A Daytrading Stock Pick Can Be The Road To Profits
Wednesday, May 14th, 2008 Subscribe To Our Feed
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. 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 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. We will concentrate on what is avoidable to help with timing.
Anytime you are looking to invest, 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. So some attention needs to be paid about when to actually go in. Where you think it 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, think 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 day trading stock 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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