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Strategies & Market Trends : DAYTRADING/SWINGTRADING STOCKS with INTRADAY INVESTMENTS -- Ignore unavailable to you. Want to Upgrade?

To: KymarFye who wrote (102)	5/25/2001 9:14:36 PM
From: -	Read Replies (2) \| Respond to of 565

Thanks Kymar, yes we certainly have put a lot of thought into it! That reflects the 20 years (net) short-term trading experience between the three of us - not including our previous years as - gasp - investors. The key thoughtful discipline is to structure it so you have high odds of walking away most days with some kind of profit after slippage and commissions... that is, we focus on the equity curve, per my educational post #41 on this thread. Today, it might have appeared that we worked too hard for a couple of points (net, after losses, commissions, & slippage), but we easily could have had a 20-point day with today's entries, had the market been a bit more cooperative. Because we knew the market was trading with light pre-Holiday volume and was prone to whip-saw our positions, we were quick to take small profits, and were in there aggressively managing risk on our open positions to break-even (see post #41), so we didn't lose, which was an accomplishment! I have found that keeping the losses small and salvaging the small days to avoid going out negative on the day is more important than having 'big days' over time, because of the way compounding works. Regarding options, we model them all the time, using OptionVue V (reviewed in the latest - June 2001 - stocks and commodities) and occasionally post the graphic analysis of a position online - we've done that probably 6 or 8 times over the past month, before entering spreads to explain the strategy, risk/reward, sensitivity to the all-important implied volatility, time (premium decay), and to changes in the underlying instrument of course. For example, with spreads we're able to explain how the position is basically immune to large gaps against it, what the maximum gain and loss looks like at any point up and including expiration, differences in how using different strike prices help you, etc. The type of option we use depends upon the trade... that can be all over the map depending upon the application. For an OEX swing trade (long call or put) we are buying at-the-money options; an intraday OEX trade would likely be a strike or two in-the-money (better Delta and can control risk moment-to-moment). When selling naked premium we are often using out-of-the money options, like the KKD calls shorted Thursday and Deron's April short of the $BKX (Banking sector) 860 calls which was a big winner. Ed also uses out of the money calls to put strangles on the Nasdaq, which generates a nice level of background income and can be "adjusted" to keep them fairly Delta-neutral, and simply rolled into the next month at or near expiration when conditions warrant. When using options as a stock surrogate or to trade out of a stock position to limit overnight risk (e.g. playing a long or a short into an earning or acquisition news), we'll then sometimes go anywhere from slightly to deep in-the-money puts or calls, to get the high Delta (up to 1:1 movement with the underlying). Holding time is sometimes simply overnight; some trades (typically, a naked call or put) two days to a week, but sometimes we just daytrade puts and calls (very selectively and for a reason). You just have to watch out for the slippage (spread) and liquidity (check the open interest/volume carefully) but sometimes we will bid for them or offer them out (like a stock daytrader, but using limit orders through an online options broker) when the momentum is right, making the spread - our experience with Level II/daytrading stocks helps there, as it's a very similar process. Only difference being, it's often more like trading a very thin stock -- it can (literally) be you vs. the guy in the pit. For example, in trailing a contingent stop down and then covering 50 BKX 860 short calls I was setting on the Bid into downward momentum and the pit didn't want to fill me, then I'd move my Bid down and finally got a great fill as the market maker HAD to slam the bid as the underlying went to pieces. I'm amazed there isn't MORE daytrading of options going on as in some ways it's sort of the great unchartered territory;) At one point, after trading the S&P Futures for a year, I went into trading the OEX's almost exclusively for about six months, those things are a blast and the moves can be just mind-boggling - especially on expiration week. So we mix those trades up in the room when conditions are right. The beautiful thing about options is the incredible flexibility they give you to control risk and to tailor positions to market conditions. Once you understand how to trade them short while controlling risk, the time decay problem doesn't even have to enter into the equation. I've found that very few experienced options pros trade straight puts or calls - that's just the tip of the iceberg! Steve

To: KymarFye who wrote (102)	5/27/2001 4:24:09 AM
From: -	Respond to of 565

THE IMPORTANCE of USING MULTIPLE TIMEFRAMES in Stock Trading [originally posted June, 1999] One of the most fundamental techniques I learned trading futures which is quite beneficial for daytrading stocks is to learn to watch an issue simultaneously in multiple timeframes; and to always take the futures into account before trading a stock [more on the latter in a future post]. Most experienced stock traders follow both practices. The daily chart is the most powerful, and therefore the most important to fully understand and monitor. The daily chart patterns are so powerful that we usually spend at least an hour every day after the close scanning daily charts for stocks and the major indices [soon, Intraday customers will receive daily emails with (symbols+) price levels of interest, which we will be keying off of the next day]. Before we enter a trade idea which comes from an intraday price action and/or chart pattern, we always check the daily chart (in reference to the past the past 90 days, then the past 2-5 days) and ask ourselves if we still should enter the trade. When trading stocks intraday (even for scalps), I watch the 60min, 15min, 5min, and 2min charts; occasionally a tick-chart, and ALWAYS the tape (Time & Sales). A great setup is to have a screen with a daily chart, 60/15/5 min charts, all on the same screen and sync'd to your Level II window/active symbol. Watching a 1 or 2min chart all day can 1) drive you crazy and, 2) seduce you into bad trades. Trades should be selected in a higher timeframe, and confirmed in at least one other, unless it's just a Level II scalp or you're trading off the tape (haven't seen many of those lately ;). Once a trade is selected a 1 or 2-min chart can be popped up to finesse entry & exit, along with utilizing T&S and Level II (another future post). Volume can be displayed and utilized in every timeframe's chart windows; learning how to accurately read volume in relation to price (along with what's flying by on the tape and Level II) is critically important to stock-trading success (another topic for a future post). On each chart, I utilize a 20, 50, and 200-period Moving Average; the period for the averages you use is less important, than always using the same MA's. Major-league Futures trader Linda Raschke says "always watch price relative to something else". The best "something else" can often be the moving average, because it represents a normalized reference point. For example, when a stock is a certain % away from a given moving average, that alone can tell you quite a bit. You learn more that's repeatable that way. For example, when a stock gets way out in front of it's 20-period moving average (although it may stay extended for a while), it is inevitably much more vulnerable to pullbacks (it's "extended"). Universally - it applies on the day-chart, and intraday (intraday, for smaller pullbacks). When you're watching stocks on multiple timeframes, the higher timeframes "filter out the noise" and provide you with greater perspective, leading you to trade in the right direction, and to always be cognizant of the trend. The most powerful setups and the biggest moves come from setups in the higher timeframes. That explains why traders that do their homework at night tend to be more profitable over time! Simply catching a multi-day trend reversal in the 60 minute timeframe (confirmed on the daily chart pattern and the 5 or 15min timeframe looking at both price and volume trends) in a volatile stock like VRSN or BRCD can easily lead to capturing 5-10 point gains using a trailing stop to take profits, if you give them enough room to run and/or take profits in pieces. Often the daily will tell you a reversal is likely to be on it's way, then you can zero in, set alerts and confirm the reversal in the 60 minute timeframe. I didn't fully discover the broad applicability of using multiple timeframes until about seven years ago studying Walter Bressert's (a master of using "cycles" to trade commodities) materials, and taking his seminars several times over a period of two years. It wasn't clear to me at first how important this is. For example, why watch a 30-min chart, when you could just display more data in a 5-min chart window? That's not the right approach, to get the value out of watching multiple time frames. The trader looking to benefit from this, should always run his/her charts with the same spacing between bars (whatever you can use, and still study each bar carefully), then you'll have a "periscope" system that works across different time frames, and filters out noise - with each timeframe giving you a unique perspective. When there is CONFLUENCE between your analysis in multiple timeframes, those tend to be the situations where you can stike with confidence! When there is confluence between multiple analysis modes, e.g. price action and fibonacci support/resistance levels... those setups tend to be all the better. Good trading, -Steve