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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Lee Lichterman III who wrote (14371)	8/11/1998 5:07:00 AM
From: Robert Graham	Read Replies (1) \| Respond to of 42787

I am just saying to be careful about day trading. It is very different from even short term position trading. A day trader does not work by their gut feelings as you know. Using a technical based system is only one way to make money. Judgement is not the gut feelings I am talking about here. Judgement is recognizing patterns on the tape that cannot be defined by a MA crossover for instance. How the market is trading further complicates this picture. Also judgement is intuition that is based on experience which is different from "gut feel". The day trader needs to recognize the difference. Then you have news items to be concerned with. Ever notice how on a down day one set of industries are performing while on an up day another set of industries are leading? This regular "rotation" of money has to be taken into consideration. The trading day goes through periods through the day where each period of time can have its own pattern. This also goes for individual stocks. The trader needs to be aware of this. Each stock trades differently on an intraday basis which may not be evident on the daily charts. Part of this depends on who is trading in the stock which can be a combination of day traders, speculative position players, and institutional monies. Another part depends on the market the stock trades in: NASDAQ or NYSE for instance. The previous two items alone can make a very big difference on how the stock must be played. Very strict stops need to be adhered to since your day trading will involve making a profit on a smaller movement in the stock. You cannot let the stock go against you in a day trading scenario. You cannot be thrown about when a price moves up or down a larger interval than expected. Prices can behave very differently on an intraday basis than what you see on the daily charts. You need to know what to do under any circumstance that you will come up against. There is little room for "wait and see what happens" when the price starts moving. But then you need to know when it is safe to wait for an outcome for instance as the price is butting up against a resistance that likely will continue before reversing. This involves understanding how the stock trades, the risk to profit profile of the trade, and how it has change over time. Much depends on the approach that is chosen by the day trader. The momentum day trading thread can help here. Do you play on news items? Do you play on the follow through of momentum that has been recently displayed by a particular stock? Do you follow the tape of several candidates and play the one that breaks out on an intraday basis? Do you make a play on a swing trade? I am sure there are many ways to play this game. But from everything I have seen of this topic, it is played differently than what you would do for a position trade. For instance, I saw many day traders allow DELL to move down intraday several points and below an important intraday support. This was nothing short of suicide. A good day trader would never, ever let this happen. This is what a novice player would do though, and this is one reason why the novice player gets burned. The day trader also has to be particularly sensative to changes in the market. Changes can occur both on a day-to-day basis and a longer term basis like for instance how the market is behaving now. The day trader needed to recognize the change in the market when it happened earlier. But I saw few did recognize this change in the market because they were still playing the market as though nothing had changed and finding out the hard way from their losses. This kind of mistake can lead to failure, along with not keeping tight stops. The day trader needs to know when to take a profit, which will tend to be smaller profits that what a position trader would be interested in. Greed can burn you here in day trading. Holding out can cause you to lose your profit, then you hold on "hoping" for a return of the price. You may as well by position trading. At least in position trading there can be more room for the price to move before having to act on it. I suggest looking at the momentum day trading thread here on SI and irby's thread "The Final Frontier" in order to get an idea of what I am talking about here. I cannot stress enough how much different day trading is from position playing even on a very short term basis. But many here I see playing day trading as a position trader. This will only invite trouble. Do your research. Experiment on paper. Then try small trades. Have your system defined and in place before you actually day trade. This system is there to help you select the stocks to trade and determine your entry and exit. Playing it fast and loose as a day trader is no different than gambling in a casino. Essentially, day trading is making money from a relatively small change in the price of a stock. Doing this with 500 share purchases is a bit naive and will not work. I do not see anything less than 1000, and preferrably 2000 or more shares. As a day trader, it is good to use only 1/10 of your trading capital as part of your money management approach. You have defined a money management approach to your trades, haven't you? Without one that works, the day trader is certain to lose. So if 1,000 shares at lets say $25 per share is $25,000, then the stake needs to be $250,000. In this way, you can take sucessive drawdowns and still have enough money left to succeed. Always think of the risk to potential profit of the trade, think money management, and define entry and exit points with this risk to profit management of the trade in mind. As a day trader, you have just stepped up to where some of the best market participants in the world play. You are effectively competing against them. During some periods in the market, it will look "easy". During other times, they will be eating your lunch. So not only do you have to know when to trade, but also if you should trade at all that day. I can go on, but I will stop here. I think I have made my point. Once again, nothing personal. But this move to day trading is one event that has really surprised me. Why is it necissary to day trade? Why is it necissary to blindly leap into day trading? I am finding this approach taken in a naive fashion by those who are intelligent, and by those even with some good experience in the market. Many of those intelligent people with experience are of course here on this Stock Attack thread. Where else would they be. ;) We have a good group of people here. Lets just make sure to keep the losses small and learn how to survive in the market so we can continue as a group into the future making money together. Lets keep large losses someone else's bad news and not become a statistic ourselves. For 1 out of 10 succeed in day trading. Just think of these odds. This means that for evey 10 people here, only one will succeed in day trading over the longer run. And the learnings curve can be quite costly. So who will be the sucessful one's here? Bob Graham