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I day trade the NYSE, not the NASDAQ because of
needing to control slippage tightly to make a profit.
So here are the crown jewels:
Some stocks move alot and some don't. I only trade stocks
that average 500,000 share volume a day, and range at least $1
for the last 5 days between high and low. A stock has
to move and be volatile to day trade it successfully.
I screen 3 shorts and 3 longs at night for the next day's
trading session. I do this because you do not know whether
the next day will be up or down, and you should always trade
with the market. Once the trading day starts, I consider myself
a trader, and I'm not doing technical analysis any more.
I'm only concerned with trade placement and exit. The reason
why I only pick six is because that is all you can fit on a screen
and see, and reasonably watch and gives you high
odds of making at least two trades, at least from my
exeperience. My goals aren't high - I just want to make at
least $1000 a day.
Once you start following certain stocks, throw the nightly
trading system out the window. Some do the same damn thing
every day. Some are like shooting fish in a barrel. Sooner
or later this changes and you have to find a new barrel.
I use 21 inch monitor and run eight windows:
The three shorts and three longs, (5 Min), with Volume bars
The Adv/Decline line on the NYSE (5 Min), with volume bars
The SP&500 (5 Min)with volume bars
Real time window of of the 8 pieces of data.
(This is the bottom window)
I set alerts for 10,000 share trades on the three longs
and three shorts.
I always trade in either 2000 or 4000 share lots. I do this because
it keeps the arithmetic simple. Also, on margin, trading a 2000
share lot of a $30 dollar stock only costs $30,000. A 25 cent spread
on a 2000 share lot makes $500 dollars.
If the adv/decline line is positive, and the SP 500 is positive,
and I get a 10,000 share trigger long, and the bid/ask spread is
1/8 I immediately place a trade long at the ask price
before 10,000 trade trigger if it ticked or not.
If the adv/decline line is negative, and the SP 500 is negative,
and I get a 10,000 share trigger sell, and the bid/ask spread is
1/8 I immediately place a trade short at the ask price
before 10,000 trade trigger if it ticked or not.
You need to trade stocks that the market maker moves. Don't
trade dead fish, unless you want to remember all the swear
words your Irish grandfather taught you fishing as a boy.
This is where it gets interesting.
The trade will usually trigger a rollover, and you'll be in at the
bid price. You just zeroed your slippage. If you do not get a fill at
your price with 60 seconds, cancel the order. You do
not want to get hit with the market moving back against you.
Some low cost brokers will send you a cancel confirmation but fill
the damn thing anyway. Don't stand for it. If you are making
over 500 trades a year, somebody will take your business.
Only trade online. You can't wait to place an order with a
human.
Now, have your calculator handy. Follow the real time order flow,
and stay your position if the order flow is in your favor,
and the price is going your way, otherwise exit
immediately. Trading this way you cannot afford to lose
anything except for the round trip commission, or a 1/8
tick. Just stay with strength and take what the market
will give you. You only have to do this twice a day
to make $1000 - $2000 dollars. Often you can make a $1
spread, but I consider 37.5 to 50 cents a deal. Trading
this way is mentally exhausting. As soon as a bag
one or two, I quit.
Once you are in a trade you must concentrate - make
sure you know what is going on. Watch for the adv/decline
line to stay in your favor and the SP&500. Sometimes you got filled,
because its turn around time, or a sucker play by
someone trying to start a rally in the opposite direction
they really want to go. This happens alot more than
people realize. When this happens some mutual fund is
dumping 100,000 is the opposite direction of your position.
If you see a rally and a 25,000 order a against it,
reverse immediately, you are going to make money again
in the opposite direction. Don't get over confident
though, it can swing back just as quick. If you trade
this way, its not a good time to go to the bathroom.
Trade late in the day and be obstinate. Meaning, lets say you bought
2,000 shares at 20. Its at 20 1/8 - 20/1/4. You want to sell and get
your crummy $500 dollars. Place a sell at 20 1/4. At 4:00 you will be
filled.
This is a mechanical as it gets. If you have
discipline and quick reactions, you can trade this way.
You must always execute immediately. Don't confuse
this with SOES trading. They are pounding the keyboard
all day scalping pennys. This is a two hour style
that works at open or close best.
Does anybody else trade this way?
David Fenstemaker
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