Stock Dynamics
                       Once you have located your  stocks  to  trade  eitherfrom the daily chart or from the 5 minute  bar  intra  day  chart,  you  arewatching how those stocks are trading. Remember, we  want  to  enter  tradeswith the Generals on our side. It is not always so clear cut  because  thereis so much noise on an intra day basis. You can enter a  trade,  get  lucky,and have a big buy program kick in along with institutional buying  and  youfeel smart in addition to making a profit. The problem is that it works  theother way just as often.                        Option  market  makers  are  constantly  buying   orselling stock to hedge  position  risk,  and  programs  go  both  ways.  Thespecialist might have an axe to grind. Upstairs position  traders  might  beworking down a long or short position, and  portfolio  managers  are  makingdaily trading decisions at different levels. There is no  crystal  ball,  soas day traders you must go with the flow. This means you can  make  all  thecorrect decisions for entry into a trade but might not  get  proven  correctbecause of the constant intra day noise that stops  you  out  once  or  eventwice your stock trends. When that happens, most day traders don’t  re-enterthe trade and miss the major move that day.                       Stocks will still react to  the  major  supply/demandpressure with minor interruptions by programs or some of the  various  noisementioned above. We want to recognize  which  side  is  stronger  before  weenter the trade. Since we are in a  bull  market,  we  will  assume  we  arebuying stock. There are very simple and easy to see dynamics, but  you  mustadhere to them with discipline in order to be successful.
                          1.- Did the stock open up on the day?                          2.- Is it trading above the open?                          3.- Is it trading above  the  VWAP?  This  is  thevolume weighted average price on the day.
                             Several  quote  vendors  such  as  Track  Data,Bridge, and Bloomberg have this information. These are the  only  vendors  Ihave used, so I am not aware of who else provides this information.                            When the buying pressure is  neutral,  or  maybethere is one good-sized institutional buyer that has  no  real  competition,then the buyer will try to scale down the order. If the market is  soft  andthe buyer is getting enough stock, then we won’t notice the  buyer.  If  themarket firms up or another buyer or two show up, we would probably see  somebuying pressure build. No institution will pay up for stock unless they  areable to get volume, but they must participate if volume starts to trade.                            When the stock is  trading  above  the  VWAP  itmeans the buying pressure is stronger, buyers are competing for  stock,  themarket is probably, option market makers are probably buying stock to  hedgeshort calls, and if the specialist is on the  right  side  of  inventory  itmeans an stock. When all these ingredients are put together  and  the  stockis at a key inflection point on the daily  or  intra  day  chart,  then  daytraders have a good shot to make money.                          4.- Is the volume trading on the bid side,  or  isit trading at the midpoint or offered side?
                            We are buyers today in the stock, so we want  tosee it trading on the offered side (ask) or  at  least  the  midpoint.  Thistells us the buyers are aggressive, and it is a sellers market. All  of  youwho have direct access  software  have  time  and  sales  tickers  that  aredynamic and that you can load with stocks you are  monitoring.  This  is  anabsolute  necessity  if  you  are  entering  off  intra  day   patterns   orretracements.
                          5.- Where is the volume trading? Bid, midpoint  orASK?
                             Bridge  and   Bloomberg   also   provide   thisinformation. Two stocks could close in the top of the range, but  one  mightbe due to late program trades, and the other because 75% of the  volume  wason the ASK side where there were multiple buyers.
                          6.- Watch where  the  blocks  are  trading.  (5000shares or more) This will precede range expansion.                          7.- Where is size reflected? Bid or  Ask?  In  OTCstocks you won’t see this near as often as on the NYSE.                          8.- Is the Bid and Ask moving higher?                          9.- Are the other stocks in the group behaving  ina similar fashion? It is always better to buy  strong  stocks  in  a  stronggroup.
                       Note:  Your  best  trades  will  come  from  trendingstocks above the open for buys (sells reversed) either  on  continuation  orpullback entry. Often times programs are very helpful on pull back  buys  orshorts as they give you entry at good  levels,  but  you  must  be  fast  toexecute. Also, you will get  some  great  opportunities  when  stocks  reachcertain standard deviations based on the implied  volatility  of  the  stockfor one day. We will explain this opportunity next week.