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Dark . . . greetings
~ guess you remember RobertBu's most illuminating Post to the List on
August 25, as follows :-
>As for whether someone can jump in a scalp or otherwise daytrade is
>another question. If you can handle 1-2 point fades, then more power
>to you. If you can't, then you might be throwing your money away.
There are many methodologies for SOES trading, and there are traders
that can scalp using a SOES system. When I was exploring SOES (18
months ago), I watched an experienced SOES trader for a day. He made
27 RT trades that day netting $2600 after commissions. Twenty-five of
his trades were either break or profitable. Two of his trades were losers.
Commissions were $50 RT ($1350 for the day), so the brokerage was
happy. He claims that he averages 20+ trades a day and had an average
net profit of near $2100 per day for the previous year.
The system he used was very easy to describe, but not easy to implement.
He focused on about thirty high volatile stocks. He had two market maker
windows, one ticker window, and three charts. The ticker was setup to
show anytime a market maker changed his bid/ask. He had trained his
eyes/mind so that he could spot any time there were three or more uptick
or downticks in a row in this window. This was his signal, and it tends to
precede any movement in the price. Next he kept track of major support
and resistance for each stock, such as the open, high of the day or low of
the day. He did not fade these points, he just avoided trading anytime the
price was near one of them.
Each chart windows contained two one-minute line graphs and *no*
indicators. One graph line was an index (NDX, SOX, & INDU), the other line
one of the thirty stocks. From the index, he would gain a sense of market
direction, market momentum, and what stocks were following the
market. He seldom counter-trend traded (twice the day I watched), and he
avoided stocks that were not following the index. He also watched
strock strength (based on comparing the index to the stock). He kept
notes about stocks that were strong/week the previous day and about
how stocks were behaving the current day. When the trend was
down, he focused on the weak stocks, and when the market was strong he
focused on the strong stocks.
He also developed an understanding of the behavior of the different
market makers. Some were leaders and some were followers. Some
had the depth to completely stop a movement. Others tended to go
along for the ride. The final ingredient of his trading methodology is the
profit/stop model. He took profits anytime he had a 1/4 of a point! Period.
Sometimes the market would give him an extra 1/16 or 1/8, but sometimes
the market would take back 1/16 or and 1/8 before he could get out.
He claimed that stocks generally move 1/4 point increments and had argument
about why this was in the best interest of the market makers. He got out of
his
position if it did not show a profit almost immediately. His largest loss
for the day was 3/16 of a point.
Oh, he talked about getting started in SOES trading. He came from a
brokerage firm and though he knew it all. He lost over $50,000 in his
first two months of trading. He had been SOES several years when I
talked to him. After the loss, he started working with two stock and
built up to his full stable of stocks over time.
== Rob ==
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