stock trading: follow the money

When short term trading for a living it is imperative that you keep on top of the strongest and weakest sectors. Your objective is to be involved in the most recent order flow. A traders job is to identify accumulation or distribution by institutions and then trade the ensuing short term momentum. When you get good at spotting these footprints you should be able to ride those trends for easy profits for a few months.

A good example of this is money was flowing out of the financials, the downtrend was obvious and the shorts were a piece of cake. Since January however the industry has been a very difficult read while oil services and technology has been hot and order flow much easier to read.

Sometimes as a full time trader it is easy to get comfortable with a stock and a particular sector and that is good. You will know when to push your share size. However we recommend that you keep an open mind and follow the strongest and weakest sectors during the day and especially at the close every day. You will see a pattern emerging weekly as the same industries appear over and over. it may give your trading business a nice boost of potential opportunity. This is the same method we teach in our Keystone Platinum program.

Sector Analysis: Telecom (domestic services)

When a stock trader does his or her homework at night, it should start with analysis of the market, then sectors. Market and sector study does a good job of filtering out the “noise” of individual stocks and gives you a good idea of money flow as a whole. Once you get good ideas of supply or demand, you can then take a look at the stocks in those sectors.

The telecom chart here is clearly displaying demand. The sector had a clean breakout from an six week consolidation. The next step would be to identify the stocks from the sector that are showing a mirror image of the big picture of the sector. Once that is done, you trade those stocks intra day ONLY in the direction of the daily trend.

The stocks we are trading now in sync with the money flow of the sector are: T, VZ and Q

Sector Analysis: Home Builders

Home builders have been in a steady downtrend for the last several months after a tremendous run up. The sector pulled back to its 20sma near the end of March, after a double bottom 4/2 - 4/12. The next rally moved all the way to the 50sma, this deeper pullback would lead us to be ready for a nice move up. We can expect one more test of the 4/2 lows, probably finding support at the 20sma. This will form a nice clean head and shoulders bottom, we will look for a couple of up days with significant volume before we start to nibble from the long side.

Stocks in the sector include: BZH, CTX, DHI, TOL, HOV, KBH, LEN, PMH, RY