Saturday, February 28, 2009

Tips to Improve Your Day Trading Profits

In the current financial climate, it has paid virtually no one to hold sizable positions in the markets for more than a few days. Therefore, traders have continually focused on capitalizing on the volatility in the markets through holding shorter term positions. With that in mind, day trading is fast becoming the weapon of choice to profiting in the markets.

Unfortunately, most new traders continue to use old ideas and techniques in an effort to grab profits quickly. In this article, I will provide a few trading tips that professionals use to find the maximize their day trading profits.

First of all, it is important that you determine how you want to trade, and what markets you want to trade. Due to its excellent liquidity, E-Mini S&P futures are a popular trading vehicle for many day traders. The Forex markets are another popular vehicle, as the major currencies provide excellent liquidity, and can be traded around the clock. Some traders like to be diversified and trade stocks, currencies and futures. The key though is to focus only on those markets and stocks that allow sufficient liquidity and volatility. You want to trade a market that moves, but one that allows you to get in and out of your positions with minimal slippage.

Next, you must determine whether you want to be a scalper, making multiple trades throughout the day in an attempt to capture small profits within a few minutes, or more of a position trader looking to capitalize on sizable directional moves. Generally speaking, I think that latter idea is an easier concept, as it does not force you to sit in front of the computer all day long. Once you enter a position, you can adjust your orders on an hourly basis, then decide whether you want to exit at the close or hold overnight.

No matter what style of trading you decide on, it is critical that you pay close attention to the market action leading up to each trading day. You must view the market from multiple time frames to detect any underlying trends. Ultimately, a market will revert to its underlying trend at some point. Therefore, even if you are trading off of a 5 minute chart, you will want to view daily charts and 60 minute charts and even 15 to 30 minute charts, to have a good feel for the trends that may impact market direction for the day.

Once the trading day begins, it really makes no sense to start trading right after the market opens. You want to monitor the price action for a while to determine whether the market will trade in a choppy trading range, or whether it will trade in one direction. For individual stocks and stock index futures, I prefer to let the market trade for at least 30 minutes to get an idea of how the market will trade, and maybe even up to 45 minutes. I want to monitor how a market reacts when it breaks out to new highs or lows for the session, and I want to monitor the volatility of the market during that time frame. If the market trades within a few wild swings during that time frame, it likely will be a range bound day. If it seems to creep higher or lower with little retracement, then it may be a one direction trading day.

For stock index futures and individual stocks, I like to pay close attention to tape indicators such as the Tick, Trin, other market indexes and advances versus declines to get a feel for what the underlying market is doing. For instance, if the tape indicators are weak while the S&P futures are making new highs, I may want to consider taking a short position once the futures start to weaken. If they are strong, I will use an opening range breakout and try to hold the position the entire trading day.

As I mentioned, the Forex markets are very popular for day traders. However, you must remember to trade when these markets are most liquid. For instance, the Japanese Yen will be most liquid when it is evening here in the U.S. Economic news coming out of Japan will greatly influence the direction of that currency, and that news will come out after U.S. trading hours.

I can’t emphasize enough the need to use stop orders in your trading to protect yourself from steep losses. No matter what style of trading you use, you must know when you will exit if the position goes against you. With that in mind, it is a good idea to develop an overall trading plan before you start to trade, rather than just trade by the seat of your pants.

These are just a few common sense tips that you should employ in your day trading. By applying these tips, you will avoid many of the common pitfalls in day trading.

Scott Cole

Tuesday, February 24, 2009

Classic Day Trading Opportunities

As the stock market rallied on the back of Fed Chairman Bernanke's optimistic comments, today's trading provided a number of excellent day trading opportunities utilizing an Opening Range Breakout Strategy. Check out the chart of Morgan Stanley (MS), below.

At about 10:30 this morning, MS broke out from its early trading range just below $20. The stock trended higher all session and closed just over $22. This provided a huge 10% move on the day, after the breakout. These opportunities to the upside have been rare as of late, but you likely could have found some good opportuntities to the short side. MS meets most of our qualifications for daytrading opportunities, so check it out!

Scott Cole


Saturday, February 21, 2009

Stocks End Week on Down Note, Gold Surges

U.S. stocks closed lower on Friday in a relatively volatile session as traders expressed little confidence in the Obama administrations current plans to turn around the economy, financial system and real estate market. In the afternoon, the Dow was down over 200 points shortly after Senator Dodd suggested that some banks may face nationalization. A while later, the administration indicated that this is not on the table presently, and this sparked a rally that allowed the Dow to crawl all the way back to breakeven. However, the weight of the market fell on itself in the last hour, and the Dow closed lower by 100 points.

The Dow and the Russell 2000 were the weakest of the major averages I follow. The Nasdaq 100, lead by big cap tech stocks, actually finished higher. In the face of recent leg down, I've been impressed by the ability of Google and a few other tech stocks to hold up during the current downtrend.

So far, it is clear that traders and investors are not convinced that the Obama stimulus plan, the Obama housing plan, and the Geithner TARP plan will lead to a rebound in the economy anytime soon. Most traders, particularly those in the bond pits, revile the current plans as hints of socialism. No one is confident in the governments ability to run a bank, since our government (and most for that matter) is incapable of balancing its own check book. Traders also do not like the idea of limited pay for executives in banks that receive TARP money. The premise there being that such a bank will be unable to attract top talent, talent needed to turn around a bank in financial difficulty.

So, we head into another week with Main Street sentiment quite low, and Wall Street sentiment still anticipating that a sharp rally is imminent. As such, it is my view that until we start seeing some positive news, or less negative news, the market will continue to leak oil, SLOWLY. The trend is down, so if you are short the market, stay that way until the market tells you that the path of least resistance is no longer to the downside.

In other markets, Gold and Silver once again surged to new highs, as these are basically the two new world currencies. These markets are both extended, and a few people are calling for much higher prices down the road, but these views are balanced out by those that feel the stock market is due for a rally. Most other commodities were flat to lower on Friday. Treasuries managed to rally in the face of a weak stock market. There was some volatility in the Forex markets in the afternoon, reflecting the Dodd comments and the White House comments. Overall, the Dollar was lower on the day.

Look for more announcements out of Washington over the weekend or early next week as the government attempts to calm fears. At the moment though, unless something big comes out of DC, the market will continue to head lower.

Scott Cole

Thursday, February 19, 2009

New Bear Market Lows for Dow 30 Stocks

Well, the market did not have a wild ride today. There were no sirens going off when the Dow penetrated the November lows, and closed at a new closing low for this Bear Market. This is not the kind of successful test you typically see when a market wants to reverse a downtrend. The analysts on CNBC are convinced you should be buying stocks at these levels (except for Art Cashin). They all talk about dollar cost averaging, and that missing the first big rally of a new bull market will cost you 30%. Utter nonsense. Most people don't invest in the averages and such. Successful traders and investors will trade individual stocks, and they know it is smart to stay patient.

The stock market is leaking oil, slowly. These are the kind of trends that tend to persist a while, and they will kill those traders that keep trying to pick a bottom, even when prices seem low. Richard Dennis once said he lost more money trying to buy Sugar when it was trading under 5 cents than he did on lots of other trades.

A long time ago, in my first foray into futures trading, utilizing the Turtle system, I had shorted cattle and hogs. Normally, these are not the best trending markets. But, I got lucky, and shorted a couple downside breakouts in these markets. After they had gone my way for a week or so, my broker called me up, since I was basically a newbie, and said I should cover, and go long, since both were now cheap. Fortunately, I didn't listen, and those markets kept declining. Finally, they accelerated to the downside, then spiked up and that was the end of the downtrend. I made $6,000 on those positions with a $10,000 account.

The point is, the market is still in a downtrend, and volatility has shrunk quite a bit. Until it tells me otherwise, the direction will continue to be down. The first sign that the market will stop going down and try to turn higher is when we have a big day to the upside on heavy volume, or a big key reversal day. Within a week after that day, we will need to see a big follow through day to the upside. The market has attempted this scenario, and failed, but a new bull market will not start without this occurring.

Scott Cole
www.bestdaytradingstocks.com

Tuesday, February 17, 2009

Stock Market Vote on Stimulus Package is NO!

U.S. Stock market traders voiced their opinion on the stimulus package signed by President Obama today, and that answer was a resounding NO! The major averages dropped about 4% today, and it was notable that the Dow Jones Transports broke through their November lows. The Dow Industrials barely closed above its November closing low, and it hovers just over 1% above its intraday lows. The other major averages, due to the outperformance of tech and biotech stocks in the last couple months, remain a bit above their November lows, but have broken through support levels that should at least carry them down to the November lows.

As stocks continued to trend lower, their was a flight to quality into Gold, Treasuries and the Dollar. 10 Year Treasury yields were down to 2.65%, down about 30 basis points from their recent highs. I have also noted that the spread between the 10 Year Note and 30 Year Mortgage rates has narrowed to about 200 basis points. This may help to put a floor under real estate prices. However, we still need to end the job losses if we want to see a recovery in real estate.

Aside from Gold and Silver, commodities were sharply lower today, as economic weakness becomes the focus of trading again. Energy prices lead the way lower, and Copper and agricultural commodities were also quite weak.

Tomorrow, Obama is set to unveil is plan to deal with the mortgage issue, and Thursday, Tim Geithner will apparently provide more details regarding the TARP and the banks.

Stay Tuned!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Sunday, February 15, 2009

You Call This Stimulus?

We now have a few more details regarding the stimulus package that passed through the House and Senate on Friday. After reading some of the general details regarding the package, I am left scratching my head. Where is the stimulus?

Let's start from the top...tax cuts. Whoopdedo! $400 tax credit for individuals and $800 for couples. Wow, that will get me to go right out and buy a new...um, mini-cam? In 2010, it looks like this tax credit may be spread out through the entire year. That will be $7.70 per week. Yay, I can buy a few more beers each week!

The $1,000 child tax credit will be extended to folks that pay no income taxes. In other words, have some free money! First time home buyers get an $8,000 tax credit, and people buying new cars can write off the sales taxes. Ummmm...when we are losing 500,000 jobs each month, who is going to be buying a new house or car?

A good bit of the stimulus will be going to schools and education. Ok, that will help some teachers keep their jobs, and help some students go to college. How exactly does that stimulate the economy and create NEW jobs?

About $38 billion will go to improving our infrastructure. Here in PA, we could probably use that entire figure to fix our crappy highways. Nonetheless, this is the first item that helps create some jobs, but it is a drop in the bucket. Consider this....when you lose 500,000 jobs each month, and each of those jobs pays an average of $30,000, that is a loss of $15 billion in annual income. Unfortunately, most of the jobs being lost are paying a lot more than $30,000!

$42 billion in energy related investments....some of this goes to creating new energy sources, such as wind turbines and next generation batteries. Alot goes to providing a 30% tax credit to homeowners who will upgrade their energy systems at home, up to $1,500. Ok, the problem is, most homeowners are leaking red ink all over the place, and simply can not afford more improvements to their home.

Elsewhere, the bill helps the unemployed and poor pay for health insurance and more food stamps.

What I did not see in the bill was any incentives for businesses or individuals who want to create new businesses. And, the bottom line is that there will be tax INCREASES in the years ahead to pay for this spending bill. We also still need to deal with the real estate and financial system issues. Yet, we have a Treasury Secretary that has not offered up a clear cut plan to spend the remaining $350 billion in the TARP to deal with these issues.

The bottom line is that I do not see how this plan provides any renewed confidence that will lead us out of this deep recession. I suspect that the stock market will weigh in with its vote fairly shortly.

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Friday, February 6, 2009

Jobs Report Indicates More Huge Losses

The January U.S. Employment Report indicated 598,000 jobs were lost in January, with the unemployment rate rising to 7.6%. This was slightly weaker than expected. The December revisisions also came in weaker. Stock index futures are actually bumping up on the news, as there will be more pressure on the government to have a stimulus package ready by early next week.

As I right this, I am noticing that Silver has popped above $13, and Gold is up a little as well. The Dollar is holding steady, and energy prices are weaker. Things can obviously change throughout the day, but all eyes will turn to Washington as Congress continues to debate and craft a stimulus package.

Stay Tuned!

Scott Cole
www.bestdaytradingstocks.com

Thursday, February 5, 2009

Today's Best Day Trade

U.S. Stocks bounced to the upside on Thursday, and with a little bit of extra volume. A diverse group of industries lead the way higher, as it appears traders and fund managers are doing some bottom picking. Resorts and Casinos was the big mover of the day, followed by Northeast Regional Banks and Apparel Stores.

However, ahead of Friday's employment report, I would not want to take any significant long positions. Today's jobless claims figures leaped to over 600,000 new claims for the latest week, a sign that job losses may even be accelerating in February.

I think traders were betting that the Senate is close to some sort of deal on the stimulus package. That all depends on whether the Democrats want to pass a bill with help from the Republicans, and how much Republicans are willing to compromise. To me, it does not sound like there is enough cutting of the pork in the bill sent up from the House. From what I have heard so far, the bill in its current form probably won't create enough jobs to offset three months worth of declines at the rate we are going presently.

On the sentiment front, I am seeing too many analysts on CNBC come on and say we were in a bottoming process. I hardly hear anyone say we will see another leg down in this market. The CNBC crew was pointing out a steepening in the yield curve, as if that is a sign the economy is ready to bounce. Seems to me, it just may be that China may be selling our debt at a huge profit. Otherwise, there is virtually no reason for the credit markets to indicate that the economy is going to strengthen any time soon.

Nonetheless, there a number of excellent daytrading opportunities today. The chart below is MV. This is a classic opening range breakout trade that resulted in a one direction move into the close.

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Tuesday, February 3, 2009

Daytrade of the Day for 2/3/09

The U.S. Stock Market got a boost from some decent housing data this morning. As a result, it was able to maintain a decent uptrend for much of the day into the close. New building permits and mortgage applications showed a nice rise in the latest month. We've now seen a couple different data series showing some positive signs in the latest reporting period for housing. If we can maintain this current trend, it should ultimately help the stocks market.

Not surprisingly, residential construction was among the top performing industry groups today. The leading group was Toys and Hobby stores, which has been a strong performer of late. Industrial cyclicals such as copper, aluminum, railroads and freight also enjoyed nice gains today.

We've got some stocks making new highs today after breaking out from lengthy bases in the last month or so. Education related stocks such as ESI and COCO are among these. A couple other stocks in other industries are doing well also. We still need some confirmation from the overall market before considering it a safe time to buy any high momentum stocks.

Althoug it was not the biggest mover of the day, IBM produced a nice daytrade after a daily set up that gave us a directional bias to the upside for today. After opening and trading lower in the first 15 minutes, IBM bounced right back and was making new highs by 10:30 am, a strong sign. The stock then traded higher all day and closed just off its highs for the session. The chart may be seen below.

Scott Cole
www.bestdaytradingstocks.com


Monday, February 2, 2009

Best Stock Day Trade for Monday

Today was an uneventful day for stocks, with the major averages mixed on the day. Stock markets overseas were weak overnight, leading to a weak open in the U.S. A better than expected ISM manufacturing report helped ease some of the early losses.

Although the major averages were dreary on the day, a few stocks made some nice moves. The chart below is a 15 minute chart of FOR. The stock met many of the characteristics we like to see in place for daytrading purposes. As a result, there was a directional bias in place to the upside. The stock then opened lower, another good sign. After a nice early morning breakout, the stock continued to move higher on the session, closing up over 13% on the day.

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com