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Tuesday, December 06, 2005
Market Recap
The market started off with a nice move up and stayed up big for most of the day with both the Nasdaq and the S&P making new highs for the year. Then out of nowhere in the last hour, the selling began and the market had a stunning reversal, erasing most of the day's gains. The Dow closed up just 21 points after being up over 70 with just an hour left in the trading day. The Nasdaq finished up 3 points erasing a 20 point gain earlier in the day and the S&P gained just 2 points after making a new 52 week high.
A very disappointing day if you watched from the beginning, however, the market still closed positive for the day and is still in a consolidation mode as we have been stating. The trend is up and as long as it remains up, I see no reason to be out of the market or fighting the trend by trying to pick a top. We remain long with tight stops in case the reversal today is something more serious than we expect it to be. December has historically been a great month for stocks so the odds are in our favor at this point.
Enter Before Size
We do not trade stocks with thin trading volume at STHQ but we do have some members who will occasionally trade these stocks with low volume. I do not trade stocks with less than 200k average daily volume very often, but I will on occasion when there is an extremely good technical chart pattern. When I do trade these stocks, I use a technique that I would like to share with you tonight.
The technique is called ‘Trading ahead of size'. This is a fairly low risk strategy that can make you some quick money on day trades. You will need Level 2 to use this strategy. First find the stock with an excellent chart pattern that is ready to advance. Normally, stocks with thin volume will not make any big moves until volume comes in; this is where Level 2 comes in.
Momentum Piles On
After identifying a possible stock ready to move, I will wait for a buyer to show his hand then jump in front of him and bid a fraction higher then his bid. Within reason, I will pay the current ask. This will tick the stock up further away from the big buyers bid. If the buyer wants in the stock bad enough, he will likely increase his bid. If the stock is on the verge of breaking out, this big buyer will push the price up as he is trying to get filled. Other momentum players see this buyer and they begin to bid the stock up. Now the stock has broken out and the buyer of size cannot get filled at his limit so he has to either keep raising his bid or finally, if he wants it bad enough, he will pay the market price. Momentum players start to pile in, increasing the volume drastically and the stock price explodes higher. Meanwhile, I am already in long before this momentum takes place because I was willing to pay the ask before the stock broke out. I can then sell my position as the stock moves up or wait and hold until the last hour of the day to see how the stock closes. Depending on the stocks close, I could hold for a gap up follow through in the morning because those that did not see the stock move today and see that it closed at the high of day, may want to pile in at the open tomorrow. I can then sell the gap up at the open.
Get Out Before Size
Do not use this strategy for stocks that trade heavy volume everyday, it is useless with those type stocks. It only works for thinly traded stocks, it is a day trade technique only, and should not be use for swing trading. Holding illiquid stocks overnight and for a few days is extremely risky. Once the momentum stops, these stocks usually fall as fast as they went up. Those big buyers will become big sellers in a hurry when the momentum shifts. Get out before size and you will be laughing all the way to the bank. Let that same size get out before you and you will be crying all the way to the poor house because the stock will be down in a blink of an eye and before you know it, you are left holding the bag.
Stockcharts Listing
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STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts we have annotated for each stock listed in the past.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings you can either use this link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
For New Members:
Please take a moment to read the "How To Use The Bulletin" link at the bottom of the Bulletin page on the website. It is critical you understand how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
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