Daytrading

[PHANTASM]

This is the support topic for the tutorial Daytrading.

 

Please post here if you have any questions or feedback.

[PHANTASM]

Daytrading is the best way to make money. Everything else, legal or otherwise, looks stupid in comparison. You can make more money per hour of "actual work" than most coke dealers or lawyers.

 

Always place a Stop Order whenever you make a stock purchase. A "Stop Order" is a type of pending transaction that is activated whenever the share price of a given equity falls below a certain threshold price. This allows you to automatically sell your stocks whenever they start to drop, so you don't have to lose money. Nobody likes to lose money, and by setting your Stop Order in advance, you don't have to be one of those n00bz who say "I lost my retirement when the stock market crashed."

 

For example, lets say you bought 50 shares of XYZ at $20 a share. You set your Stop Order at $19.40 a share. This allows for exactly a 3% drop before the order to sell is automatically activated. So, this gives the stock a little room for volatility, but the moment it starts to plunge, your Stop Order is activated. This way you don't have to sit there staring at the computer all day keeping an eye on your stocks.

[PHANTASM]

Before buying any stock, you should always do a background check on it. If you were an employer, you would want to find out about your prospective new employees to see if they had any dark secrets that could cause you trouble. Go to Scottrade.com and type in the name of the stock you are considering (no, I don't work there). You don't have to have an account with them to do this. Then go to the tab labeled "SEC Filings". This will take you to all of that company's reports that have been filed with the U.S. Securities and Exchange Commission.

 

Every US listed company is required to provide a quarterly report, as well as list any large deals made by "insiders" (people with substantial knowledge of the company's finances). These are reported to the SEC, and then listed on Scottrade.com.

 

These reports can help you determine if a company you are considering investing in for more than a few hours is a significant risk of a sudden bankruptcy or federal action that could instantly destroy the value of your purchase before you have time to sell it.

 

Also, by examining the purchases and sales of company stock by the very people who know the most about that company, you can determine if the company is a good long-term investment. CEOs know what is going on, and will buy or sell their stock if the company is doing well or poorly.

 

SEC reports are awesome.

[Tonka]

to save time, you could post stocks you just bought(since you have already done the background check) and we can just buy the ones you do, btw, can I borrow $5000?

[PHANTASM]

There is a sweet spot at just over $1 where you have the maximum volatility (fluctuation of stock price) to the risk you take of actually losing your money.

 

The less a stock costs, the more volatile the price is, and the larger your gain or loss can be. The real money is not in the $40 stock that goes up or down $1 over the course of a month, but in the $1.50 stock that goes up or down $0.10 over the course of a day.

 

By using Stop Orders and reading SEC reports, you can greatly reduce your risk, which allows you to go into these dangerous waters where more money can be made quickly.

 

My preference is for stocks that are priced between $1 and $5. Stocks under $1 have three issues. They are in danger, not only of sudden bankruptcy, which can affect any stock, but also of delistment. Stocks can be delisted by the SEC when they fall under $1. They are taken off the NYSE and moved to the "pink sheets" - the OTC Board. This is bad news. Your Stop Order won't work when they are on the OTC.

 

The second issue comes from how a company reacts to their danger of delistment. Some companies will do a reverse split on their failing stock. Let's examine AIG. AIG manages the Pension Fund of the US Congress, which makes them virtually immune to the danger of bankruptcy. They recently received a $180 billion bailout from the US government to keep their pensions secure. They are a key stock for any daytrader.

 

AIG was trading around $1, and had been warned publicly by the SEC that they were in danger of delistment. I knew this from the reports, but did not take it seriously. To get out of the $1 range, AIG did a 20:1 reverse split without warning the world. I was holding 500 shares of AIG at the time. I looked at it the day it was reversed and I had 25 shares instead of 500. The price of each share had been multiplied by a factor of twenty.

 

AIG had dropped from $20 to $13 in a couple hours and I missed my chance to sell at the opening of the market when I could have gotten most of my money out. I had lost 35% for no reason by the time I hit the sell button. My Stop Order was not triggered because it was still set at the pre-split price for $1.00. So, I got owned by AIG, who were probably shorting their own stock when they reversed it and made a fortune on their shareholder's losses.

 

The third issue with stocks under $1 is that most trading sites won't let you place pending transactions within ten cents of the current value of the stock if it is under $1.00. This is because the high volatility of the stock and the latency of the site (often 20 minutes) means they can't guarantee that you will get your price. So, they require you to place your buy or sell order for ten cents less than whatever the current price is. These are called "Limit Orders".

 

Your Stop Order also cannot be set closer than ten cents to the current price of the sub-$1 stock at the time you place the Stop Order. For example, a couple weeks ago I bought CHB at $0.30 a share. My Stop Order could not be closer than $0.20. If it dropped, I could lose 33% of my money before it sold automatically. CHB went up to $0.65 when the housing report came out last week (I was expecting this) and I doubled my investment.

 

Volatile stocks tend to rise quickly and then drop back down, so you have to be ready to sell at the plateau. While it is rising, you should keep modifying your Stop Order to just under the new price. You can do this manually or use what is called a "Trailing Stop" - a pending transaction that follows a stock as it goes up. With sub-$1 stocks, you have to keep your Stop Order at ten cents under the actual price, but you can keep changing it each time it goes up a penny. If it drops quickly your Stop Order will kick in at ten cents under the plateau.

 

Of course, you can just sell it without the Stop Order whenever you want and get the full price at that amount.

 

Now, had this stock been priced over one dollar, I could have avoided using Limit Orders to set my Stop Order, and set my Stop Order much closer to the current price. This helps lock in more profits as a stock rises.

[PHANTASM]

For the inexperienced, the stock market is a casino. For the experienced, it is a hunting ground.

 

So far, we've focused on avoiding danger. Now let's talk about how to find stocks that are about to suddenly go up. This is called "seeking alpha", where alpha is the increase in value of a given stock over time. High alpha = sudden gain for the investor. This is what we want.

 

Some trading sites have smaller price ranges and more options, but they charge high monthly fees - similar to buying an aimbot. They usually have less latency, so your trades are executed much faster, with far more price precision. You are basically paying extra to cut in line ahead of everyone else. Most major brokerage houses use them.

 

If you are doing high-frequency trading, where you are selling a stock ten times a minute every time it rises 0.01%, these are essential. You need millions of dollars to make this worth while, because you will be charged for each purchase and sale. It costs me $7 every time I buy or sell a stock.

 

I prefer an approach more like a spider - find an undervalued sector that is about to have good news. Then find the most volatile $1 to $5 stock that isn't about to go bankrupt. Invest and wait a day or a week until it shoots up, then get rid of it. I spend maybe ten minutes a day actually looking at my Scottrade account. The rest of the time I am reading the news. "Buy on the rumor, and sell on the news."

[PHANTASM]

You can exploit your competition - human or bot - by pre-positioning yourself before news breaks.

 

Stocks are like springs. Push them down and they store energy. They become ready to bounce up at the first sign of good news. Traditional traders used to buy stocks whenever good news was reported. HFT systems do this automatically now, the instant a news story is put online. They read the entire internet and react instantly. By the time you've see the good news, it is too late. The stock has already risen. Alpha came and went. Humans can't compete, but computers can't predict the news.

 

By reading the news constantly, you can become aware of pending reports that will be announced later and create alpha. It's helpful to keep a roster of vetted stocks (with the right price range and SEC history) in every industry so your basic research is already done. Then when you find good news about future good news, you buy your vetted stock in that sector. Then you sell when the news is released, while all the "momentum investors" are still buying it.

 

Here is an excellent description of how to trade on future news, with links to many sources you can use.

http://www.investopedia.com/articles/fo ... p?viewed=1

 

You can find the complete listing of all NYSE stocks here:

http://www.nyse.com/about/listed/lc_ny_ ... edComp=All

 

You can find the breakdown of the NYSE into sectors here:

http://www.nyse.com/about/listed/lc_ny_industry.html

 

Here is a great article about High Frequency Trading (HFT).

http://arstechnica.com/tech-policy/news ... abound.ars

[PHANTASM]

The Hang Seng (Chinese Stock Index) took a 6% dive on Monday, which triggered a global panic attack, and the HFTs automatically started dumping financials, and then the humans followed. My Stop Order kicked in, and I lost 3% of what I was holding. No big deal at all. I waited until the end of today for the market to start to bottom out a bit, and looked over the carnage.

 

AIG took a 20% drop today, which is because they agreed on Monday to begin to settle a huge lawsuit regarding the derivative mess they created last year. I'm not touching AIG with a ten foot pole until this lawsuit mess is over.

 

If you want a financial sector stock, I would recommend Citibank © maybe late tomorrow or the day after. They dropped 9% today, down to $4.54. I thought about buying them today, but the downward slope on their curve indicates there will be intense selloff on them tomorrow AM as well. Might be a good opportunity tomorrow if it bottoms. The other thing - Robert Joss's wife just bought 17,000 shares of Citibank on 8-28-09, so the insiders are telling their families to get in while it's cheap. It's kind of funny to think she just got hosed this week, but it's good to know the Director is telling people to buy in. Classic insider trading exposed at Scottrade.com. Lol.

 

Oh yeah, BAC only dropped 6%, despite heavy exposure to the Hang Seng. Strange.

 

I bought some Ford stock at $7.24. Ford (F) took a 5% drop today for no reason.

 

I bought Pier One (PIR) at $2.50. There was no drop at all in PIR, which means it would have gone UP today if it wasn't for the overall fear.

 

I'm putting a Stop Order on Ford at $7.00 and PIR at $2.25. Do not hold stock without a Stop Order.

[daredevil]

I am following it but stock market is always like gambling for me I always end up loosing money because "luck" doesn't exist for me. Off course their are strategies but they don't fit in my mind. When 3 analyst are talking for same company I end up selling stocks of that company.

 

If you get good tip it's like money making factory or else its lotto.

[PHANTASM]

I am following it but stock market is always like gambling for me I always end up loosing money because "luck" doesn't exist for me. Off course their are strategies but they don't fit in my mind. When 3 analyst are talking for same company I end up selling stocks of that company.

 

If you get good tip it's like money making factory or else its lotto.

 

I agree with most of what you said. It is a form of gambling, just like a casino. But unlike a casino, they don't kick you out or do bad things to you when you learn how to beat the system. Then you can make money.

 

The single best advice I can give you is to learn how to use pending orders to your advantage. You can use Stop Orders to automatically sell a stock whenever it reaches a certain price or a certain percentage drop in price. This protects you from losing money. If the stock goes up, your Stop Order can rise with it, so that after the inflection point of the curve (when it starts to drop) your stocks are sold automatically and you keep your profits.

 

Let's use another example. Let's say I bought Ford stock at $7.25 (I don't remember exactly), but I set a Trailing Stop for 3%. Whenever the stock drops 3%, it is sold, and I don't have to sit there all day watching it. If it goes up, (and I expect it to or I would not have bought that particular stock), the Trailing Stop rises with it. So let's say it goes up to $8.00. When it then starts to drop (and they ALWAYS do), my stock is sold for me when it hits $7.76 (3% of $8.00). So, I made 50 cents on 200 shares, or $100. It's not a ton of money, but it is easy money for maybe ten minutes of actual work.

[PHANTASM]

News Flash - Citibank is planning a reverse split. If you've read my posts so far, you know how I feel about reverse splits.

Strangely, they also approved a plan to increase the number of shares, giving their board leeway to go either direction. These actions disrupt pending transactions and often cause sudden huge drops in stock price.

 

This was reported in Comtex Smartrend:

 

Citi Shareholders Approve Increase in Outstanding Stock as well as Reverse Split

Thursday 09/03/2009 11:29 AM ET - Comtex Smartrend®

 

As of 2:24 PM ET 9/4/09

9/3/2009-Citigroup (NYSE:C) shareholders approved a plan to increase the amount of outstanding shares, according to an AP report. The plan is to complete a debt exchange that will give the U.S. government a minority stake in the company. Shareholders also authorized the board to execute a 1-for-7 reverse stock split at any time before June 30, 2010.

[PHANTASM]

If you're looking for specific advice on a given stock, this isn't really what I am trying to do. Stock advice has the shelf life of an open jar of mayonnaise.

 

What I want to do is teach you how to think like a daytrader and actually make money instead of sitting there checking your 401K once a month wondering how you will ever retire on that $20,000 you've saved up over the last ten years. You know that won't last you six months, and there won't be Social Security.

 

The same mentality goes into trading. You buy stocks and set up pending transactions that might make you money. You look for volatile stocks that should go up. If they go down, you lose 3%, but if they go up you can make a lot of money. The trick is to have a lot of fishing poles in the water so you always have a fish in the morning.

[PHANTASM]

Let's talk about spreading out your risk. The more stocks you are playing, the better.

 

Let's say you have the worst luck on earth. If you have $10,000 spread out over ten stocks, and 90% of those trades move south, you've lost 9 x $30 = $270. Each fail cost you 3%, which is $30. This is assuming you use your Stop Orders, as I've described above. Otherwise you're hosed.

 

If only ONE of those trades works out, and your stock goes up by only 40%, you'll make $1000 x 0.4 = $400.

 

So you've made $400 - $270 = $130 profit. Not bad for a week. That's 1.3% profit x 52 weeks = 67.6% profit over the year even if you suck.

 

This isn't counting the cost of placing orders, which varies from site to site. Etrade currently has an introductory offer going on where you can get 100 free trades just for signing up. That's $700 for free.

[PHANTASM]

Let's discuss some things that you may hear a lot of people talk about that are, to a daytrader like me, absolutely irrelevant:

 

"P/E": price to earnings. Supposedly a measure of how much a stock is actually worth. This number is completely irrelevant to a daytrader. A stock is worth whatever someone will pay for it, regardless of how the company is doing. If someone will buy it for 20% more tomorrow because Ben Bernanke wore a blue tie instead of a red tie, who gives a fudge what the company is actually worth, really.

 

"Dividends": the amount a stock pays you annually just for owning the stupid thing. There is no reason to hold a stock for an entire year just to get a $1 payment per share from the company, IF they happen to have a good year. If you break that down, that's two cents per week per stock. Yawn.

[daredevil]

More generic question would be how you can start with 100$.

 

You are having around 1000$ in your hand if I am not wrong. How can you start with 100$ and gain profit?