 3. stale gainers
(AMZN,DELL,XCIT,ASND,CIEN,COMS)
[12:43] <KenWolff> 9:43:24 Ok.... before you can hope to identify the
action you must learn what to "EXPECT" first...
[12:43] <KenWolff> 9:44:17 and before you can follow any "expectation" YOU
MUST LEARN HOW TO WATCH THE BID AND ASK and spot the general action as the
bid and ask changes in relationship to the OPEN price...
[12:44] <KenWolff> 9:44:29 You will be forming a "high" and "low" for the
day..
[12:44] <KenWolff> 9:44:57 OK.. EXPECTATIONS are flavored by the "market"
[12:45] <KenWolff> 9:45:27 The market is the BIG dynamic beast that
effects the field as our horses run the race..
[12:45] <KenWolff> 9:46:12 sometimes the field is very muddy and tough to
run in... so you must learn which stock (horse) will perform under the
circumstances..
[12:46] <KenWolff> 9:46:25 "NEGATIVE MARKET"
[12:46] <KenWolff> 9:46:33 How does this effect the running of the race??
[12:46] <KenWolff> 9:47:01 the big gapping down indicates panic selling
overnight.. so my first expectation is : "VALUE BUYING"
[12:46] <KenWolff> 9:47:19 especially as the reason for the panic was so
stupid...
[12:47] <Robbie> dow new low
[12:47] <KenWolff> 9:48:11 each group will behave as a whole....
[12:48] <KenWolff> 9:48:40 and each will have its own excentricities based
on your historical study and tracking of how these stocks "usually" behave..
[12:49] <KenWolff> 9:49:27 For example: "Lately dumpers are strengthening
off the first bottom and is the reason many chose to buy GSTRF"
[12:49] <KenWolff> 9:49:52 dumpers are changing lately and have their own
world of trading...
[12:50] <KenWolff> 9:50:27 2nd day gainers and active stocks are behaving
very well and continue to offer acceptable profits...
[12:50] <KenWolff> 9:50:59 We have been playing DELL, AMZN, ASND, XCIT for
a while now and they continue to swing acceptably..
[12:51] <KenWolff> 9:51:48 When the horses come out of the gate we
recognize our first indicator by "VOLUME"
[12:52] <KenWolff> 9:52:25 I imediately can spot the highest volume in any
group by simply watching the tot vol. column on my quote screen..
[12:53] <KenWolff> 9:53:41 I then compare the bid and ask to the open
price as I scan through the groups... I either expect upticking from the
open in which case the bid and ask will be higher than the open price..
[12:53] <KenWolff> 9:54:01 I try to locate the stock that is leading the
group...
[12:54] <KenWolff> 9:54:31 If I do.. then I continue to focus on that
stock and consider its trading behavior against what I expect...
[12:54] <KenWolff> 9:54:46 today I was very, very interested in buying as
you well know...
[12:55] <KenWolff> 9:55:46 the early selling was more than I anticipated
based on my experience with negative opens .. BUT remember the last bad
Negative open.. we did get some selling down from the open so I was thinking
it was possible.. BUT..
[12:55] <KenWolff> 9:56:04 BUT... "ONE DAY DOES NOT CONSTITUTE A PATTERN"
[12:55] <KenWolff> 9:56:13 It only adds a bit of flavor to the soup..
[12:56] <KenWolff> 9:57:01 AMZN fell 4 dollars from the open... after
gapping down 5 dollars...
[12:56] <KenWolff> 9:57:12 so the total fall was 9 dollars...
[12:57] <KenWolff> 9:57:28 the bounce was only 3 dollars..
[12:57] <KenWolff> 9:57:43 Not too bad..
[12:57] <KenWolff> 9:58:09 DELL gapped down a bit over 2 bucks...
[12:58] <KenWolff> 9:58:37 and fell another 2 from the open and corrected
about 2 bucks..
[12:58] <KenWolff> 9:59:20 as you look at the stocks you can see the
similarities...
[13:00] <KenWolff> 10:00:24 OK.. any questions??
[13:00] <Nesi> <Mikelo> Could Ken explain why it is best not to short on a
neg day like today?
[13:01] <KenWolff> 10:01:33 because the negative panic selling will be met
with buying as "value" traders will make the tops very unpredictable..
[13:01] <KenWolff> 10:01:44 I have seen days where the previous days highs
were hit..
[13:01] <KenWolff> 10:02:08 I have seen stocks climb several dollars ... I
cannot guess the extent of the buying..
[13:02] <KenWolff> 10:02:32 and we base our success on the ability to
predict the potential...
[13:02] <KenWolff> 10:03:08 I would not be surprised to see AMZN , DELL
climb again today..
[13:03] <KenWolff> 10:03:41 but it is looking bad... it seems buyers are
getting tired...
[13:03] <Robbie> dow - 295
[13:03] <KenWolff> 10:03:57 but unfortunately "hindsight" is telling me
that..
[13:04] <KenWolff> 10:04:34 all you can do is watch an indicator... note
the strength or weakness and jump on trades that lag when the potential
looks acceptable..
[13:04] <KenWolff> 10:04:58 once stocks begin to oscillate seperately.. I
can no longer predict what the trades will do..
[13:04] <KenWolff> 10:05:19 next question??
[13:04] <_bear> What time of day is the best to trade
[13:05] <Nesi> <runner> Question to KEN, how do you spot AX on the stock &
how can he help me to make money ?
[13:05] <Nesi> Please, Double Click on Nesi to send questions for Ken.
[13:05] <KenWolff> 10:05:36 first two hours bear..
[13:05] <KenWolff> 10:06:20 I am teaching daytrading theory that you can
learn and work and apply yourself to..
[13:06] <KenWolff> 10:06:29 and then put it in practice..
[13:06] <KenWolff> 10:07:15 the ax is spotted usually by the "time" a
market maker spends at the inside bid and ask... it indicates he is the
player in the stock and many Market makers will follow his lead..
[13:07] <KenWolff> 10:07:29 Next question??
[13:07] <Nesi> <Danno> Ken, I've done 16 trades at 200s, all of them
scalps, +or- 3/16 or less, needless to say commissions are starting to take
thier toll,and several trades have gone on to post excellent gains after I
was out . Any advice? Back to paper or what?
[13:07] <KenWolff> 10:08:21 You are not aware of each trades potential and
may be too scared...
[13:08] <KenWolff> 10:08:50 I remember after each time I bought a stock I
would "WANT OUT" at all costs... the nerves are tough to handle at times..
[13:08] <KenWolff> 10:09:10 It is something you MUST get used to because
the nerves get stronger as you increase shares...
[13:08] <Nesi> 4 questions holding..
[13:09] <KenWolff> 10:09:46 You MUST ask me for the potential of the
trade.. short term and long.. and decide to keep it... and only exit when
those targets are met or you STOP is hit..
[13:09] <KenWolff> 10:10:00 Next question??
[13:09] <Danno> thnx Ken
[13:10] <KenWolff> 10:10:52 My daughter was sweating bullets today on her
first trade.. but made 5/8 on DELL based on my target..
[13:10] <KenWolff> 10:11:05 she told me I kept her in the trade... and
that is the reason I am here..
[13:11] <KenWolff> 10:11:30 Next question Nesi??
[13:11] <Nesi> <altaaboy> Ken when AMZN gapped down at open was the
potential from bottom the opening high?
[13:11] <KenWolff> 10:12:14 Yes altaa.. that was basically the upside
target..
[13:12] <altaaboy> ok good !
[13:12] <KenWolff> 10:12:42 You have to watch the pace.. volume and the
average trading action..
[13:12] <KenWolff> 10:13:13 Many times the players will effect the trading
pace..
[13:13] <KenWolff> 10:13:37 It is much like a race of fast horses... the
slow ones will be challenged to keep up and go faster....
[13:13] <italiano> Ken...can you please clarify altaaboy's question? tia
[13:14] <KenWolff> 10:14:22 so if you see your group really trading fast
and very strong.. Your lagger will be effected and although not as fast
paced... will still go... remember our trade on TALK a few days ago... good
example..
[13:14] <KenWolff> 10:15:02 I saw other stocks after the pullback really
running well.. TALK sold down 2 pts and was just sitting at the low...
[13:14] <KenWolff> 10:15:18 I predicted about 3/4 pt upside which was
surpassed..
[13:15] <KenWolff> 10:15:35 very nice slow paced trade..
[13:15] <altaaboy> yeah thanks great info!
[13:15] <KenWolff> 10:16:05 that is how you take advantage...
[13:16] <KenWolff> 10:16:47 altaa.. was considering the potential of the
trade regarding AMZN as it hit its bottom... how far up would it go???
[13:16] <KenWolff> 10:17:21 that is important in assessing how many times
you are willing to "STOP OUT" of a trade..
[13:17] <italiano> thnx
[13:17] <KenWolff> 10:17:53 If AMZN has a 10 dollar upside potential..
heck a couple 1/4 stops are really not germain to the trade...right..>???
[13:18] <KenWolff> 10:18:34 If I stop out a couple times losing 1/2 pt..
it is still worth it as a 10 dollar potential should at least get you 2 or 3
bucks..
[13:18] <KenWolff> 10:18:54 that is the essence of the game we play...
[13:19] <KenWolff> 10:19:25 I am willing to take a few whacks by my
opponent in order to deliver a knock out punch...
[13:19] <KenWolff> 10:19:39 Next question??
[13:19] <Nesi> <italiano> Ken...on "indicator stocks", what "horses"
(specific stocks) do you usually "put in the race" on any given morning
(i.e., how do you select the "horses" before the market opens as possible
indicators?)
[13:19] <BillyD> luv your analogies Ken
[13:19] <KenWolff> 10:20:04 1. NEWS
[13:19] <KenWolff> 10:20:12 2. GAPPERS UP
[13:19] <KenWolff> 10:20:17 3. GAPPERS DOWN
[13:20] <KenWolff> 10:20:32 4. SWINGERS FROM THE DAY BEFORE BOTH NEGATIVE
AND POSTIVE..
[13:20] <italiano> test
[13:21] <KenWolff> 10:21:28 I constantly track those groups and generally
know what to expect from them on any market day...
[13:21] <KenWolff> 10:21:45 Next question??
[13:21] <Nesi> <Joel> What about watching the S&P Futures?
[13:22] <KenWolff> 10:22:24 You know one of the best exercises you can
do..??? WRITE A BOOK ON DAYTRADING!!!!
[13:22] <italiano> Ken...got bumped & missed last 3 minutes, but will ck.log
for your answer...tia
[13:22] <KenWolff> 10:22:49 I watch the S&P futures as well as the gapping
on my momentum stocks..
[13:23] <KenWolff> 10:23:42 After I completed my book a couple years
ago... I increased my trading percentage by 100%..
[13:23] <KenWolff> 10:23:56 actually about 3 years ago..
[13:24] <KenWolff> 10:24:47 "Since teaching trading for the last 2 years I
have increased my knowledge on daytrading by 500%"
[13:24] <KenWolff> 10:25:14 all because I am FORCED to study and follow
the trading every day..
[13:25] <KenWolff> 10:26:01 It is a good lesson on discipline, hard work,
and study..
[13:25] <KenWolff> 10:26:13 Next question??
[13:25] <_bear> Name of your book?
[13:26] <Nesi> <Mort> I took a big hit on CIEN overnight long. Particularly
obnoxious since it traded more than a point up after market. Can you comment
on the risks of overnight positions, and whether CIEN was a mistake?
[13:26] <KenWolff> 10:26:32 Momentum Investing..
[13:26] <KenWolff> 10:26:43 I am writing another one.. or an addition..
[13:26] <Nesi> 3 more questions and that is it..ken
[13:27] <KenWolff> 10:27:41 the dumpers were not too exciting yesterday
and I really had no strong opinion on the overnight hold.. I said that they
all looked the same to me...
[13:27] <KenWolff> 10:28:11 The only trade that was reasonable was the
fact that they are gapping up about 80% of the time...
[13:28] <KenWolff> 10:28:34 so you add a little market salt..(negative
end) and you would add about another 10% in risk..
[13:28] <KenWolff> 10:29:07 so the trades were about 70% and not really
too bad.. You just got caught in a swinging market that is apt to do
anything...
[13:29] <KenWolff> 10:29:35 that is the risk you will always accept in
overnight trades when traders are in panic mode..
[13:29] <KenWolff> 10:30:09 I usually like overnight trades to have at
least 3/4 pt potential and gapping probability to be about 90%.. Or I stay
out..
[13:30] <Mort> I've had good luck before on your overnight calls. Should I
not try them any more until the market changes?
[13:30] <KenWolff> 10:30:48 I have at times traded 90% on gappers for
several months with an average of one dollar potential..
[13:30] <KenWolff> 10:31:03 I have at times made over 4 and 5 dollars on a
8 dollar stock..
[13:31] <KenWolff> 10:31:44 I would back off Mort until we get this
Clinton thing over with and there is not much to scare the "little baby
traders"
[13:31] <KenWolff> 10:31:53 LOL..
[13:31] <KenWolff> 10:32:20 Lets watch the dumpers for gapping again...
today skews our percentages..
[13:32] <KenWolff> 10:32:32 Next question??
[13:32] <Nesi> <_Alpine> Ken, is it feasible to simply trade indicator
stocks like DELL that follow the DOW fairly closely all day for scalps? Buy
on DOW uptick momentum, sell or short on DOW downtick momentum.
[13:33] <KenWolff> 10:33:56 I have never done that Alpine so I really
cannot comment... some traders do well it seems...
[13:33] <KenWolff> 10:34:07 let me know what happens..
[13:33] <KenWolff> 10:34:13 Next question??
[13:33] <Nesi> <Jefe> How do you modify the upside potential as a dumper
hits multiple bottoms?
[13:33] <_Alpine> thx
[13:34] <Nesi> one last question holding..
[13:34] <KenWolff> 10:34:48 over the years alpine this time of day is not
real predictable... and I don't usually play for scalps..
[13:35] <KenWolff> 10:35:27 the upside potential is much like a coiling
spring.. or a rubber ball..
[13:35] <KenWolff> 10:35:52 Usually value traders will be very predictable
at 20% down in price..
[13:35] <KenWolff> 10:36:07 50% creates more value..
[13:36] <KenWolff> 10:36:51 the biggy for taking the potential out of the
trade is the amount of losses you incurr as the trade makes multiple
bottoms..
[13:36] <KenWolff> 10:37:20 I get a sense of the increased value as a
stock keeps hitting the bottoms based on the momentum, pace and early
bounces..
[13:37] <_dphillip> down in price = from the open?
[13:37] <KenWolff> 10:37:35 for example:
[13:37] <KenWolff> 10:37:50 No .. down in price from the previous days
closing price..
[13:38] <KenWolff> 10:38:41 If I see a 20 dollar stock gapping down to 18
and falling to 16 (20%) .. I will expect about a dollar price swing to the
upside..
[13:39] <KenWolff> 10:39:32 as it makes subsequent bottoms it creates more
value..
[13:39] <KenWolff> 10:39:49 at 15 I will then look for about a 1 1/2 swing
to the upside..
[13:39] <KenWolff> 10:40:00 at 14 at least 2 bucks..
[13:39] <KenWolff> 10:40:09 that is how I figure it..
[13:40] <KenWolff> 10:40:24 OK.. I have a phone call I must take.. lets go
back to trading... bye..
[13:40] <Jefe> You're adding about half the additional gap
[13:40] <KenWolff> 10:40:31 about that yes..
[13:40] <Jefe> Okay, thanks!
[13:40] <KenWolff> 10:40:41 20% gets predictable..
[13:40] <_dphillip> thanks
[13:41] <altaaboy> thanks Ken!
[13:44] <Joel> thanks
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