Day Trading

There are always questions on how to research a stock and make up your own speculations for day trading.

>News
Generally there are two type of news: news affecting the
market in general and news affecting the stock or its sector. The first thing you need to know is that it is almost impossible to be fast enough to make money by buying a stock immediately after a good news release. This can be largely explained by the concept of market efficiency. There are at all times hundreds of traders watching the same stocks and screening for news on it. As soon as there is a news event they all react and the stock moves instantly. Moreover the exact hour when news happens is most often known in advance because of SEC regulation on Earning releases and Press Releases. We could even say that it would be more advisable to sell on good news and buy on bad news since most people tend to overreact.

The stock market is not based on current data but on expectation about the future value. That is to say that most current data is already included in the price of the stock. In the trading jargon we say it is baked in the cake. If market participants assume that Microsoft will have good earning they will buy it in advance to profit from it and they will therefore make the price go up. On the news the stock is already at a high price and if the profit are very good but less than the people who bought it expected then the stock will go down. That is why there is a popular adage on Wall Street that says:“Buy the Rumors, Sell on the Fact”. If you don’t understand the concept of expectation you will be surprised by stocks and markets movements when there is a news announcement. On the news, they buy or sell according to what they think the market will do. As a proprietary trader you should be very prudent and not carry big positions before the announcement. In other words, sell before any ER or press release.

>Stock Screeners
Stock screeners are software that allows you to find stocks based on different criteria. Yahoo Finance and moneycentral.com have good Stock Screeners. When you are looking for stocks to day trade you should at first require the stock to have volume. 1 million is normally the minimal. Then you should choose a range. You can also search stocks per sector. The good traders will always find new stocks to trade. You would be surprised how stocks can changed in a year as much in price, patterns and volume. The stocks you are trading today might not be tradable in two weeks. Moreover when there is a lot of money on a stock traders tend to all jump on it and therefore it becomes efficient and less money can be made if you are slower. Another good way to find stocks is to look at the most active list on the Yahoo Finance. While those stocks are often stocks with news they are good to keep in mind as the interest and volume might still be there for a week or two

>Squawk Box
Many trading offices around the world will use something called a squawk box to acquire more knowledge about where buying and selling pressures are coming from. The name refers back to classic boxes which offices use to use attached to a telephone which had microphones on the trading floor. An announcer would call out all the major players on the floor and their actions. This was to remove some of the edge that the floor traders had in reaction quickly to order flow when the back offices had to wait for quotes. This system was extremely costly and not the most reliable. The squawk box went through many evolutions until it has reached today’s standard: Ben the Squawk. So what is Ben the Squawk? The better question to ask is; who is Ben? Ben Lichtenstein is a Pit announcer who announces from the S&P500 futures pit on the Chicago Mercantile Exchange. He calls out all the major transaction and what he sees happening on the floor.

>Risk Management Tips
1) Limit averaging down if the market is going against you. Never average down more than once and do it on sharp moves and not on slow moves.

2) Try to trade more slowly when you are close to the Max Loss point since Max Loss will keep you from trading and making money for the rest of the trading session.

3) Cut your loss at the market when you reach your Max Loss Limit or

(The Max Loss is the maximum amount you will be allowed to lose in a day before you have to stop trading.)

4) Use Time Stops for your trade. That is if you stock does not move and you are waiting for a long time you should try to get out and trade stock on which you will make more trades and money.

5) Use mental trailing stops: do not allow a big winning position to come back and become a losing one.

6) Do not accumulate more share than the stock can handle.

7) Pay attention to the size of your average winning trade and make sure it is bigger then your average losing trade. If your losers are too big that means you are using the wrong exit strategy.

8) Look at your win loss ratio.

9) Make sure you read all the news on the stocks you trade before the market opens.

10) Watch the S&P 500 futures closely.

11) Reduce your trading size when you are on a bad streak.

12) Avoid trading too many stocks at the same time.

13) Avoid leaving your computer when you have positions or pending orders.


Keep a personal journal of your progress and thoughts on how you performed each day. Read up on everything about any stock you plan to trade. Keep your eye on trade volumes and order flows. Find a trend/pattern that you can trust your gut on. Day trading does not mean you have to be trading every business day from open until close. You can schedule your trade days to be every other day and spend your off days researching. Or just trade one or two stocks and call it a day by lunch time. Stick to your plan and don't let emotions get in the way of your decisions. Cut your losses if you reach your Max Loss instead of hoping it will rebound. If you buy a stock at $10.00 and planned to sell at $10.10 based upon patterns and trends, but it keeps rising to $10.15, do NOT buy back in. You stick to the research. Greed is your enemy. Day trading is trading for consistent small profits, not one big trade. Focus on your entry point and exit point. I plan to buy at $10 and sell at $10.05. You do not day trade according to percentages - I will buy at $10 and sell at 10% profit.