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Strategies & Market Trends : Successful Short-Term Trading Strategies for Beginners -- Ignore unavailable to you. Want to Upgrade?

To: Mike McFarland who wrote (14)	8/10/1998 9:10:00 PM
From: William W. Dwyer, Jr.	Respond to of 78

Mike, If you're trading this position and holding for more than a few days, I don't see where the spread really matters a lot, assuming it's reasonable, maybe on the order of 1/4 point or so. In my experience, stocks with spreads that change a lot, or spreads that exceed maybe 3/8 point, these stocks probably have low daily volume (and, therefore, possible liquidity problems) and you might not want to trade them for that reason, because you may not be able to get out fast enough when you're ready to sell your position. For example, one of the first stocks I traded early last year was CAML, cheap penny stock that I shouldn't have been trading anyway. I had 30,000 shares and when I was ready to sell, well, it took me about a week to get all the shares sold at a reasonable price. Not good. So I would suggest looking out for stocks with spreads exceeding 1/4 point (plenty have only 1/16 or so) or stocks with low average daily volume (perhaps 250,000 shares daily minimum, or whatever you are comfortable with). Remember, unless you're lucky, you probably pay the spread twice, on entry and again on exiting the position. So, if it's a short-term position, your profits need to cover both spreads and both commissions, maybe even taxes and other expenses. To answer your question more directly, though, the stock you're talking about may be tradable for one reason or the other (e.g., if it's going UP), but there may be plenty of stocks with better spreads. I think the spread is more of a consideration for intra-day positions, daytrading). Bill

To: Mike McFarland who wrote (14)	8/12/1998 8:44:00 AM
From: TraderAlan	Respond to of 78

Mike, I agree if you're a longer holder the spreads are less of an issue. But you have noticed a phenonmenon we've had since the current correction began. I'd like to think it was the natural flow of supply and demand. But the more obvious answer is the market makers are trying to make it more expensive for anyone who wants to play. If you watch the markets intraday, you'll notice that spreads expand and contract. If you have the luxury, try to time your entries and exits after the 1st hour, in quieter conditions. You'll get better fills. With this type of "robbery" by the MMs and the dropping commissions at "day" trading firms, the time won't be far off when electronic crossing networks come into the range of position traders, as the take the middleman out of the equation. Alan