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Good Morning All: If the title sounds a little confusing, it was meant to. The issue to be discussed today is not just 'when' to trade. There are trades that can be done any time the market is trading. That does not mean that you should be trading all day long, it just means that the times you pick to trade can be any time, IF you know what to trade. These next three articles will discuss this issue, and are geared toward the 'intraday trader', not the swing trader. When to Trade What, Part 1 of 3 The comment above said that trades can be done any time of the day, does that mean even lunch? Yes. While it is often much discussed 'not' to trade lunch, part of that statement is left off. Do not trade lunch, unless you know how to trade it. Lunch is the time when many traders get into trouble, because they do not realize that many things will not act the same during lunch as they do during 'non-lunch' times. The first issue to consider is the volatility and target expectations. If you could give a 'volatility rating' to the market, or stocks in general, it would look like this. If things move '1' during lunch, they move '3' between 2:15 and close, and move '5' between open and noon. If you do not realize this, targets will be unrealistic and lead to frustration. Before Open: So how do you focus your time? For many people, the time spent between 8:30 and 9:30 may be the most productive (all times are Eastern, New York, market time). Preparing your watchlist, forming a gap list, and starting a market bias can be key to how your day goes. Get ready for the open by picking the best of your favorite stocks, the best of your daily watchlist, and the best of your gapping stocks and know how you will play them, if at all, before the market opens. The First Five and Thirty Minutes: Very few traders realize the power of reversal times, or the power of having the knowledge of how to trade each part of the day. Most traders, who play trends and breakouts, should not even be playing the first thirty minutes of the day. Look at your records. The chances are that you have a very low batting average for trades taken during the first thirty minutes. The only trades that should be taken during the first thirty minutes are based on gaps or other very special strategies. The 9:35 reversal time is one of the most reliable, yet few traders realize its power. Many get stopped out of plays, rather than profiting from, the 9:35 reversal. The above chart shows an example of a price pattern that gapped bearishly, sold off hard for less than two minutes, and turned around so quickly, most traders who mistakenly tried to short the move down suffered losses. Knowing that this flurry move down offers a buying opportunity on a regular basis when played on the right stock can turn potential losers into big winners. Once the five-minute reversals are over, many stocks have solid moves into the 10:00 reversal time. This reversal time can run anywhere from 9:50 - 10:10, but the power move usually comes closer to 10:10. Trends between 9:35 and 10:00 are usually very reliable, if backed by a strategy. However, 10:00 or 10:30 are the reversal times that often set highs or lows for the day. Stocks that do not reverse at these key times may go on to be 'power trends'. Paul Lange Vice President of Services Pristine Capital Holdings, Inc.
In this Chart of the Week (COTW), I want to show why one trader who is focused on swing-trading would never consider buying and another that is focused on intra-day trading would. However, both traders would initially view the chart as bearish and both may have it on their watch list for a short sale the next day. In the above daily chart, we see a stock that has broken down under Major Support (MS), the 20-MA and the 200-MA. While the stock did form a Bottom Tail (BT) on the break lower, it never was able to trade above that high for several days. Over those days of basing, the stock formed two Topping Tails (TT) as buyers tried to get the stock above the 200-MA. With the formation of the last TT the price action did suggest that the stock would move lower and possibly the next trading day. For that reason, both the swing-trader and the intra-day trader would have a bearish view. Based on what had occurred at this point, the swing-trader would never consider buying stock with a chart like this the next day regardless of what it did at the open. However, the intraday trader having an understanding of gaps, multiple time frames as well as how bearish traders have become trapped would be willing to buy the stock in the short-term under the right conditions. Let's look at what it at the open and did happen. Rather than move lower at the open, the stock gapped up a small amount, rallied and closed above prior resistance and the daily TTs. To the intra-day trader this is a clear breakout with a Tradable Void above. It's a great long setup for that trader! The next step for the intra-day trader is to find an entry, which could be a Pristine Buy Setup (PBS) a Pristine Breakout (PBO) or any bullish pattern confirming the bullish breakout and signal of higher prices that should come. A textbook PBS formed at the 10 o'clock reversal period signaling that buyers did in fact step up on the pull back and prices were ready to move higher. While we cannot know for sure that prices would move as high as they did, there was the tradable void, so there was nothing to stop that from happening. Once the gap was filled, the odds increased that the stock would retrace then. Above is the completed daily chart of Altera Corp. (ALTR) as of the close on Friday February 1st. It's still not attractive for a swing trade, and at this point it's not of any interest to an intra-day trader either. It had a good day on Friday, but now the current pattern does not suggest good odds in either direction for either trader since the prior bearish daily price action has been neutralized and the gap filled. All the best, Greg Capra President & CEO Pristine Capital Holdings, Inc.
Good Morning All: For the next three weeks, I will be looking at things that beginning traders should know as they start this business. Don't be surprised however, if some of you moderately experienced to very experienced traders don't find a few interesting tidbits; Even if they serve as nothing more that review. A Beginner's Handbook Part 1 of 3 Welcome to trading. Are you new to this field? Or is it called online stock buying? Or is it day trading? Or is it investing? Well let's get a few terms straight. This will be the first of a three part series, "A Beginners Handbook". First, at Pristine, we consider 'buy and hold' something that is no longer a term that should be applied to the stock market. Do this if you like in real estate, bonds, gold, but not stocks. It implies a long-term buy and hold with your eyes closed approach that should no longer be used in the stock market. The term 'investing' is fine as long as it does not mean 'buy and hold'. There is nothing wrong with long term holds. We believe in swing trades and core trades that could last for months or years in some cases. However, they are 'managed'. As traders, we do not close our eyes hoping all will be all right. Traders are educated in technical strategies and discipline. They become self-sufficient Most of today's large cap companies are in the technology area. These companies are subject to having their main product replaced by a new technology very easily. Long ago, it required many years for any company to start up a new car company and over take General Motors. Today, anyone can create software in their garage that can revolutionize how something is done and put a competitor out of business. Look at the company Iomega, for example. They are the makers of the infamous zip drives that appeared on computers years back. The current technology at the time was storing information on 1.44 meg disks. They came out with a system to store 100 megs on a disk, and got contracts to put their drive on every major computer. Sounds like a company you can buy and hold forever, doesn't it? It is, until someone discovers that the same information can go on a CD and have it cost much less. At that very moment in time, literally overnight, Iomega is out of business; unless it has other products to sell. The rule is 'change or become extinct'. This example is found over and over again in everything from video sales to computer chips. When practicing 'buy and hold' (as opposed to long term trading), you are relying on news and announcements and fundamental data. Many of you have probably already discovered how worthless this process is. To the extent it has a valid use; it is never to take the news or information at face value. Take a look at Amazon's recent earnings. You can look wherever you want, the comments were the same. "Results from Amazon (AMZN) ... also disappointed the Street". If you are relying on news to make decisions, it must be time to get short AMZN, right?. However, take a look at what happened after the dismal report was out. There was no other news. Those of you that already know this see this happens all the time. So if 'buy and hold' is out, what do we do? You hear stories all the time about all of the 'day traders'. You look around you and you don't see many. You may not even know any besides yourself and those you met at a seminar. Unfortunately, the term 'day trading' is often misused by the media. There is a large group of people that we call 'online investors'. These are the folks that use their computer in place of their telephone to call places like E-Trade, Schwab, etc. and place their orders. They are typically managing their savings or IRA money, and are typically untrained. They were plentiful during the bull run of the 90's, and often were wrongly called 'day traders'. They did not need to be trained because they made money buying stocks in the late 90s no matter what they did. Most of them are all gone now. We consider our selves 'traders', but this does not include the much larger group of 'online traders' mentioned above. Traders use technical analysis to find, enter, and manage trades. That applies to long or short term trades. Those that are focused on trading and exiting by the end of the day with that account are called day traders. We consider traders people who spend a good part of the day with the market. Those who are trained to manage positions that may last from several minutes to several months. While we believe that 'buy and hold' is a dead term, we do use many time frames to hold stocks, the longest of which is a 'core' position. While a core positions may last for months (or years), it differs from investing because there is an exact exit strategy planned for a core position. We also use a 'swing' time frame. This is one that may last from 2-5 days. We also use tactics that would have us holding a stock overnight one time, or exiting the same day. Sometimes exiting part of a position only minutes after entry. So if you are going to trade, how do you buy stocks? If you are trading only a few trades a week, and limiting yourself to swing and core trades, using on of the 'online brokers' is fine. The time it takes to have your order filled is not very fast, but for occasional long-term trades it is acceptable. If you are going to be trading more often, or trading in and out the same day, you will want to use a 'direct access' broker. This is a broker that lets you see all of the market participants, where they are buying and where they are selling. You then place your own order on your computer screen and many of these orders will have instant executions. By instant I mean instant, usually within a fraction of a second. If you need a broker, or not happy with your current broker, consider Mastertrader.com. It has the best rates and service, a variety of platforms, and you earn points to use at Pristine for services and seminars. So, you know what you want to do, and you have selected a broker. Now you need a computer and an Internet connection. Again, for occasional swing and core trading, any machine that can access the Internet will do. If you are going to be active intraday, you will need to have something better. You will need a computer that is competitive with the current top of the line computer, or is at least current with the technology within the last 12-24 months. You will want a fast Internet connection. You need to be looking at Cable, FIOS, Satellite, or T1-3. Depending on where you trade, you will have to evaluate which of these is available and most effective for your money. You will need to have a working knowledge of computers, as your time with the computer will be extensive whether you want it to be or not. So now you are ready to trade, right? Well, no not really. The biggest distinction I made earlier was that 'day traders' are educated in trading strategies and disciplines. This will be the focus of the next Lesson, how to start out trading when you have no education or experience in trading. I will discuss how to build that education as you go, without using up all of your capital. Closing Comments There is perhaps no greater occupation to have than that of a professional trader. Yet, few achieve that title. Few achieve, even thought thresh hold is not that high. In terms of cost and education, most anyone is capable. You have to set yourself apart, and be different. That is part of what we will talk about next week. Until next week, good trading. Paul Lange Vice President of Services Pristine Capital Holdings, Inc.
Good Morning All: Over the years, I have written many articles; hundreds, maybe even thousands if you include partial repeats and every short lesson. Sometimes the lesson is a partial re-write, or a new take, or a new way to explain or organize the information. While there are many summaries out there on various topics, and while the topics on this lesson may be found somewhere else, I began a three part series two weeks ago answering a very direct question: What causes failure in trading? This has been a no-nonsense, nuts and bolts look at the question, not a philosophical dissertation. Two weeks ago I discussed 'discipline' as the first true reason for failure. Last week I discussed reason number two; the inability to focus. Today I will discuss the third reason, which will end this series. There may be other reasons, but these are the top three. To clarify again, most people actually fail because they do not get an education. However, that is a decision that people consciously make. I want to discuss why the people who really try, can still fail. What Causes Failure? Part Three of Three Reason number three is the inability for traders to plan and follow up. This is a fairly broad topic, I agree. However, it has to be in there as one of the top three. Again, these three are not in any particular order. Yes, all of these topics are somewhat interrelated. Many may argue that this one is the most important. But what good is a plan, if you do not have the discipline to follow it in the first place? What good is a plan, if it is so expansive no one can review it accurately to see if it was followed? When I talk about planning, I am not talking about planning with a small letter 'p'. I am not talking about preparing a watchlist for the day, or checking the earnings schedule. I am talking about planning the a big letter 'P'. I am talking about the Trading Plan. When I talk about a Trading Plan, I mean a very detailed plan or what you are allowed to trade every day, when and how you trade it, how you enter, how you mange, when you can change it, what strategies, and all the money management rules. If you day trade without a trading plan you follow religiously every day, you WILL fail. You 'may' survive as a swing trader, depending on your background. The other half of this third reason for failure is the inability to follow up. No Trading Plan is worth anything if it is not followed. Closing Comments: This is the end of this three part series. To be sure, the number one reason traders fail is they do not receive a quality education. That is what we do at Pristine, provide the best education in the business. What I wanted to address here is, even after the education, why do some still fail. Lack of discipline, lack of focus, and the failure to create a trading plan and to follow up to make sure those first three are in place. That sums it up. Do you have these three eliminated? Eliminate these three reasons to fail, and you will have an outstanding chance for success. Paul Lange Vice President of Services Pristine Capital Holdings, Inc. http://www.pristine.com/images/educator_plange.jpg