to show up at the bid, evidencing that the other active
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traders in the market are also noticing what I just described andare beginning to buy at the bid price while the remaining sellersare fading.Beside the ECNs’ showing up while market makers arebidding strong, another confirmation that buying strength isbuilding in this example is the absence of sellers. When sellersdissipate while buyers remain to own the stock, it indicates theturning point I spoke about where demand is building (bidders)and supply (sellers) are diminishing, which creates an imbalanceof demand over supply, showing the impending price movementto the upside. Traders that make decisions with this mindset andrecognize this type of indicator are indifferent to prices but veryprejudiced to reaction.I certainly will look for confirmation and subscriptionthrough well-correlated sectors and stocks, but as these indications confirm each other, they support a decision to act. In thisexample the action to open a long position would be taken, or inthe case of a short position already on, a good time to exit andcover. The point is that these tools can be used for various strategies. The scenario I just explained would be more of a day trading strategy and definitely more microfocused, but not sonarrowly focused that every print or trade alters my ability toread where stock prices are showing signs of support or resistance. Maintaining the discipline to react to changes in the market based on the strategy you are employing is at the core of thelast two rules we covered. If the example above was confusing toyou, this would be a good “leading indicator” that you needmore time studying Level II, TAS, and the price action that canbe viewed on these systems. Better to recognize this indicationnow and act responsibly than to rush into trading ill prepared, asdo so many amateur traders who suddenly get introduced toLevel II and TAS.
PRECISION EXECUTIONIn addition to those decision support tools that act as confirmingindicators, the new breed of electronic trader has direct accessto professional tools like electronic communications networks
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(ECNs), the Small Order Execution System (SOES), SelectNet,and SuperDot. All of which link to the exchanges and third-partymarkets to find what every trader wants: liquidity and marketaccess. These systems will be covered briefly now, but extensivestudy will be required before implementing their use. The average new trader will need at a minimum one to two weeks’ practice on systems that incorporate their functionality before livetrading.Essentially, through this technology, EDAT traders becometheir own order desks because there is nothing between theirorders to buy or sell stock and the contramarket participant orentity that executes the order. The advantage of these systemsmeans no more waiting for fills or being taken advantage of likethe reactive investor who routes the order flow to professionalswho often see the order before it is executed and trade against it(see “Know the flow” at the end of this chapter for more detail).With Level II, TAS, and direct order routes, precision executionputs you in control as the proactive trader. But with that controlalso comes responsibility, which is the basis of the first ruleregarding this technology: Know your order routes.Knowing how to find liquidity and the right tools withwhich to open or exit a trade are perhaps the steepest learningcurves to scale when using an EDAT system. Understanding themarket mechanics—such as knowing the difference between alimit order and a market order, when or where to place a buy orsell stop order, when to use leading limit orders in relation tomomentum trades, which electronic communications networks(ECNs) work best in certain situations, etc.—is understandingthe art and science of trade execution. The “rules of engagement”are what I am referring to.Let’s explore an example of how order routes through precision execution tools work in concert with Level II and the TASscreens. Suppose the market in Sun Micro Systems (SUNW) is135 X 1351⁄8; 3000 shares X 1000 shares. What is the best orderroute to get the trade done? Would you go long with a marketorder? Would you use SOES to bid a price of 1351⁄8 for the entire1000 shares? Would you use a leading limit order at 1353⁄16 on theIsland ECN? Or would you send a proactive order using theArchipelago ECN? How about a SelectNet preference to a marketmaker you suspect is a true seller at 1351⁄16? These are just some
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of the questions you must be able to answer when using EDATtechnology for the best and fastest order route to liquidity. Manytrades never get opened because amateur traders do not understand order routing while maintaining control of the trade inorder to protect themselves. How much money is lost by traderschasing a fleeting bid when they want to sell? The answers aresimple once traders gain this mechanical knowledge. While it isoutside the scope of this book to explain every order route available, I will touch on a few examples to drive home the importance of order routing.ECNs are essentially crossing networks that match buyersand sellers electronically without human intervention. When anECN has an order that matches yours in its book of limit orders,you get an instant fill. If it doesn’t have a match, it will eitherhold the order in its book of liquidity, send it to another ECN, orpost it to the Level II market maker system, assuming that youare the best bid or offer (BBO). The actual routing depends onwhich ECN or system (SOES, SelectNet, SuperDot, etc.) youselect.Up until recently, there were separate ECNs for the overthe-counter market and listed securities, but this is changing.Systems are evolving every day in which listed and OTC stockscan be traded within the same ECN or a third-market executionsystem. Incidentally, third market means that there is now anew market to execute trades; it does not suggest by its “thirdmarket” classification that it is in any way an inferior market. Infact, quite the opposite is true. When an issue is first offered tothe public through an IPO, it is considered to be offered througha primary market made up of broker-dealer networks or underwriters who help private companies go public. The shares areprimarily sold to investors who are already doing business withthese firms through a distribution system normally made up ofother broker-dealers in the selling syndicate. Once the IPO isoffered to the public, it then trades in the secondary market,which we traditionally know as the exchanges. The New YorkStock Exchange is the largest, and there are other regionalsacross the country, such as the Boston Stock Exchange (BSE),the American Stock Exchange (AMEX), the Cincinnati StockExchange (CIN), the Philadelphia Stock Exchange (PHS), theChicago Stock Exchange (CSE), and the Pacific Stock Exchange
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(PSE). The over-the-counter (OTC) market is also a component ofthe secondary market, now representing larger NASDAQ issuessince 1970 when the NASDAQ was created.Third-market electronic systems, while considered to benew to the market, really started with the formation of the firstECN, Instinet, in 1971. In fact, third-market systems existed evenbefore 1971 with the telephone. New aggressive ECNs, likeIsland, Archipelago, and Redi, have been created just recentlyand have grown dramatically due to their capabilities: ease ofaccess to market liquidity and ultrafast executions. These systems have gained the affection of active traders and the publicbecause they allow for electronic crossing of orders and for trading with professional market makers, making the entire marketmore efficient and fair.The point is that traders who understand these new emerging systems and how to use them during market hours, as wellas during pre- and post-market hours, gain an advantage finding liquidity and therefore putting their orders ahead of thepublic’s, who use inferior online systems. Example: A tradersends a limit order to buy 500 shares of VRSN at $180 per shareor better (meaning less). If the ECN used for this trade has anorder in its book of orders to sell 500 shares of VRSN at $180 orbetter (meaning more), it will match or cross the two orders atthe $180 price immediately. The EDAT trader must knowwhich ECNs do a large amount of volume in the stocks he or shetrades. If, in this example, the trader is now selling the 500shares it purchased and he or she places the order, which getsfilled on only 300 of the 500 shares, what must the EDAT traderdo? The trader is responsible for finding liquidity since hefunctions as his own order desk, and this is an example ofwhere responsibility plays into taking control of your ordersversus having a brokerage firm do it for you, which can cost youdearly.Some of the possibilities are (1) leave the order in the market until it is completely filled (if the stock trades at or throughthe limit price); (2) send it to another ECN that has a strong bookof liquidity in that stock; (3) cancel the unfilled portion of theorder and send it at a price where there is a contra (the oppositeside of the trade); (4) check the market maker window (Level II)and see if there is a market maker indicating and bidding the
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stock at a price at which you are willing to sell. If so, send in aSOES (Small Order Execution System) order, which is mandatory for the market maker to accept, or use SelectNet to send theorder to all market makers as a broadcast, or select a specific market maker through what is called a SelectNet preference. Whichis the best option depends on market circumstances. The point isthe EDAT trader must be trained and prepared for just such aninstance. This control creates the need for knowledge to tradewith the most efficient means possible in the market today, butalso creates a substantial advantage. This is what is meant byprecision execution. In the next section, I explain the alternative.Once discovered, you will completely understand the advantageof using the decision support and execution tools of EDAT.
THE ORDER FLOWUnderstanding how order flow works within the market andhow it has worked for many years is important for reasons farbeyond trivial pursuits. Precision execution systems provide thecontrol if you accept the responsibility that comes with them.Assuming that is the case, a critical rule for active trading isNever allow your order flow to be sold.When an online firm routes your orders to a wholesalingmarket maker instead of routing them directly to the marketthrough systems such as the SOES, SelectNet, a variety of ECNsfor NASDAQ issues, or through SuperDot for listed stocks,chances are very strong your order flow is either being sold or itis being worked by a proprietary trade desk owned by the onlinefirm. This is common practice for online brokerage firms, sellingthe orders they receive from their customers to a securitieswholesaler, or broker’s broker who will pay online firms to sendthem their retail customer orders. The result is simple: Thesetrade desks attempt to match the buy and sell orders of these customers while retaining the spread for the transaction. While notillegal, this is also not efficient. The activities of the trade deskcost you speed to market, which can lead to a market impact cost(MIC) through inefficiency of markets moving higher or lower,stock ahead where others with superior systems beat you to
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liquidity, and of course the inevitable loss of the spread retainedby the market making community. The benefits to the wholesalergo beyond just the spread; they also enjoy the advantage of having insight to market direction through the aggregated orders. If alarge bias toward the sell side were shown through thousandsof orders in a given security at any particular time and you werethe market maker, what would that tell you? If you would havea selling bias, your instincts are correct, and this is yet anotheradvantage of buying order flow from online brokers and othertrading operations.From the perspective of the retail firms that sell order flow,they have the ability to create the illusion of cheap commissionswhile enjoying the opportunity to be paid on the back end fromthe wholesaling firm who is buying the order flow. “All that glitters isn’t gold” comes to mind. Just because you are paying only$15 or even less to get an order done does not mean that you aregetting the best price or fastest access to the market.For the wholesaler who pays for the order, the opportunitycreated by spreads and order flow is enough reason to pay for anorder. For example, if the spread in a given issue is only a 1⁄8th ofa point, on a 1000-share lot order, that creates $125 in potentialprofits for the trading desks. If the wholesaler could buy theorder from the retail firm for $0.02 per share, that would cost thewholesaler $20 on a 1000-share lot order. If a wholesaler can pay$20 for the opportunity to make $125, they are going to do it allday long, and many times the spreads are even greater!Now to be fair to the wholesalers, I must tell you that theyfeel they have earned this opportunity for the spread becausethey have incurred market risk by providing the customer liquidity. This is true. However, the traders who wish to maintaincontrol can retain the opportunity for the spread and the abilityto find liquidity much faster while maintaining control of theirorder flow. Remember, seeing order flow is extremely powerfulin and of itself. Think of a floor trader who is reading the crowdof buyers and sellers on a trading floor. The true value of a seaton an exchange is to recognize the imbalance of supply anddemand in securities and then have the ability to execute in realtime. Whether you are sending your order flow directly to amarket-making desk or it is sold to a desk through paid-fororder flow, the result is the same. You are contributing to the
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market makers’ opportunity to recognize imbalances throughthe aggregation of order flow sent to them by you and manyother online traders.As you must realize, the electronic trading landscape is growing and is complex, and it is not easy to master at first glance.However, if active trading is your desire and passion, you can gainthe knowledge and experience required. The roads you travel arewithin your control, and the decisions you make today will mostdramatically effect the results you receive tomorrow. Professionalmarket participants earn that title and are few in numbers becausethey make the right decisions and travel the difficult road. Yes,you will see carnage in the market, and it isn’t fun all the time, butlike the veteran exchange traders across the country, and the newbreed of electronic traders of today, those that survive will alsothrive wearing these lessons like a badge of honor as the mentorsof tomorrow’s generation of electronic trader.
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RULES FOR THE ACTIVETRADERRules of the TradeSupply and demand determine prices.Don’t wait for certainty.Let market indications lead you in and outof trades.Be multidimensional.Open positions early in the week and offsetby the weekend.Gaps tend to close.Size the trade.Amateurs control the open; professionalscontrol the close.41
Copyright 2001 The McGraw-Hill Companies. Click Here for Terms of Use.
Average winners, not losers.Never let a winner turn into a loser.Take profits often.Never mix disciplines.Never try to trade back a loser.Don’t fight the tape.
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ew common denominators exist that are truly universalwithin all capitalistic markets, but this next critical rule isa law that controls all markets. Whether you trade derivatives such as options and futures, commodities, currencies, equities, or bonds, this rule is a law that must always be your beacon:Supply and demand determine prices.As an investor holding a stock for an extended period oftime, you are interested in many factors that are more fundamentally driven, such as any plans the company may have to issuemore shares, open interest, management, and R&D developments.But as a trader, volatility and momentum swings as the result ofan imbalance in supply and demand of the floated shares is whatyour focus must be. Supply and demand imbalances reflect allfactors in the market at any given moment or within any giventrend, regardless of how long it lasts, which reveals the true consensus of value of any given financial instrument.As an active trader, you are simply looking for supply anddemand imbalances on a short-term time horizon. In the end whatevery tool and software program ever written has set out to revealto its user is where the buyers (demand) are exceeding sellers(supply) and where the sellers are exceeding buyers. Any imbalance that exists will result in an associated price change in theinstrument being traded, and those that understand and rememberthis rule will remain at the top of the financial food chain in themarket.Countless systems and software programs are availabletoday that promise the Holy Grail to uncovering profit in themarket. Unfortunately, those that spend most of their valuabletime and energy searching for the next trade secret or Holy Grailthrough software systems will chase their proverbial tail to thepoint of emotional and financial exhaustion, accomplishingnothing. In contrast, those who dedicate themselves to learningthe mechanics of reading indicators that leave clues where these43
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imbalances exist find success on average and move on to earn theenviable position of trader. I have come to believe through myown experience and many interviews and interactions with professional traders that finding an optimal combination of systemsand tools is a very personal learning curve. Trading styles are asdifferent as people, and few common denominators exist that areas truly universal as the laws of supply and demand.When looking at supply, for example, from a marketwideperspective, some indications to follow that can speak directly tothe issuance of new or additional shares of a given companywould include IPOs, stock splits, secondary offerings, the releaseof treasury stock, or mergers and acquisitions, etc., all of whichincrease supply. As a general rule, this additional supply of stockdecreases the price per share on an individual stock level. Froma broader market perspective, an additional supply of stockthrough IPOs increases the total shares in the overall market,causing increased competition for money flow from institutionaltraders and individuals alike. Therefore, as dramatic IPO activityfloods the market, weaker companies in terms of fundamentalsstand the greatest propensity for decline, which can be measuredthrough beta and other sensitivity formulas. The point is that asthe supply of shares greatly increases in excess of demand, markets, as well as stocks, will fall. This law of supply and demandbest describes the “bursting .com bubble” at the end of the firstquarter of 2000, which was ignited by greed but ended in fear.This also explains the exodus of money from the value stocksduring the rapid rise stage of the .com era in the preceding years.Well-capitalized, well-managed companies with strong earningsand revenues who traditionally trade at $80 to $100 per sharesuddenly retraced to unthinkable levels by comparison to theirpreretracement levels—all driven by the sentiment of traders inthe market, causing an imbalance in supply and demand, pushing money into the .com sector of technology. Once this temporary weak demand dissipates, the market is left with excessivesupply, causing the rapid downturn.If a company decreases supply by buying its own stock—whether to meet obligations or to satisfy employee stock optionredemptions or to do a reverse split for the sake of publicperception—the price per share normally rises (see Figures 3.1through 3.3). When supply and demand are in equilibrium, the
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FIGURE 3.1 Supply curve
FIGURE 3.2 Demand curve
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FIGURE 3.3 Supply and demand in balance
price of a stock is stable and will move sideways on a price chart.The understanding to be gained from this, whether looked at froma macromarket perspective or from a one-stock day trade perspective, is that this law is the king of all markets.Day trading is perhaps the purest form of making this determination since day traders react to imbalances to either profitfrom followthrough where demand continues to exceed supplyon microtrends or fade imbalances on reversals. The most common examples are trend reversals where traders seek to buyweakness at support levels and sell strength at resistance levels.Those that react to imbalances on a very micro minute-to-minutelevel are day traders. Others choose to evaluate these imbalancesover a series of days, and this is where swing trading comes from.While others are longer term oriented and employ a myriad oftechniques from quantitative analysis to fundamental analysis,day traders believe that anticipating and predicting movementtoo far in the future is difficult, risky, and much less profitable.Questions such as “How can Abbey Cohen with Goldman Sachsbe a raging bull while at the same time five other analysts are pre-
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dicting bear markets ahead?” are often asked. Very conflictingviews of the market are saturating the media every day, so who isright? The day trader feels the future cannot be determined accurately with precision and chooses to ignore such views fromthese parties who seemingly have the best research money canbuy but still conflict. If you want to see this phenomenon inaction, just watch CNBC for a few hours, the current voice for themarket it seems, and watch the guest analysts talk out of bothsides of their mouth!Swing traders and momentum traders are forms of daytraders who have a longer time horizon and who believe technical analysis will reflect market reaction and trends from bothbullish and bear perspectives. Technicians also believe that thepsychology from both market crowds of professionals and amateurs is reflected in the charts and indicators. While amateurs arereacting to the news the market produces, professionals are generally fading their reactions. Many sell-side analysts and falsemarket prophets erect the “big top” of the market where much ofthis news originates, such as analyst revisions and ratings, earnings estimates, and research reports. In the midst of all this isreal news like earnings reports, lawsuits, product developments,management changes, mergers and acquisitions, etc., which iswhere professional traders and investors focus, depending ontheir time horizons. Fund managers learn early on through theirtraining (such as apprenticeships with senior fund managers) todistinguish fact from hype or rumor. These are just some of themarket participants on the playing field called the stock market.Some, like day traders, are rushing hard for 3 to 4 yards at a time,and others, like fund managers, are planning carefully throughfundamentals in the huddle. But all are competing to find theimbalance in the supply and demand of the shares floated fortrade in the market.This proven theory plays itself out in the markets in manyways. Therefore, once you determined a bias, then you implement your strategy. The stock that will be the most sensitive to theimpending imbalance to give you the best chance for profit basedon what will move the most and fastest will reveal itself throughrelative strength or weakness. So reading imbalances must beviewed from a number of different perspectives. Whether on aone-stock level or an overall market level where competition for
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dollars occurs, the imbalance is best viewed as a cause-and-effectrelationship. Price changes based on the money flow from competing markets form the effect that results from the reactions ofprofessional and amateur market participants to news and eventsthat are the cause of these price changes. An example is the activity of the arbitrageurs who trade futures contracts with equities:Money will flow from equities to futures, affecting a negativeimpact (selling equities) on stocks while money is flowing into(buying) futures, causing a higher valuation in futures. While thisphenomenon is felt for only a short time in this scenario, thefinancial futures market is a vehicle for speculators to bet onanticipated price action of stocks in the very near future. Thepoint is that supply and demand imbalances are the most accurate precursors to price action regardless of the vehicle beingtraded. The tools adopted and used to form a bias on a variety oftime horizons will vary according to an individual’s techniqueand style of trading, but in the end this common critical rule oftrading does and always will operate in capitalistic markets. Thisfirst rule is the foundation of all rules for active trading, and alltrading for that matter.
THE DAY TRADER MINDSETDay traders must subscribe to this next rule: Don’t wait for certainty. Before diving into this rule, think of stocks as either“thick” or “thin.” Thicker (highly liquid) stocks generally showshort-term trends over more time than thinner (less liquid)stocks since the reference to thick and thin relates to the pricelevels. A thick stock must trade heavy volume at each pricebefore moving up to the next (or down) level. An example wouldbe Intel (INTC) trading heavily on the offer price of $60 wheresellers are offering INTC for sale, while buyers (bidders) are paying the $60 offer price. For INTC to trade higher, demand at $60must exceed supply at $60 in order for the bidders to absorb allstock for sale at that price. This will force buyers to pay a higherprice where sellers are incented to sell, such as 601⁄8. The heavierthe volume at $60 before exhausting the stock for sale at thatprice, the thicker the stock, and hence the more liquid but less
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volatile it is. Thinner stocks, with less average daily volume,tend to trade through price levels much quicker up or downsince there is less subscription in the issue; therefore, as imbalances occur, thinner issues move more dramatically and fasteron much less volume.Day traders read these price changes on shorter time horizons than investors, but make no doubt about it, both disciplinesare doing the same thing, reading supply and demand imbalances. The tools and techniques, as well as indicators, that helpdetect these imbalances are often different, but the desired outcome is the same: to recognize where the imbalance is to form adirectional bias that will profit from the next pivot, breakout,breakdown, or reversal. Because active day traders will actquickly while trading stocks that have the propensity to move onthinner volume, this rule comes into play because professionalsknow that if they wait for the confirmation of news and rumors,they will miss many profitable opportunities. Amateurs feelcompelled to wait for confirmations, which causes them to belate and gives the professionals another opportunity to fade theirreaction. Amateurs tend to enter trades late and on the wrongside of the market as stocks become thicker and overtraded. Twovery typical examples are splits and earnings reports, both majormarket events that tug hard on both ends of the rope of supplyand demand.Does this mean the professionals are reckless risk takers,trading ahead of news? The answer is no or they would not beprofessionals. It simply means they spend more time studyingthe market, have greater focus on their trades, have better analytic tools, and know what to look for when a trade is developingor breaking down. Once enough indicators confirm directionalbias, professional speculators tend to act and trade ahead of theimpending price move, hence putting them several waves aheadof amateurs who wait for news to break. Because of this, activetraders must have conviction and confidence while reading andreacting to these indications. An aggressive trader acts on thevolume and increased activity without waiting for news to beannounced. It is often said that a chart and Level II tell the stock’sstory before the media do!Conversely, the amateurs with less sophisticated technologyand market acumen will wait for the news to be announced,
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putting them behind the professional trading community. As thepublic is also waiting for news announcements and certainty, professionals are often exiting on the news—“selling into strength”with good news and “buying weakness” on bad news—as theamateur rushes in or out providing liquidity. Although this is justan example, it illustrates the mindset of a professional who tradeson market indications without waiting for the certainty of rumorsand news. This takes us to our next set of rules.
TIME HORIZONSThe mindset of an active trader is directly correlated to the timehorizon. Day traders begin by adjusting their discipline withstock selection and the time horizon of trades. They then continue to make adjustments once in trades in order to adhere to thediscipline of day trading. Generally, the more actively you tradeand the shorter your time horizon, the greater risk you assumesince active traders tend to trade more volatile stocks. But havingthe control to enter and exit quickly is always an advantage thathelps mitigate risk. The rule here is Let market indications leadyou in and out of trades. How often and how actively to tradebased on this rule is a very personal decision based on skill, risktolerances, and desire, but a day trading style can reveal moreopportunities for momentum, swing, and trend trading becauseof the high level of concentration required. Some argue that daytraders can’t see the forest for the trees, but I argue that the opposite is true. Day trades feed your macroview of the market as longas you don’t define day trading as spread trading and try to readevery tick the tape shows, as discussed in Chapter 2. The indications left to you by volume and price action will reveal theopportunities, but the patience to wait for low-risk–high-rewardopportunities are the attributes that many amateurs who rush inon news lack, putting them in high-risk–low-opportunity trades.Day traders develop a keener sense of activity for stocks theytrade by viewing price and volume activity together as seen onLevel II and TAS that a chart cannot reveal.The time horizon of a day trade is determined by the market action associated with a given stock. The indications that
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lead you into trades, and the time frame over which these indications are revealed, are important to correlate to the amount oftime you remain in the trade. Deciding to remain in a trade forlonger periods of time because the indications that led you inchanged is not a good strategy. An exit strategy is not contingent on a profit and loss scenario, but instead based on the waythe trade is acting defined by indications such as volume andprice levels over a given time frame. Either way, adherence tothe time horizon is the discipline. I am not going to turn whatwas a momentum trade into a swing trade if I am wrong. Therule here is to adhere to your time horizon based on the stock’sbehavior and remain a day trader if that was the intent of thetrade. Remember, day traders’ modus operandi is to trade heavily, which means trading a higher number of shares per tradewhile being more active. It would not be uncommon for anactive day trader to execute a hundred or more trades in a daywith each trade sized at least a thousand shares. Many tradesare much larger in size, such as 10,000 shares or even larger,and these are referred to as plungers. The average trade mightlast no more than a few minutes. While I subscribe to bothstrategies noted above, I believe new traders should trade farless often, even as low as 10 trades per day, until their confidence and emotional stability are established. In the beginning,I strongly suggest that you focus your attention on reasonableliquid issues trading at least 1 million shares per day, in issuesthat are both optionable and marginable, meaning that they canbe traded on margin and that there are options traded on theissue. These conditions automatically ensure good liquidity asa rule, but that does not preclude them from high volatility.Considerations such as these have an impact on the time horizon you set for trading, especially day traders.
MULTIDIMENSIONAL TRADINGA rule that is critical in the evolution and development of activetrading is Be multidimensional. When having a multidimensional approach to the market, traders subscribe to a mixed stylethat includes day trades and swing trades. Sometimes a day trade
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is there and you must take the trade, while other strategies aredesigned to be of a longer duration. Never mixing the two is thekey. Since we have discussed the day trading mindset, let’s lookcloser at other forms of trading and review the rules associatedwith swing trading.As a rule I recommend this: Open positions early in theweek and offset by the weekend when swing trading (or soonerdepending how the stock is acting). I am not a fan of holdingpositions over the weekend. There are times when it is appropriate, but these are few and far between. One reason for this rule isthat imbalances occur in the largest form after the close andbefore the open because this