How To Make The Most Of A Automated Trade Idea

Posted on May 20, 2008
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Most people who are in the market spend about 80% of their time trying to find an idea, rather than actually figuring out how to implement a automated trade idea. While selection is key, going in at the wrong time, or before an expected news event that may trigger additional volatility is asking for trouble.

Even if you are not a super active trader, the timing aspect is often overlooked and can be a real drag on net returns over the years if not considered. Now if you are a long term investor, it becomes less of an issue - however I know very few people, even if they plan on holding the investment for years, that would like to see it sell 3-5%% down right after purchase. After all, in hindsight, had you waited a bit you could have gotten it on sale - but some of this part is unavoidable. One must balance the risk of missing the trade vs. going in with bad timing which can exacerbate any losses taken should the trade not work out. We will concentrate on what is avoidable to help with timing, whether its an investment or a robot trading idea.

Anytime you are looking to invest or trade, whether long term or a automated trade idea, the timing of WHEN to go in is important. Some stocks on an average day can have a 5 or 7% range between the highest price and the lowest price, if they are volatile. Even non volatile names can be so sporadically. So some attention needs to be paid about when to actually go in and purchase the shares you want.

Where you think a stock might eventually go should not really affect you here. Too many people say ‘Well the stock is 40 here today, but in 2 days I think it will be 45 dollars so I don’t care how I enter my automated trade idea.’ or ‘I think it will be 25 points higher in a year or 2, so who cares?’ Well if you think about it, if you regularly give the market even 1% per trade, figure about how much that adds up to over the years. After all, would you pay a broker 1% or 2% commission per trade? Years ago maybe, these days that is almost unheard of anywhere.

So what is needed is a basic frame of reference to try to time the entry. Usually the best method is splitting the order so as to not entirely miss it (it does happen occasionally if one is perfect :) ). To do a decent job of entry, you need to look at where the stock has been in the last 1 or 2 hours, and where it is versus the last 2 hours of the prior day. If it is at the high range, the only justification for entering would be a high expectation that it would continue and you would miss it. Often this is hard to judge, so this is where splitting the order can come in handy. Enter half now, and then put more in 1 or 2% lower (this is assuming you are not in a robot trading idea, which is entirely different). This way if you are right, and the stock does sell off, you now own the stock at a net better price. If the price takes off, you have not entirely missed it. One thing with this method is you will sometimes miss adding as many shares as you wanted. Usually chasing it and adding higher is NOT a good idea.

Now if the stock is in the lower 1/3 of the range for the last 1-2 hours and its near the low of the prior day its probably ok to add the full position if its a somewhat longer term trade. The only exception to this would be the last 45 minutes. Usually its not advisable to add stocks breaking or near the lows in the last 45 minutes as they have a tendency to go lower the next am. Of course this depends on the issue looked at and market conditions, but in general this holds.

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A Good Entry With A Day Trading Robot Idea

Posted on May 8, 2008
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No matter where the idea comes from, the entry point matters. You can do all the technical analysis in the world, but the consistent gyrations of the stock market do not care. Put your stop too close, and you may very well get stopped out only to watch the trade go in the exact direction you were betting.

When day trading, or even getting ideas from a newsletter, you have a stock daytrading idea that you need to monitor for entry. While robot trading systems will give you the exact entry point, there are some obvious times where paying attention to a few details can improve results. If you come up with the idea on your own, the same rules apply.

1. Even if you have a great stock daytrading idea, watch for a pattern of behavior in many similar stocks. Often times if the market has a definite bias up or down, a lot of stocks will push through resistance some (enough to stop shorts out and suck some longs in) then reverse, or vice versa. Pay attention to stocks you are not intending to trade, but are a major component of an index the stocks you follow are in.

2) Note key areas intraday, 5 minute, 15 minute and hourly (including prior 2 or 3 days) where the price had trouble pushing through. There will be no “IRON CURTAIN” with an exact price. Look for areas where the high pushed through but it pulled back the same bar, or the very next bar without pushing further, then that pattern is repeated again. This will be a good resistance or support area. You will want to make not of this before entering any stock daytrading idea. Also the area is relative, there is no “exact” resistance, only an area. One should also realize that the first push through sometimes will fade back to shake out weak hands, then go for the bigger move.

3. Have reasonable expectations based on todays market action. If the market is really headed lower, you cannot expect to press and add long on a stronger (relative) stock and hold it very long. Sellers control the market, and buyers, unless compelled by a very good reason, will not chase. So if a stock normally (that you have noticed) can move about 1 point before a potential reversal may happen, on days where you are bucking the trend, take 60% of that on most of the position then trail the rest until completion.

All this will help with any sort of stock daytrading idea, and make you a better trader overall. Adhering to an overall trading plan is a very important part of making consistent money in the stock market.

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Trading Rules To Keep In Mind When You Have A Automated Trading Idea

Posted on May 5, 2008
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Anytime anyone invests, or trades, there are some basic rules that will help ensure success and hopefully profits. While basic selection of a robot trading idea is essential also, using the wrong rules to manage the position once in it can take a good trade and turn it into a loss very easily, and can lead to the formation of bad habits which are very costly in the long run.

Here are some rules, in no particular order when you have a robot trading idea:

1. Make sure you size the position right. The position size should be relative to the risk and reward on the trade. Ideally you want all your losses to be in the same range, over all symbols traded. So if your risk is .30, and you normally lose no more than 600 bucks on a trade, your position size should be no more than 2000 shares to keep it in line.

2. Have a target for the day in terms of profits and losses. Once the target is reached, either cut share size way back or just stop for the day. It is far too easy, especially with profits, to think that is the “house” money and then start trading more aggressively. 9 out of 10 times that will just lead to giving all the profits back and then some. There is nothing worse than having a great day and then turning that into a terrible day. Most of that comes through greed trading and not realizing that money in the account is real and its yours and should be protected. If you want to trade more, just cut the share size way down or risk only a predetermined amount of that gain - if you lose that much, you are done on the day.

Another issue comes with losses, where people just keep trading “trying to make it back” - to no avail. There are some days where you can do that, others you just cant. Not every day is good for trading a stock trading idea, if its not working, just stop - the market will be here tomorrow, and its a new day.

3. Make sure that the reasonable price target that can be achieved (key is reasonable, not hopeful, or greedy price target) is in line with the risk. If you think something can only trade up 20c, there is no way you would use a 1.00 stop risk - its simply not worth it. Ideally you want 2:1 reward:risk so that for every 2 losers from a stock trading idea, 1 winner can offset. Of course in real trading stuff does not always go according to a “plan” but you still have to have one to start with.

4. Do not have rigid, can’t be bent rules on when to take profits. Stops should always be adhered to no matter what. But profits are a bit different. If you are looking to make 1.20 on a day trade from a stock trading idea, and it gets up up .98 and stalls out, either move the stop way up to protect profits, or even better just take the trade. Why let it go back down 1.00 to make another 20c gain - it just doesn’t make sense, yet traders do it all the time.

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How To Find Some Day Trading Ideas

Posted on April 26, 2008
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For people new to trading, or even the experienced trader finding stock trading ideas is always the hardest thing. Like in most other industries, quality, not quantity is the key here. Coming up with a list of 70 possible stock trading ideas does no one any good. You cant possibly follow, or even act upon that many ideas in a dynamic environment during the day.

Usually a good start begins before the market opens. Everyone should know the economic news that has been released, or is scheduled for release during the day. This will give some guidance to the market direction (or can create some extreme volatility if the news is unexpected). This is more for an overall feel - it does not directly generate anything that is tradeable in terms of ideas. However to have a good list stock trading ideas, you need to have a feel for overall market direction.

Once this is done, use a price scanner to find stocks that are moving in the premarket, either up or down. These are usually items with news on them - but not always. Go to each of these names (the ones that stand out) and pull up a daily chart. Are the names near a clear support or resistance area? Is the chart in a defined trend, either up or down? If so, its probably good to put this name on the list as others will probably see the chart too and that will lead to more action during the day. It is probably a good idea here to not have more than 7-10 trading ideas on your list before the market opens - otherwise you cannot focus on trying to take advantage of the idea if there is an opportunity.

When the market is open, pay attention to news feeds during the day - this can be a key to sector movements if there is a decent story that comes out. Look for macro stories that will affect all stocks in a sector, rather than XYZ corp gets a 5mil order. Those might be ok for scalp trade, but you really have to be fast. For the most part, computers are much faster than people. They have computers looking for keywords in headlines to trade off of. So unless the news is really huge, this game generally will be a losing one. Anything with news that is deemed important should go on your watch list of trading ideas to monitor during the day.

While not perfect, making a list like this will give every trader, novice or expert alike a decent list of stocks to watch for potential trading setups.

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