| |
| |
|
|
Stocks and Mutual Funds |
|
Trading Baskets II: The Crapolio, A Roll of the Dice in the Stock Market
In a previously written article, we expanded the use of the term "Trading Baskets" to include stocks from different sectors or industries. Now I want to share with you an approach to day trading or swing trading that I had some success with back in the wild and woolly, pinnacle days of day trading that may still work today. Unfortunately, this basket of stocks was dubbed "The Crapolilo", a name it just could not shake. You'll see why. The crucial element that traders are looking for in any stock, which makes it a good day trade or swing trade, is movement or momentum. There are any numbers of things that can cause movement in a stock. Usually it is news of some sort, either positive or negative. It doesn't really matter. You are only looking for movement, up or down. However, for this particular strategy we are looking for positive news. Keep in mind that it is not your job as a trader to totally understand why or what is causing the movement in a stock, beyond what it takes to make a quick profit. If you spend enough time glued to a computer monitor with CNBC blaring in the background and are looking for a stock to make a quick buck on, sooner or later you will realize that there are some familiar names that just keep popping up over and over again. From these repeating names you may want to consider building your own Crapolio. Start by tracking the stocks that keep coming up over and over again. In this scenario the stocks for which we are looking usually play out the same way every time one of the stocks has news of some sort. Traders will jump on the stock, causing a mad scramble to get in on the move, and the stock will run up in price for a nice gain. The challenge is to be as early as possible on the play, get into the money (profitable), and get out before the momentum turns and the stock retreats. Rest assured, they will retreat because that is one thing all of the stocks we are looking for have in common; they hardly ever hold their gains. If you're late to get in and even later to get out, you won't make a dime and will maybe even lose money. It is this phenomenon that the now famous Floyd's 4-Gets are based upon: Get In, Get Profit, Get Out and Get Away! So here's what I did, but remember that this strategy may or may not be right for you. I set aside a percentage of my trading capital for a basket of stocks that became known as "The Crapolio". I picked a large number of the stocks I had been tracking, low cost stocks under $5-$10 for the most part, but not always. I charted every one of them as far back as I could, looking for the ones that were most likely to continue to repeat the scenario. I came up with what I thought was a recent low that was going to hold for some time; and I bought half the normal lot of shares I usually traded. (See link below to DTM: Decisive Trade Management and Trading Stops for lot sizes.) Then I waited. The theory is that sooner or later these stocks will once again have some sort of news event that will move them to the upside. As soon as that news hit, I would be in an excellent position having already bought the stock at a recent low. I would then try to buy an additional half lot or a full lot once the new news event hit the street. Overall, I would be in the shares much earlier on average and be able to take advantage of the move and sell for a profit into the momentum. Being in the stock gave me the ability to lock in a nice profit without having to scramble to get in and scramble to sell before the momentum ran out. Often, I would be in the stock and the news would hit over night, causing the stock to gap up significantly at the market opening in the morning. However, this is not called "The Crapolio" without a reason. High quality stocks do not usually behave this way to the same degree. Those that do are much more expensive, usually $35 or more, making it cost prohibitive for all but the wealthiest traders to use this plan. As previously mentioned, most, if not all, of these stocks were under $10 and for a reason. These were not high quality stocks; in fact, the opposite was the case. Most were high-risk speculative tech stocks or bio-techs. Many were dot-coms; remember this was in the hay-days of the dot-com boom. As we all know now, there were a lot more dot-bombs than there were successes. Obviously, this was my own version of Swing Trading. IT IS IMPORTANT TO UNDERSTAND THESE WERE "NOT" BROKEN DAYTRADES. Each stock was chosen, charted and watched over a period of time before it was added to "The Crapolio". I believe this strategy could still work today. However, it is to be considered extremely risky and should only be used with money you can afford to lose. When trading this or any day trading strategy one should know and use DTM: Decisive Trade Management (see story at http://www.traderaide.com/index.html). Happy trading! No permission is needed to reproduce an unedited copy of this article as long the About The Author tag is left in tact and included. We do request that we be informed of where it is posted and reciprocal links will be considered. Email floyd@sbmag.org. Floyd Snyder has been trading and investing in the stock market for three decades. He was on the forefront of the day trading craze that swept the nation back in the late 1990's both as a trader and as the moderator of one of the Internet's largest real time trading rooms. He is the owner of http://www.TraderAide.com, Strictly Business Magazine at http://www.sbmag.org
MORE RESOURCES:
Stocks-Mutual-Funds - Google News |
|
|
|
RELATED ARTICLES
Whitewater Stock Market Ever done any whitewater rafting or canoeing? Long periods of tranquil river followed by short periods of terror. Suddenly the water grips your vessel and you are pushed and shoved by massive currents over which you have no control. Why Stock Is More Risky Than Options! You probably have been told that options are risky. Even worse, that you can lose your shirt trading them!Well, what is the truth?Let's take a look at stock ownership. The Great Stock Market Secret When the stock market is going up and all your stocks and mutual funds are making money you feel like a genius. It is too bad that some folks don't remember what happened in 2000. Stocks & Oil, Sat Jun 18th, 2005 Both the stock market and oil prices rallied recently, which seems to be a paradox, because high oil prices are negative for earnings (i.e. A Triple Dipper: How to Make 3 Profits on 1 Stock Trade This is a rather simple strategy with which I am sure a lot of seasoned traders are very familiar, possibly under some other name with which I am not familiar. I wanted to write about it because I don't see anyone talking about it anymore. Selling The stock market has been going up for more than 7 months and many investors who held on through the big crash of 2000 are seeing their portfolios get back some of what had disappeared. Is now the time to sell those equities that are 'even' with what you paid for them? No. Smart Day Trading Strategies to Help You Make Money in the Stock Market Stock trading can be a very profitable activity. You can make big amounts of cash in a short period of time. Robert Rodriguez Weathers the Stock Market Robert Rodriguez likes to buy stocks at their lows. When there are not enough stocks hitting new lows, he closes his fund and piles up cash. Buying Mutual Funds It looks like the market is ready to start up again so it is time to buy mutual funds, but you only want to invest your money in funds that go up. First, you don't want to start with a loss so be sure to purchase no-load mutual funds. Stock Trading Diversification This is the continuing story of our two imaginary traders, Peter and Paul.Peter is a professional trader, Paul is not. It Cant Be Done Wouldn't it be nice if you were only in the stock market when it was going up and have everything transferred to cash while it is going down? It is called 'market timing' and your broker or financial planner will tell you "it can't be done". What that person just told you is he doesn't know how to do it. Shorting Stocks - The Basics, Part I of II What does it mean to short a stock?This means that you borrow the stock from your broker to sell to a third party. The idea is to buy back the stock at a lower price, returning the shares to your broker while leaving the remaining cash in your account as a profit. Dispelling Illusions of the Stock Market How can you dispel an illusion unless you look directly at it? The magician distracts the eye with one hand while he does his manipulation with the other. You are looking in the wrong place and not seeing what is actually happening. The Cub; II We keep hearing about this bear market and that the bottom is "in" or "very close" so we should be invested in these bargain basement prices to take advantage of the next bull so we won't lose out on the expected huge profits.This is not a big bear market - yet. Momentum One of the basic laws of physics states that a body in motion will continue in motion in the direction it is going until interrupted by another force.That basic physics law also applies to stocks and mutual funds. Will the Stock Market be Lower in October? The stock market often closes a week in the middle of a "perceived primary-trend range." SPX closed at about 1,234 Fri, which is between a multi-year Fibonacci level at 1,253 (i. Long Term Financial Vehicles Investing in long-term financial vehicles give you the most gains but it also puts your funds at greater risk. There is much truth to the saying, "there is no gain if there is no risk". Time Out Are you paying any attention to your retirement savings? Do you have it in cash or an account with a broker? Maybe you have a professional manager who is investing your money as you add to it every month.Is your account increasing in value every year? If it isn't why are you letting anyone else invest for you? There is no point having a loser in charge of your money. This Market Is Different All of the talking heads have been telling us that this market is different. You are going to have to be patient and soon (hopefully in your lifetime) the DOW and the Nasdaq will be back at their old highs. Emotional Involvement I'll bet with almost anyone that has stocks or mutual funds in his portfolio that he has losers, but he won't sell them because he "likes them" or some similar excuse. This is the philosophy of a loser.
|
||||||||||||||