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Archive for May, 2007

day trading in the real world

Day trading can be the most exciting adventure you ever participate in. Stock trading will evoke emotions in you that you never knew existed. I bring this up because I just had a one hour conversation after the close with a trader who we have been mentoring for the last two months. 

Real world day trading or swing trading for those of us who make a living at it, is just….. well….. boring. I know that may sound hard to believe but when you get to the level of where you are successfully running a trading business, you spend your day following your plan, and at the end of the day, sometimes you make money, sometimes you don’t. Its that simple.

Newer traders have this deep rooted belief that they need to know more to get to the next level. You don’t need to know more. You need a structure for price so that what can seem like noise, can at times make sense. When it makes alot of sense, you make a trade. If you did what you are supposed to do, over the long haul you will make money. Experienced traders who make money consistently have rules they believe have an adge, and they follow them. This trader, since he has joined our mentor program has gone from losing money on a consistent basis, to learning how to not lose money, to being gross positive on a consistent basis. The next step for him is taking home a check.

 If you need a trading mentor, please shoot us an email. info@keystonetradinggroup.com

day trading: open print orders

May 25, 2007 1 comment

Open print orders:

by Robert Hollander: Market Maker

Often times when day trading, you are sitting at your computer waiting to pounce on a stock to trade you will notice that the first five minutes and last five minutes of the trading day are often very volatile. Sometimes this is just normal stock trading volatility, other times it is because of opening or closing print orders.

In the case of an opening print order a market maker may have to buy stock for an institution. Let’s use MSFT as an example, the order to buy 500,000 shares of MSFT, “opening print.”

That means whatever the first print of the day is the market maker will be selling 500,000 shares of MSFT. These orders are very scary for market makers. If he starts buying the stock too early he runs the risk that someone out there has a larger opening sell order and pushes the stock down, causing substantial losses.

For example; say at 9:28 the market maker is long 400,000 shares out of the 500,000. His average price is $34. If the stock opens below $34 the market maker will lose money, but he still has 100,000 shares of “ammunition.” He needs to use it to hold the stock at $34, but does he have enough left?

Don’t forget if the stock opens at $33.75 or $33.80, he will lose .20-.25 on 400,000 shares that is $100,000-$125,000! On the flip side, if he is able to get the stock over $34 he will make a nice profit.

Usually the best way to buy or sell the opening print orders is to wait until the last possible seconds to “finish” the order. In the above example, the market maker probably would have waited until 9:29:30 to start buying the last 100,000 shares to complete the order.

The market maker has many tools available to help him with these types of orders including a myriad of different buttons. One of the buttons he may use is the “spray” button where he would be able take all of the stock up to a certain price lightning fast.

If he wants to try to hold a stock where it is, he can use the penny increment button, programming his own bid to buy a certain amount at one level and then moving him down one penny at a time.

This strategy is already effective when he is already long the stock for his order, and he just wants to keep the stock from falling. Picture it as playing defense.

Nowadays it is also common for firms to use algorithmic programs to complete those types of orders; limiting the risk to the firm they need to limit risk because although these orders are sometimes very lucrative they also have the potential to put a firm out of business.

For more trading tips like these visit us at www.keystonetradinggroup.com

day trading: calling a top

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A consistent  day trader more often than not will spend very little time trying to pick tops and bottoms. There are some events that occur however that make it very clear the end of a move has arrived.

Monitoring  price action and volume together, there are instances where a pending turn is obvious. We call this event “exhaustion.” This occurs when a stock has moved very quickly from its average price AND a very large body candle forms AND this is accompanied by a significant increase in volume.

You can see here on this chart a clean exhaustion bar forms with the other criteria. You can use this action in one of two ways, exit a position into momentum before it reverses violently or put on a very agressive trade in the opposite direction, once the shorter term time frame displays a lower high or higher low so that you can manage risk.

In an upcoming article we will explain the mechanics of why “exhaustion” works.

Categories: Trade Replays

swing trade of the week

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This weeks stock trading pick is A T&T. As was discussed last week the US telecoms have been very strong. This swing trading set up is a classic technical chart pattern.

A smooth bull flag has formed giving us the opportunity to get long. As discussed in our Equity Trader 101 class, we will use a price confirmation entry techniques and build a position as it moves in our favor.

The entry is a buy stop @$40.75 and an initial stop loss under $40.25. Good luck this week. You can see our previous two calls have worked out quite nicely.

Newsletter: Stock Trading tips

Welcome to the Keystone Trading Group Newsletter: Volume 1: Issue #3

Tips & lessons for day trading success

In this issue:

·        How a professional stock trader uses charts to generate ideas

·        Choosing a trading style before you write a trading plan

Using charts like a pro

To many new stock traders, learning how to read charts can be an exciting starting point into the maze of making money from day trading stocks. There certainly is no shortage of books and websites that will teach the many methods of reading charts.

Along with the methods there are a few styles of charts you can display: bar, candlestick, line, point and figure. The amount of information on charting can be overwhelming, if you pull up even the most basic charting package today you will see it has a minimum of 50-100 indicators available. For the new stock trader it will be an amazing journey into the process of learning how to use all the fancy tools.

Every year my partners and I attend the trade shows related to trading, in addition to hosting many workshops in our NYC office. It always amazes us how many people “speak” trading and charting fluently but have no idea how to make money.

They know all the buzzwords like Fibonacci and Elliot Wave, regression analysis and exponential this and that. The problem most of these potential traders have is they think that charts give the answers. Charts don’t give answers, they give ideas.

Charts are not crystal balls that if A+B+C happen then you will make money. The multitude of indicators that is available are all derivatives of price. Meaning they tell you what price did. Do you really need something to tell you what price did if you are watching price already? How many watches do you need to tell what time it is?

I see far too many traders load up their trading screen with five indicators on the same chart. They get three indicators telling them one thing, the other two telling them something else and then they can’t make a decisive decision because they aren’t sure which signal is the one to focus on.

At its most basic level, charts display trader sentiment and commitments. Think about it, charts are formed from actual trades. Charts tell you where other traders took a stand and what they believe about future market direction. New highs and lows are formed from these opinions. When many traders have the same opinion, you get a trend. When there is consensus, you get a trading range.

The next time you look at a chart, keep it simple. Ask yourself the only two things you need to know to make a good decision:

1.      Are we trending or in a consolidation?

2.      Once you have clear answer to question #1, now ask yourself question #2: Is there an opportunity to make money in front of me based on the current price action.

In other words: Is there a good idea here? Has the uptrend paused and given me a spot to get in? If so how do I measure risk? Where did the buyers step up to the plate?

Is there a support I can buy or resistance I can short? If it breaks that area, can I manage my risk? On the trading floor of our NYC office, when new traders mentor with us, we ask them to come up with good ideas. The better your ideas, the more money you will make. Keep analysis simple. You don’t want to think when you are trading, or try to figure anything out. You simply want to trade. Say your ideas out loud and see if they make sense. Tell yourself the idea as if you were trying to raise capital for the trade.

I am buying a test of a previous low is a good idea. I am getting short “because it is too high” is not a good idea. Use charts to get good ideas based on current price action; do not use charts to predict. Don’t get caught up into thinking you need to get fancy to make money.

Trading Styles

One of the biggest misconceptions about trading is believing you can trade every market condition consistently. Traders who make money specialize. To take it one step further, they specialize in a style of trading that suits their personality. You only need one technique or signal to make a living; you don’t need all of them.

Trading styles: which describes you?

If you want to keep your losses close to the vest and small, this means your profits will also be small. Your trades would normally have a 1-1 risk reward ratio, you will make many trades intra day. You would be a scalper / momentum trader. If you would prefer not to make many small trades but would rather have a longer term intra day focus, you are a position trader.

Scalping: Main focus is small losses and small profits, get ideas from reading the tape. Position trader: Focus is longer term, from one hour to one month. Get your ideas from price charts.

Which style of trading best matches your personality to run your trading business? If you choose a style that you are not comfortable with, you will be fighting the trading signals all day.

Spend some time reviewing your trading day. Do you like to make many quick decisions or do you like to put the pieces of the whole market puzzle together before you make a trade.

I can tell you from experience, if you try to implement both trading styles, you will master none. You will mix styles in the middle of a trade. Be definite as to your style and your “ideas” will be much more decisive. J

Until next time, have a great trading week.

Professional traders maximize intra day leverage, if you are not trading with at least 10-1 leverage: send us an e mail to learn how.

info@keystonetradinggroup.com in the subject line put “extra leverage”

(212) 594-8900

Categories: Newsletter

Stock Trading Course

Our next Equity Trader 101 stock trading course will be held in NYC on June 1-2. The class is limited to 20 students and is filling up quickly, call to reserve your seat today.         (212) 594-8900

Categories: Beginner education

Day trading: Trade replay

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Last night we did a free workshop for online stock trading on our NYC office. There was a student in the room who refused to believe that intra day trading is as simple as defining the supply demand equation.

She proceeded to ask a litany of questions about fundamental analysis and how it would relate to a day trading decision. Of course we went through all the necessary fundamental factors to be aware of, but ultimately a traders decision will be based on what is going on right now.

This trade displayed in AMD is a perfect example of what I mean. The short term momentum from the 15 minute chart was rising and made it’s way above the 20sma. As we teach in our Equity Trader 101 course, this tells us we should be zooming into the lower time frame to time an entry to the long side (we will be trading with the most immediate momentum)

The entry is the bull flag on the five minute chart. The trade played out beautifully for a profit of just about a quarter. As you can see here, there were TWO reasons to exit the trade where we did, there was resistance from the previous days trading and we had perfect “exhaustion bars” that indicated the end of the move.

Categories: Trade Replays