Daniel,
For a newer trader, I would humbly suggest that AMZN might be a little too volatile to play on the open, especially with a gap up, particularly in this very uncertain market. You would need to have good instincts, the ability to sense general buying or selling in the market, particularly in that sector, to have a feel for how the Dow and S&P futures were doing at that point. Initially, at the open, trade prints are often very mis-leading because Nasdaq is delayed in reporting the trades for the first few minutes (there is a lag on TOS). Lots of potential problems to worry about.
You might want to wait for a pullback, and if there is none, just forget the trade, don't chase it...wait and look for something better, more certain.
If there is a pullback (the larger the gap, the more likely there will be a pullback), then wait for the bottom, remembering there may be more than one bottom on some days. If you think you have "the" real bottom and want to get it, make sure there is general buying at that moment, on the VERY FIRST sign of selling at the price that was the inside bid when you bought, you might want to consider dumping the stock and either staying out, or waiting for another, lower bottom, or waiting for general buying to resume. That is using a very tight stop. You might get stopped out for 1/8 or so, but that's certainly better than losing the 4 1/2 points you mentioned.
However, on a very busy/volatile day, especially if you do not have good, fast, instant executions (because of the type broker and software you use, your connection to the broker, etc), you are subject to getting caught up in a situation where you cannot help but blowing your targeted 1/16 or 1/8 stop, you miss it, by the time you get out, you may be down a good bit more. It's important, therefore, to be well-practiced in spotting the bottom (by complete, general buying at a reasonable pullback (the more pullback, the better), and to have good, quick executions.
If you miss an occasional bottom and get stopped out, you will occasionally lose small amounts but never a large amount. However, if you aren't good at picking bottoms and get stopped out a lot, you will gradually lose too much, should stop and paper-trade a while to get better at it. You also should start trying to sell immediately if your stock is going down. Waiting too long, thinking, hoping, wondering, etc.....all that will cause you to lose too much. You must be quick and decisive (and right more than you're wrong, of course).
Also, you should expect your positions to make you more than you stand to lose. For example, if you are willing to lose 1/4 on a stop (start trying to get out at - 1/8), then you should not enter the trade unless you reasonably expect to make much more than that, like 1/2 (minimum) or 3/4 to one point, or more. You must have more upside potential than downside risk, or else it's just gambling. So, if you don't think you can make a point or more, you might want to avoid a particular trade.
Daytraders look at many indicators ($INDU, S&P futures, $TICK, $TRIN, stochastics, moving averages, etc), but picking the right "indicator" stock and watching it move is best and easiest. For example, to trade AMZN, you might like to monitor NSCP, XCIT, LCOS, or similar stocks, hoping your AMZN will follow the trend set by the others. It is important to know, also, if your stock is NOT following the general market/sector trend for the day because of some news behind it - negative or positive, be aware of what can be affecting its action for that day. Lots of things to consider, as you see.
You might enjoy paper-trading for a period and spending time in a chat-room like The Momentum Trader mtrader.com in order to learn this and other methods. The penalty for not learning well is, you know, very costly. We have all been there, I assure you.
Good luck!
Bill |
