Prop Training Section 1 Finding the Best Stock

Choosing the Right Stock for You (Stock Zone)

You will trade certain stocks better than others. Usually volume, price, sectors, and the stock's exchange are the most important factors for new traders. You will find your Stock Zone for equities that you trade best (this also applies to ETFs and foreign markets). We all have different personalities, goals, skills levels, tolerance for risk, and ability to process data. And all stocks do not trade alike. AKAM doesn’t trade the same as AAPL and AAPL both don't trade as AMR does. New traders must search for the best stocks for them. It does take experience trading different types of stocks. But keep a record of which ones are easiest for you to trade. And try and find more of the easiest stocks FOR YOU to trade. Develop your Stock Zone.

A few Friday's ago, I selected ADBE to trade. Before the Open, I remarked to GMAN, our Head Trader, "I am looking for a better stock to trade, because I am not looking forward to trading ADBE all day". What I meant by that was that ADBE is not a great trading stock FOR ME. It is not that I am not smart enough to trade it. It is not that I am not a skilled enough trader to trade it. It is just that the stock doesn't fit well with my trading style. It is not a good stock FOR ME. It is not in my Stock Zone.

So I searched and searched and searched for a better stock for me to trade on Friday. I did not find one. I was resigned to trading ADBE. I thought about trading a stock that I had the day before and still might be in play today, but I chose ADBE. That was a mistake.

Why wasn't I initially thrilled to trade ADBE? It did have earnings. It was up over 2.5 points in the Premarket. It did look active in the Premarket. I have traded the stock before. There was some positive news about their latest product (more easily used by AAPL costumers). The volume and price, sector, and short interest were in my Stock Zone that is good FOR ME. There were others on the desk who would be trading it and who I could use as a sounding board. There were many positives to trade this stock.

But there were too many negative and I did a poor job of analyzing how the negatives overcame the positives FOR ME. Again, this was not a good stock FOR ME to trade. I knew there would be a ton of competing programs in the stock. Thus, it might be hard to read the tape. I knew that the stock would do a ton of volume. This was yet another reason why it would be hard for me to read the tape. I knew that every NASDAQ intraday trader and then some (some NYSE traders are frustrated with the integration of the Hybrid system on the NYSE and have started trying to trade NASDAQ). Hence, another reason why it would be difficult for me to read the tape. And I knew from reviewing my work that I did not trade this stock well on the FIRST DAY of news (as opposed to the Second Day).*

Certain stocks are too hard FOR ME to read the tape. Usually they are the ones with too many programs and too much volume. Well ADBE had both. So how did I do? I traded the stock about as well as you could. I did not violate any of my rules. I worked hard and identified intraday support and resistance levels. I developed detailed plans for every trade. I stuck to my exit plans. I contributed what I saw to the desk. And the end result, was a day of many tickets and very little profit my end.

The mistake I made was trading the stock. I traded it very well FOR ME. If I didn’t trade it as well as I did I would have gotten killed. There were three significant moves during the day that will beat my trading system (the fake breakout on the Open, a panic downmove after a recent uptrend established, and the fake break after the stock breaks a significant intraday resistance level). My system does not have much of a defense for these moves. I not sure any system does, but mine certainly doesn’t.

Fake Breakout on the Open

The first impossible move was the range breakout on the Open above 43.10. 43.10 was a resistance level on the Open and 43.05 was the support level. A battle ensued on the Open. The 43.10 offer lifted, the resistance level was cleared, so I got aggressively long. I noticed the bids were not stepping up above 43.15 and that sales were difficult around 43.17. So I sold one lot at 43.17, and put up another lot at 43.16, and then 43.15, and then lower and then lower. There had been support at 43.05, so I waited to see whether that level would hold. To hit the bids at or near 43.05, the support level on the Open, would have been wrong. When the stock approached the 43.05 level the bid did not hold, and there was absolutely no way out of the stock until 42.80 at best. Ouch! Rip! I traded this move as well as I could have. But, this was a rip on the Open.

Panic Downmove after recent Uptrend Established

Then after about an hour of trading the stock tested the 43 level, while in an uptrend. The buyers were outnumbered by the sellers and the stock traded lower. The stock should not have trade much below 42.50. The stock was in an uptrend and the buyers appeared to be buying on the way down now. But after the stock dipped below 42.50 panic selling ensued and the stock went below 42.25, with no sight of a buyer. I tried to fade this downmove from 43 with the thought that anything below 42.30 was unjustifiable. Yet the panic forced me to play defense and hit the stock when 42.25 was violated (I hit the bottom). That was another rip.

Fake breakout through important intraday resistance level

Finally, 43 had been a huge level. I was salivating for the stock to trade above 43. If it did, my detailed trading plan called for me to get aggressively long. This was a huge intraday resistance level (there had been a ton of volume done at 43, but the offer had never lifted), so the stock trading above there was a bullish signal. ADBE finally traded above 43, and I got aggressively long. Let's just say those trades didn't work out. The stock did not break out after it traded above the huge intraday resistance of 43. So that was yet another rip.

There are too many programs on Day One with a stock like ADBE. Levels don't mean as much because the levels can be broken and cleared because of all these programs and then quickly reestablished. And with all the volume in ADBE it is very difficult to tell the difference between an unusual hold on the offer or a seller who is gonna get creamed.

Reviewing my trades it took virtually flawless trading so that I didn’t get killed trading ADBE. I did actually finish positive. But I made a huge mistake trading ADBE on the FIRST DAY. I cannot make that mistake again in the future. If I do, I might suffer a huge rip. ADBE on the FIRST DAY was not a good trading stock FOR ME.

Click picture to view in full size

Click picture to view in full size

This Friday, I was trading AAPL (see chart above). I had written a ton of tickets and was slightly negative. I will not trade AAPL unless it is In Play (has fresh news). We recommend that you do not trade AAPL unless it is In Play. The stocks does move. But it is very difficult to read the tape. So even on a day where AAPL was in play I was struggling.

One of our new traders, Uncle B, stood up in the afternoon and suggested that we watch GT (see chart above). I listened and typed up the stock. I quickly researched its volume, long term chart, short interest, news, and intraday chart. It was very strong.

Instead of stubbornly insisting on proving that I could beat the programs in AAPL, which I could, I moved on to an easier stock FOR ME. I moved from AAPL to GT. And I finished well above positive. And I enjoyed my weekend a little more. Thank you, Uncle B.

Look, you have to find the stocks that are easiest FOR YOU. Develop your Stock Zone, and stick with those stocks.

* I killed ADBE the Second Day

Finding Stocks Intraday for the Close

Some days you will have to search for stocks intraday to trade into the close, between 3-4 pm. Your morning trading ideas may not be working. So you will have to find some good trading stocks into the close. Below is a list of ideas concerning how to find stocks intraday into the close.

1) Trade – Ideas

Review the charts for the top names on trades ideas with the highest RVOL compared to their average volume.  Look for the highest % gainers and loser that have A+ charts.

2) Volume percent gainers

http://www2.barchart.com/padvance.asp Go to this link and look up these stocks. They offer the option to check stocks for many different categories, such as price, volume, NYSE or NASDAQ, etc.

3) Listen to those around you.

We are very selective with whom we invite to join our desk. You can learn a great deal from those around you. Listen to what others are trading, they might be in a good trading stock that fits your style.

4) Ask those around you

Ask others around you what they are trading. Try no to bother traders while they are trading. But during down periods, ask others what they are trading. They might have a good idea for a stock that you could trade.

5) Alerts

You should constantly be setting alerts. When you are trading a stock you should set alerts for great long and short entry opportunities. When you watch a stock trade and are about to leave it for another, remember to set alerts at great prices that would offer a good trading opportunity. Setting these alerts will help you find trading opportunities.

6) Morning ideas

Normally you should not have to search for stocks intraday. Usually your morning ideas will provide plenty of opportunities.

7) Earnings Stocks

Stocks that have had earnings often are in play for multiple days. Check stocks that reported yesterday or the day before and watch them.

But be careful……….

a) Do not just jump into these stocks. Watch them and let their ranges develop. Watch the way they are trading. And be sure that you know the information that we suggest from the morning stock data sheet, such as volume, short interest, long term resistance and support, etc.

b) Since you just started watching these stocks, keep your stops tight. You have not watched the stock as long or as closely as you normally do, so do not let these trades go against you very much.