I really am not concerned about what happens the following day. I’m looking for a stockthat will move at least 2 points or considerablymore before the close. On a good day, which I’lldefine as any day with volume sustaining throughout the day, not just the open, Irun HotScans (www.Marketgauge.com) about 10 minutes into the open. I’ll runboth Rallying Now (or Falling Now) and Big Volume now and compare notes onthe top 2 or 3 stocks. (Note: HotScans updates automatically every minute so youcan just watch it.) I look for huge increases in relative volume, 1000% or more—and I’ve got a monster long or short to play all day.
Stalking and Variations on StalkingDescription
Variations
Sometimes I refer to this strategy as parking on a stock. This past September, Ifollowed one stock for a solid week, paper trading the 30-minute chart. It was astock with a large daily range (it may have been AMGN) and tended to be goingsomewhere all the time, up or down. Allowing for slippage when it changed direction, and assuming 1000 shares per trade, the stock would have earned the traderbetween $12,000 and $15,000 in one week (going long and short). “But I miss thefresh crosses you say.” Not if you only trade one stock. Does this sound too goodto be true? Does this sound easy? It’s not. It’s really emotionally tough. There areperiods when nothing is happening and that little voice says: “Let’s take a quickpeek at LLTC, or COF, orMXIM, or KLAC---“uh oh,missed a fresh cross AGAIN!”“In all my months of research and coupleI once stalked EBAY for threemonths of trading, I came upon a style thathours and it did not move morebest fits me. I stalk stocks. I play QLGC,KLAC, MXIM and some other tech stocksthan a penny in either direcbecause of their volatility. I’ve watched thesetion (it finally gave up 50¢ atstocks religiously for the last 7 months or so. Ithe close).Another way to insure relatively good and frequenttrades is to put up 2, 3, or 5 atthe most stocks on your firstpage. How about four stocksand the QQQs, or the TRIM,or the SPYs if applicable? Noother stocks; nothing justaround the corner on the second page that will tempt youto take quick peeks. Thesemight be the same stocks every day. There are advantagesto trading the same stocks.You get to know them and howthey trade, and I have foundthis to be a very satisfyingmethod of trading.
trade in 1000 shares lots and only need a 10¢move to make $100. If you look at thosestocks I play, they move $1.50 + almost everyday. I have Wizetrade to show me the trendand I watch these stocks every day, so it’s nothard to make my goal of $300-$500 a day. Addthe numbers up, and you come out with $6000a month. This did not happen overnight. Istarted trading with Wizetrade in June and nowI often make more than my goal. This worksfor me. What works for you may differ and youmay be successful or you may not. Wizetradeis a trading TOOL and when used correctly,can be a very powerful tool. This is just oneman’s experience and let me add, a veryhappy man.”-Stevefrom a chat room message (Wizetrade Users’ Group)
Another variation on the same theme is to have three pages of stocks. After themarket has shaken out during the first ten minutes, use the up and down arrowkeys on Wizetrade to scroll through the 150 (130, 180) and see which stocks havea fresh cross or strong 150 at the open. Depending on the indices (long or short)move your best potential trades to the first page. Stay there. No peeking. YouWILL get some trades during the day. (I’m, going to ask George Thompson, thesoftware architect, the put a page lock on future upgrades.)Since there is not setup work, you have your evenings free. Another bonus, youwill tend to have several trades throughout the day. I know I shouldn’t have tomention this, but please don’t pick three semiconductor stocks, or four biotechs. Iknow one Wizetrader who trades only the gold stocks. If you mix it up, you have amuch better chance of finding something that’s moving for the day. I like to havea financial, a semiconductor, a biotech, maybe a home builder, or maybe a retailstock. It’s your choice, but don’t put all your eggs in one basket. If you just have,for example, only chip stocks, you will find that they trade almost in lock stepanyway, so you will only get one trade when they all move together.
Rallies, Reversals, and Dead Cat BouncesFinding Shorts and Longs All Day Long
Introduction
Have you noticed that most of the strategies used by Wizetraders, and for thatmatter all day traders, focus on the open and the close? That’s because it hasbeen so difficult to find good trades once we are well into the market (see Stalking). As mentioned earlier, being a beta tester for HotSans (marketgauge.com)has been an eye opener. The last three or four months have changed the way Itrade throughout the day. I used to work on setups and try to catch a good tradewith momentum at the open, sometimes at the close. I’d spend long hours watching a few stocks during the day hoping for an entrance, often to be disappointed.That’s changed. Now I find potential trades throughout the day, usually when Iwant them. With about 7,000 stocks trading in the three major exchanges, there isalmost always a stock making a move on huge relative volume. The problem hasbeen finding these moves in time to get a trade. HotScans has solved this problem—but I get ahead of myself.
Definitions
A rally simply defines a stock making a big move (long or short). Not a situationwhere you might be forcing a trade, or the charts aren’t strong enough. A big movehas momentum. Remember, price change + high increase in relative volume= momentum (see p. 17 for definition). These are the trades that most day traders want. Simply put: great longs or shorts. However, these trades occur underdifferent circumstances and you should understand the different types of rallies sothat you can setup your search for them.
Types of Rallies
Following are some of the different situations under which rallies may occur:1. A stock runs up, pulls back hard, then reverses into another rally.2. A stock has been a short and then reverses to a long (dead cat bounce).3. A stock has been trading flat and suddenly breaks up or down.4. A long reverses and becomes a strong short.
Setting Up HotScans Hot scans allows you to screen within certain parameters. First of all, you selectthe price ranges, for example $5 to $15. Next, you check your volume requirements. HotScans asks if you wish to include the overall daily trend; I always checkthis box. Another box asks how often you wish the program to refresh: your choicesrange from never to every 10 minutes. I set mine at one minute. Finally, you canclick on the Pop Out. This creates a free-floating box which you can overlay onthe Wizetrade software. That’s it, you are done. (But you didn’t tell me how itworks! OK, I’ll do that in the next section.)HotScans Setups
If you checked Display DailyGauges, you will immediatelybe able to evaluate how thestock has been doing since theopen. This includes the currentprice, price change since theopen, percent of price change,and today’s relative volume versus average volume. The greenand red bars are explained onpage 18. A quick glance at theexample to the right shows thefirst stock has had a huge increase in both daily relativevolume as well as percent ofprice change.
HotScans
Now we get to the good part. In addition to the daily data, you can have two morecolumns (sets of data) which have filters. In other words, you can control thesearches. I’ll give a few examples of how I use these filters to find specific tradingopportunities.Setting the Filters
Just to orient you, the first set of data quickly indicates how the stock has beenperforming for the day. If the scan indicates the stock has been strong all day, youcan expect to have very strong long-minute lights. You are in an overall longtrend. A quick look at the number of green bars will let you know how strong thattrend really is.The second set of columns shows price change (amount and percent) and strengthfor the rally period you selected. Again, you can quickly judge how strong themovement is by looking at the green bars. You can also see, for example, theamount of change in the relative volume. I like rallies that have more than 300%to 400% change in relative volume, or higher. You may select the time frame forthe filter. Suppose you choose 5-minutes; you will find stocks that have beenmoving on huge relative volume for the past five minutes. So you quickly realizethat you have a stock with a strong daily up trend that has been rallying for fiveminutes. It gets even better.You have a third set of columns (data) which also has a time filter. This allows youto see how the stock has performed in the time frame just before you ran the scan,that is, a period of time (which you select) before the scan. Suppose you choosetwenty minutes. You may find that there has been little change or a light retracement, then at this point, you already know what you will find before going to theWizetrade charts: a stock in a strong daily long trend that has rested for a while(consolidated or slightly retraced) that is beginning a new rally.By using the filters, you can come up with almost any kind of trade. Yesterday themarket was short (downward trending) and I like to play “V” shaped reversals,sometimes called dead-cat bounces. I set the filter on the 2nd column for 5-minuterallying now. The filter in the 3rd column was set to scan a 30-minute time frame.I ran a scan (about 3 seconds) and noticed that IBM was down a few points. It hadreally been hammered. The second set of data indicated that it was rallying stronglyas a long (more than 900% increase in relative volume), and the 3rd set of datashowed that in the period before the rally, IBM was dropping like a rock. I loadedIBM in Wizetrade and found a strong reversal. (If you wish to view this trade, go toJanuary 15th, IBM.) I caught one or two boxes on the 8-minute chart in Wizetrade.From where I caught it, it moved more than a point. The long-term lights were stillred (typical in a dead-cat bounce) and IBM eventually reverted to a short. A greatshort by the way—two trades for the price of one.Therefore, by looking at the daily trend first and setting your two filters, you willknow ahead of time what kind of trade you will find. I know that I must sound likea pro, but my learning curve, that is, the time it took me to learn the system, wasless than five minutes.It is my understanding that many of these setups will have presets, thus eliminating the need to use the filters unless you are looking for something out of theordinary.
9: Some Final ThoughtsWhen I began writing this e-book, I wanted to explain which light to use for an exit, now Irealize that to really do justice to the art of day trading, it would take a five-hundred page book.I hope that you have found this information useful, possibly thought provoking, or at least notboring. If you are new to trading or day trading, perhaps this information will serve as some sortof an orientation to the profession since I endeavored to present an overview. As I wrote, I wasconstantly aware of more and more information that might be included, but there were otherconsiderations as well. Since there are so many graphics imbedded in what was created as apostscript document, I had to keep it small enough to qualify for e-mailing. This final document isabout 40 MHz and compressed to a barely acceptable size in PDF format.I did not cover all the day-trading strategies that a pro might use. For example, there aretechniques for playing the news, earnings announcements and on and on. But, I did try to presenta range of useful strategies that many day traders employ. It is important that you identify the oneor two that work best for you and stick with them. Become an expert and you will profit.We are trading in a very difficult environment as I write this final page. This only hones ourtrading skills. If you can succeed even a little in this market, and develop your skills to the fullest,there is little doubt that you will be immensely successful when the market gradually returns.I know that when we meet at the next Wizefest, I am going to be asked several questionsover and over. I might as well answer them now. I have been trading with Scottrade. Periodicallythere are disasters. They goofed recently and cost me $105. I’ve had three great completedtrades canceled, the trading platform disappear from the Web, and more horror stories then youwould care to hear. Suffice to say, I have switched to direct access trading (http://directaccesselite.com/) which my professional trader friends (guys who trade for hedge funds)believe is the most sophisticated trading platform available today. (If you call for a price, ask forthe MG rate.)I trade on a relatively powerful computer; this makes all the difference. Since I bought thenew computer and XP Pro, I have never had to re-boot during the trading day. I defrag and cleanout cookies and other rubbish at least once per day. I also have a program running called AdDeletewhich stops cookies and popup ads (free download). I had the computer built for me with a dualhead video card so that I can run two monitors. I’m also setting up a second computer to run mye-mails. Originally I had DSL but had constant problems so I switched to cable and it has beengreat. So much for equipment. I have returned to watching traditional charts since they give mea quick heads up when a stock begins to move. I have difficulty in catching these moves onWizetrade since I cannot see the charts. I can also spot setups much more easily on a bar chart.Although I covered many trading strategies, some of them scare me to death. In fact, someof them are so risky that the pros won’t touch them. If you are a new trader, I would avoid the firstfew minutes of the market and certainly keep out of the pre- and after-markets. Sure, you’ll winsome, but you may also take a real beating, I know I have. The older I get and the more experience that I have under my belt, the more conservative I become. This is a profession and as Iapproach each trading day, I do not want an adventure, thank you. It’s all about managing risk.I know that you will ask me about my light setup. I have several. In fact, I have experimentedwith so many day-trading setups I’ve lost count. I’m going to mention briefly some conclusionsthat a friend and I have reached after more than a month of analyzing the best way to useWizetrade for day trading. This friend is a professional with decades of experience using manytypes of setups. I do, however, wish to make these observations in the context of what I hear inthe Wizetrade Users’ Group e-mails. First of all, I see more light setups that Kelloggs has cornflakes. Everyone seems to be searching for the right setup. Furthermore, few seem very confident in the signals, and some are trading the 1-minute lights. Heck, Wizetrade might just as wellhave been built with a 1, 3, and 5. Maybe the following will help a little since everyone seems tobe searching for the perfect method.
The lights (charts) have certain mathematical, that is, proportional relationships. You don’treally need too many lights. These relationships apply to any light setup. Within a light setup, youwill have the chance to trade within different time frames from long day trades to quick scalps.However, the relationships and function of the lights will not change.Each light should be some percentage of the next light. If you are using a 180, for example,the next lights should be considerably smaller, otherwise a move in a shorter light will destroy thetrend in the longer light while recycling, or as my friend says, “you will be forever chasing yourtail” (waiting for setups). Each light, depending on how much of a move you wish to capture,plays a specific role in the decision-making process. If you wish to shift to shorter lights, all thethe roles shift, but the relationships remain the same. I’d like to say that your light setup governsyour trading style, but in fact, you take what you get. You can only take what the market givesyou. That is, you can only play the signals as they arrive; I believe that some people keeptinkering with the lights hoping they will get a trade. Example: “I have a red 180, maybe if Ichange it to a 130 it will be green”—I’ve been there, have you? How about this one: “the 180 isembryonic, maybe if I change it to a 130 it will be stronger.”In the following setup the relationship (proportion) of the lights to each other, and how youplay them as a system or method for trading, is one that makes sense.I show the Day Chart since there is room for it and also because it may indicate the overallstrength of a stock’s trend. However, I will day trade against the day light; it is NOT in play.The three primary trading lights are the 180, 60, and 20. Notice the relationship; each isone-third of the preceding light, that is, they are well spread out. Each of these lights has a roleto play in the system.You could actually trade just these three lights but you Must beMust be inneed one more light to act as the timing trigger. In this case, indirection direction ofMust beeither the 5 or the 8. The 8 is a better trigger in the current of Trade Trade withThis lightinstrongcrosswithforexample. In this setup, the 180 only has to have a green strongdirectionand notinformationofTradesignal (not pointing down), and can have the most embry- cross no overextendedonly/notbut nottradedonic of crosses. The 60, however, must be very strong and morenecessarilythan 2astrongboxesnot overextended. The 20 should be relatively fresh andcrossyou enter on a fresh cross on the 8minute chart. Ideally, the 8 and 20 willTiming LightsDirection Indicatorscross at about the same time. The 135820 60 180 Day1and 3 play no real role except for aMin min min min min min minheads up and possibly finessing theexit. This kind of setup has the potential to develop into a longer trade alTRIGGERlowing you to capture much larger moves than you wouldstrongif you allow yourself to be shaken out by the short minutefreshcrosslights. Forget them, trade the 60 if it remains strong ordiverges. If not, try to follow the 20. If the 8 turns red, sowhat; you might be shaken out with 20¢ on what might be a point move. Let the 8 recycle, that’swhat it does for a living, try to follow longer lights if your goal is to capture the bigger moves.Suppose you see this setup but the 8 is strong and getting stronger and you missed it. Quitehonestly, by waiting for the 8 to recycle you might miss a huge move. Well, you can take thistrade, just move your trigger to a shorter light such as the 5, 3, or even the 1. Just be aware thatthis might be a much shorter trade because you entered late. Be ready to sell or cover when youlose the 8.It is important that as a day trader, you are aware of your trading style and your goals. Askyourself, do I want to capture the big move or do I just wish for a quick scalp? Your answer willdictate how you use this above example and setup. Following is another example which mightmake the method a little clearer as you interpret setups in Wizetrade.
Here is an example of the same light setup but the roles of the lights have been shifted overone light (a move to shorter lights). Notice that the longest light, for trading purposes, is now the60 which only has to be in the direction of the trade. BeMust because the lights have been shifted to shorter time frames, inMust be indirection ofand in order to keep the mathematical proportion between directionMust beTrade withof TradeThis Lightinthe trigger and the 8-minute light, the 3 could be used as withstrong crossFordirectionand notInformationthe trigger. Each time the time frames are shortened, so is strongofTradecross no overextendedOnly/Notbut notthe potential length of the trade. When entering on a 3- moreTradednecessarilythan 2minute light, the trader should expect a far shorter trade. boxesa strongcrossMoving the lights again would begin to qualifyas the setup for the FASTER method mentioned earlier in the trading strategies section.Also, the shorter the time frame used, the35820 60 180 Day1more nimble you have to be, thus increasingMin min min min min min minthe risk of the trade. Using a 20-minute light,for example, as your longest indicator doesn’tgive you much of a trend within which to trade.TRIGGERI should also mention that when playing a dead- strongcat bounce or a “V” reversal, that’s probably all the freshcrosssignal you are going to get.The amount of risk you are willing to assume is part of your trading style. Only you knowyour skills and your pain tolerance threshold. If you are new to day trading, I would suggesttaking the most conservative approach. The safest style of all is trading with the three Wizemenin your favor, but I rarely find everything lined up perfectly. By working with just minute lights, atleast you have the opportunity to trade frequently, and profitably I might add.Here are a few rules of the many dozens that a day trader must observe:••••••••••••
Don’t watch too many stocks, focus, focus, focus.Always get a fresh cross on some light and know ahead of time what your goals for the tradeare.Be patient; it takes time for a trade to set up.Don’t force a trade; if it’s not ready, wait or pass.Stocks trade better on different lights; change your lights if necessary until you find the onethat makes it easiest to trade a stock.Don’t anticipate a cross, even if you see the price running up, wait for the right signal.Don’t average down. Building a position is fine, however.Avoid stocks where the run is long in the tooth.Avoid breakout fakeouts and breakdown fakeouts.Don’t worry about the price, worry about the charts.Fine tune (time) your entrance; timing really is everything.Don’t change your style if it works for you.
This e-book is copyrighted; however, you are free to print it out for your personal use andsend it to friends. Commercial use is prohibited without the written permission of the copyrightholder.Since I started trading, I have met some of the finest people in the world. I have friends andcontacts throughout the United States. I hope that I have the opportunity to meet you.Mel Raimanmlraiman@attbi.com
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