Ok, so I figured I would detail what I am looking at during a possible day trade scenario. Krystal had a lot of good questions so I figured I would try and answer them with what I am looking at and doing. Again, I am not a professional nor a successful day trader but this is what I have observed.
Someone on Jeff's Option Addict blog asked if you could really apply the same type of chart set-ups to short term trades compared to intermediate. In theory, you should be able to apply technical analysis to any time frame and from what I have seen this is true, you just have to determine what you want to trade.
When I want to trade I want a stock that is liquid and has large ranges, I mean you could technically buy a lot more contracts(if you are trading options) and only go for a smaller move on a slower moving stock, but I'd rather pay less in commissions and get the same profit potential with a stock like GOOG or BIDU. I chose GOOG to look at.
How do I pick the option I am trading? Generally I will try to determine a reasonable move and pick an appropriate OTM option, I see no reason to not trade more OTM contracts simply because you are only holding for the day so time and volatility decay should be at a minimum. Always keep in mind your risk and know where you will exit, that will determine the amount of contracts I purchase.
To figure out where to get in determine your sentiment and watch the chart, if you were bearish on the day to begin with, which I was, you could buy puts at the open, but it'd probably be smarter to let the pattern form. You can see the down trend marked by "A". It is a classic example, lower highs and lower lows. So, if you entered at the top of "A" then you would exit where it broke the down trend.
It then entered a sideways channel 1 marked by "B". Again if you wanted to enter a trade, you could either take bounce or anticipatory trades at support and resistance, however you would likely want to wait for confirmation of a break either way then you would exit if it entered back in the channel or if it reached your target.
This chart is a 1-min 1 day chart(technically it shows 2 days I couldn't help it it is into tomorrow, sorry). But that is generally what I look at, or a 1-min 4 hour chart. We can see the downtrend marked by "C", you could have used that as a much shorter term trend trade, again proving that you should be able to use Technical Analysis on any time line. That trend ended up also breaking the lower channel support, you can then see the stalls and mini channels it formed marked by 2 and 3. Both followed rules of the downtrend not breaking back above, so technically you would still be in the trade if you entered after a break of the Channel C.
Downtrend "D" again, after a few lower highs and lower lows you can draw a trendline and use that. You would have gotten a lot more money out of the trade staying in till it broke right at the bottom but if you had another exit trigger you such as a target being reached then follow that. Again, have a plan and trade it and define your risk.
Hopefully that helps some and gives some insight on what I am thinking and what is possible on a short term basis. This may not work for some and I can't say it necessarily is suited to my style yet either but success should be possible just like any other timeline if you follow rules and the charts.
I didn't take those trades because I worked most of the day however I did watch them as they developed though.
Tomorrow I think will determine our direction, if we have bearish data we will go back down, if it's bullish we could break back above the all important 1490-1500 level on the S&P.
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2 comments:
WOW! What an excellent and helpful post! The diagram was great! The way you drew the lines and labeled them was very helpful.
You know, I was thinking about day trading instead of swing trading right now because of the market volatility and whipsaws. But in light of Jeff's video and how he stressed the importance of being at the computer, I don't think that's for me since I'm at home with the kids.
BUT, I'll tell you where this will help me: taking profits! I recently took profits on DSX (before it started to tank), and on the day I took profits (10/18), it was about midday, and my target was reached, so I took one contract off the table. However, by the end of the day, had I waited, I would have made more money. But, my thinking on that day was: My target's been reached and the stock might retrace at some point later in the day. So I took profits.
However, today I went back and did a 1 minute chart for that day, and I was able to draw in a diagonal trendline that acted as support for the ENTIRE day that day. So, had I known this on that day, that would have helped me!
I find it SOOOO fascinating that technical analysis can work for ANY time frame, don't you!?!? Wow!
This was such a helpful (and enlightening) post! Thank you, thank you, thank you!
Hats off to you, Ben. I appreciate it!
You are too kind Krystal, I am glad it was helpful though! That is what I love to hear is people benefiting from my blog and hopefully profiting, or at least not losing money.
I may start day trading in this environment, just because I am partly curious to see how successful I can be if I do it consistently and due to the market conditions it makes more sense.
I am going to go watch Jeff's video right now. Good luck!
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