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Strategies & Market Trends : Trend Setters and Range Riders -- Ignore unavailable to you. Want to Upgrade?

To: adad69 who wrote (24760)	4/13/2003 11:42:09 AM
From: lee kramer	Read Replies (1) \| Respond to of 26752

DAYTRADING: The Highs and the Woes [Ed note: Kramer called again, said he's on his way back from the Caribbean and that I should choose a 'Best of Kramer' column: Kramer gives new meaning to the word 'chutzpah.'] Every year at this time I huddle with my boyhood chum Barney Bufflekarp, the retired bookmaker extraordinaire, to update the annual DayTrading Test. The test of course is designed to let you know if you have the smarts, the moxie to become a successful day-trader. A brief note before you sharpen your pencils and sally forth. Gamblers and daytraders have a lot in common. The Bufflekarp says that only 5-7% of his customers, (and he had a lot of ‘em) were consistent winners. I suspect the same is true of day-traders. Bufflekarp said “Most gamblers are losers because they are terrible at assessing probabilities, determining true odds, spotting overlays and underlays and having the vaguest notion of astute money management.” It’s my strong sense that most day-traders suffer the same maladies. So, if you want to become a successful day-trader and join the wealthier class, a class by the way I suggest you join at the earliest possible moment, sharpen those pencils and begin. No time limit. 1. The Nasdaq futures are down 8 points at 9:00. The Sp’s are down 4. The Dow futures are down 15. The market will: a. Be down sharply for the day. b. Be down sharply but reverse at the 10:30 reversal period. c. Neither. Answer: Neither. The pre-market futures indicate the opening only. The sole exception is when the pre-market futures are strongly up rr down. In the Nq’s are up 25, the Sp’s up 14 and the Dow Futures are up 90 there’s a pretty fair chance that the day wil be an up day. 2. Maria, on the floor on the NYSE, breathlessly and excitedly says that “They’re buying Intel.” Should you: a. Call your broker and buy 1,000 shares of INTC. b. Discuss it with your wife, girlfriend or your wife’s girlfriend. c. Call your brother-in-law Morty who’s a long term Intel investorand is an expert on the company. Answer: Turn off CNBC immediately. If you can’t bring yourself to do this, hit the “mute” button. 3. Your phone rings. It’s an account executive from Merrill Lynch. He wants to discuss a stock just brought to his attention by Merrill’s crack research-team. He tells you that the stock is selling at 12, will shortly experience an earnings explosion and that they’re looking for the stock to run to 96, a conservative estimate, within 18 months. You: a. Listen carefully and take notes. b. Listen carefully, take notes then discuss it with your wife. c. Gently hang up the phone. Answer: Hang up the phone. Here’s the brokerage game: The account executives, (salesmen) are given a list of stocks every morning. They call their customers, then you. The pitch to their customers: “This baby’s gonna fly. Let’s get rid of CFLO, (the one he put ‘em all into at 98, now selling at 56 cents) grab the tax benefit and make it all back. Back the truck up on this one.” They love to back up the truck. Read: your truck, your money. It’s hard to resist this pitch. The broker pulls in two commissions. 4. You watch a coin come up “heads” 25 straight times. What is the probability that the coin will come up “heads” on the 26th toss? a. 50% b. 48.5% c. 51.5% d. 100% Answer: Any coin that comes up “heads” 25 times in a row is a "loaded" coin. The odds against 25 “heads” is beyond astronomical: ½ x ½ 25 times. Take this bet and you are the mark, the pigeon, the sucker. 5. You buy a stock at 30. It backs off to 26. Your best strategy is to: a. “Average down”. Buy more to reduce your cost basis. b. Hang on to it. Wait for it to come back so you can sell it And break even. c. Sell it. Answer: Sell it. Down 15.3%, it’s a trade gone wrong. Take the loss. 6. You do some research on a stock. You like the company. The fundamentals are solid. You pull up the daily and weekly chart and see that the stock has come down 60% and it looks cheap. Do you: a. Buy the stock b. Avoid the stock. Answer: Avoid the stock. There is the company and there is the company’s stock. Day-traders trade the stock, not the company. 7. A stock declines from 60 to 30, a 50% decline. You own the stock. What percentage must it rise for you to get back to break-even? a. 100% b. 50% c. 51% Answer: 100% 8. You spot a nice bull flag, with volume confirmation, on a 5-minute chart. You buy the flag. You are out of the trade in: a. 10-20 minutes b. 1 hour c. 3 hours d. at the close of the trading day. Answer: 10-20 Minutes. A 5-minute bull flag is a pattern that if successful will move in a short period of time. It might move later, but the longer the wait, the lower the probability. This is not an absolute, just an observation. 9. The N.E. Patriots, Super Bowl winners last year face the Pittsburgh Steelers on Monday night. It’s a home game for the Pats. The opening Vegas line was the Patriots giving half a point. The line moved up to 2 ½ with the Steelers the favorites. What’s our bet? a. The Steelers. b. The Patriots Answer: The Patriots, but not because they are the champs or are playing at home. The line was bumped up because a lot of money was flowing in on the Steelers. Bookmakers want to “balance” their "book," wanting to have an equal amount on each team and take the “vig.” By upping the line, they hope to attract more wagers on the Patriots. This is an “overlay.” Bet the Patriots. And if the line hits 3 points, consider betting a bit more. If the Pats lose by 3 it’s a “push” a tie. 10. An “Inside-day” is: a. A rainy day wherein you stay inside. b. An opportunity Answer: An inside day is often a indication that a prior and substantial move, up or down, has temporarily halted and will likely reverse direction for a while. Example: a stock runs up 30% in 6 trading days then puts in an inside-day. If you own the stock it is prudent to sell a part of the position. Aggressive/experienced traders with no position will consider shorting the stock for a “trade.” So how’d you do? Doc Kronkite got 4 right. The comely Miss Tushbumper got 7 right. If you got 8 or more right...well alright! Lee Kramer