Investing in the Stock Market.

[Bible_Belt]

Big IPOs will slow down the trading system with heavy volume. Fast moving markets like an IPO on the first day are about impossible to day trade without at least a direct access platform. Even a trade that is not intended to be a day trade can turn into one if it hits your stop loss within the first day. I have had people tell me they lost 10-20 full points waiting for their on-line broker to fill an order. A guy I knew had an Ameritrade account and we did an experiment trying to send a buy order when an ipo stock was screaming upward. He sent the ameritrade order, then bought shares off the Island ECN getting filled instantly, and then pulled up the Ameritrade screen to wait almost 15 minutes and 19 points later to get his fill, which was of course near the top of the run after the stock slowed down. That $5 Ameritrade commission cost him $1,900 in lost profit. (They did refund his $5 when he complained, lucky him.)

This example is an extreme one in a raging market, but that is not so uncommon with IPOs, especially on the first day. Even the direct access systems have problems with the immense volume at times. The day that UPS did its IPO, Island's quotes were off by 5-10 points at times. Trading an IPO on the first day is risky business, given extreme volatility and volume that can cause system problems. It's not that money can't be made, but you usually have to trade a smaller share size and plan ahead for larger slippage than normal.

 

[spider_007]

Yes, Cramer can move some stocks. The smaller the capitalization of the stock, the more it would be affected. But you have no way of knowing when he will turn around and tell people to sell the same stock, or at least I don't.

He has a mailing list, where he tells people before he goes on CNBC or his radio show (i don't suscribe to ti btw)

Market can be a reall ***** and you HAVE TO do your reserch. Listen to what the experts are concentrating on and look to see if they are right. The thing about experts is that, you can walk out the door close your eyes and point, and you'll find one.

But there are cirtan news and thing that happen to the market that will move stocks (eg; oil, terorisam, new CEO, 1/4 earnings.....), Recent example would be the oil going down. All of a sudden every stock that uses oil is showing life (including airlines, which have been a money sucking wormhole for last 5 years)

My suggestion is, trade on paper first


I've made money, but i've also lost money. I've learned a lot of hard lessons, one of them recently on IUC (TSX) where i held the stock for almost a year taking the pain to finaly sell it for $1 000 loss. I should have stuck to my rule of 8%, and I should have sold it right away.....I would have goten the money back by now.

You need discipline to do this sh!t and willingness to sit behind a computer and DO THE RESERCH

 

[Reyaj]

Thanks as always for the info Bible. I guess using Ameritrade or other commercial online brokerages aren't efficient enough to rely on. That ECN account you mentioned sounds like it trades faster, do you know how much it charges per trade? Ameritrade charges 11 bucks.

I guess the only way to really be certain on making quick day trade money on ipos is to have a connection working the floor on wall street?


Spider,

Overall have you made or lost money on the market?

 

[Bible_Belt]

That ECN account you mentioned sounds like it trades faster, do you know how much it charges per trade? Ameritrade charges 11 bucks.

The ECN is a route through which you choose to send your order. Island is an electronic book of limit orders, so when you are hitting shares that are bid or taking shares that are offered, you get instant fills. Direct access trading is usualy priced in a cents-per-share figure. .01/share and lower are the going rates. There are small exchange and SEC fees on each transaction, but it averages about .01.

There are different ways to look at cost. Ameritrade might be taking a spread by selling your order to a third party. I have not looked at them recently, but that is how they used to do it. They would sell orders to be executed to Knight securities and Knight would take 1/8-1/4 off the top. This is the opposite of "direct" access, because there is a middle man. Even if Ameritrade was touting a direct access platform, I still would not trust them to be the fastest method of trade execution. Look at mbtrading.com and interactivebrokers.com - they are both trusted brokers used by serious traders.

 

[Reyaj]

MBtrading and interactivebrokers.com use this direct acces system so thats probably the way to go. Although even though the 1 cent per share is pretty cheap I guess it would potentially be more for higher transactions since Ameritrade is a standard 11 bucks per trade. Still thats probably for the big baller traders.

Bible I think you mentioned something once about needing 25K minimum to day trade.

Today on Ameritrade I sold a stock at market price and immediately bought a different stock with the money I received from the sale. That is technically a day trade right? I guess ameritrade lets you do it, but its just slower since it uses a middle man?

Also couple of other questions you probably know the answer to. When a company posts earnings per share.... how the hell is that calculated?

Last Night Jim Cramer recommended Panera Bread (PNRA) as a buy. At the end of today it was up 4%

He definitely has an influece on the market. I am watching him right now and he is recommending Sonic Fast Food (SONC) Its at 22.49 at the closing today, lets see if it goes up tommrow...

Last question, What does after hours trading mean? How can you trade after hours?

Thanks! Lets keep this thread active, very informative!

 

[spider_007]

Jayer, i started 2 years ago, with 10 000 and over two years i made another ~3000.

Your always gonna have mistakes (I obviously did) and your gonna lose money, and your gona get disapointed, and never want to traid again....but you have to face up to the mistakes CUT YOUR LOSES and move on. For every one traid that made me over a 1000, I had 3 others that lost me 4-500 all together (sometimes more).

Jim Cramer knows he has an impact on the market, and a lot of times he will push the stock hard...for weeks in a row (like Sears). I'm not sure what the reason for that is. To make people money I guess?

as for your EPS question:
http://www.investopedia.com/terms/e/eps.asp


One other trick that i recently learned is, buying on the way down. If the stock corrects more then you ware expecting, and your absolutly sure i'll come back up with in a reasnable amout of time, you can buy it on the way down and average out the price lower. However, if your wrong, i can get VERY painfull.

 

[Celadus]

I'd stay away from all retail accounts if you want to trade regularly. I just started training at a Series 7 licensed prop shop. Retail accounts nickel and dime the hell out of you.

Brokers make money off your trade even if they don't charge a commission. Avoid brokers. If you trade retail stick with interactivebrokers.

I don't think Jim Cramer has too much of an impact. Seems like the stocks go up after market because of dummies buying up in low volume market. Stocks go to size. Most of the time they go down as fast as they went up.

Celadus

 

[Bible_Belt]

The Pattern Day Trader Rule is what requires a $25K minimum in a day trading account. They define 'day trading account' as something like one that has four day trades within five days.
http://www.patterndaytraderrule.com/

After hours trading is done over ECNs. They are open late, but the limiting factor is liquidity. New traders should not trade the pre and post market, unless maybe there is news out on a stock and the volume is still strong. It is riskier trading, so decrease your share amount. If a stock reports earnings after the bell, maybe it is worthwhile to plink around with a couple hundred shares on Island, but you never know when the liquidity will dry up and you will be left holding a position that you would prefer to close.

If you do trade based on Cramer, there is a right way and a wrong way to do it. Don't be the guy who hears Cramer in the evening, and then places a market buy at the open order with his broker, and then goes off to work the next morning with no stop loss in place. Although any tactic works occassionally, that's how dumb money trades. Especially in NYSE stocks, here is a cardinal rule to follow: fade the gap. It works to some extent with nasdaq, but on the nyse system, when a stock has good news overnight, the specialist will be faced with a pile of buy orders to buy on the open. The catch is that the specialist is the one who sets the price. If there are no sellers, he has to sell out of his own inventory, which might cost him money. So he opens the stock higher than it should be so that he can find some sell orders to match with the buys and cover the balance out of his own account. Then, the stock will drop in the few minutes after the open, as the specialist is buying back at a lower price to cover what he just sold at a higher price. Being a specialist is like having a license to print money. Order imbalances at the open present a rare chance for the specialist to lose money, so they move the price so that does not happen. The move is artificial and often quickly corrects, but it is enough to keep the specialist making money. The market makers sometimes do the same thing on the nasdaq. Smart money either fades the gap, or waits a few minutes after the open for the dust to clear.

It takes some cahones to look up the stock with the best news of the day before the open, and then place a market order to sell short on the open, but counterintuitive tactics like this make money.

 

[Reyaj]

Good Stuff!

Spider and BB thanks for the definitions on EPS and Day trading. Definitely makes sense now. EPS seems as its the singal most important factor in determining whether a stock will rise or not. And I guess these are reported at the fiscal quarters?

Regarding day trading... a true day trade means buying and selling the same stock in one day, and the $25,000 rule as long as you have a margin account applies if you do 4 or more day trade in 1 week.

Do you know if thats regulated by the brokerage though? Like would Ameritrade restrict me from doing more than 4 trades with 25K with a margin account? Or would it let me and I'd just get audited somehow?

Good info on the specialist BB... I never know about this role. I take it he works for the stock exchange?

My idea was to watch Cramer in the evening, and then yes buy in the morning and sell before the day is over.... I guess stop losses are always a good safety option but I'd be monitoring the stock during the day.. so if it really dipped a great deal I guess I would sell. Although Cramer's main picks seem to be on the money.

FYI

Sonic (SONC) was up 5% after Fridays close!

Cramer is 2 for 2

 

[Bible_Belt]

EPS seems as its the single most important factor in determining whether a stock will rise or not.

The stock price at any given time represents the current expectation of future earnings. It's all about looking forward, not at the present. The expectation of what EPS number will be announced is as important as the actual number. A company can even beat estimates for the current quarter, but if they include a downward revision for future quarters, the stock will likely go down. Earnings plays are tricky, especially if you hold a position into earnings. I never liked the risk involved, but some people are better than others at predicting how the market will react.

The biggest handicap to trading on news is that the stock always moves before the news. Volume and tape reading will tell you something is going on before anything else. Big news always gets leaked, and traders are very quick to pick up on the actions of other traders. Another common expression that I found to be very true is 'buy on rumor, sell on news.' The tape and the charts will show traders acting on rumors long before the news service prints the news. You should look back at the charts of Cramer's stock picks on the day and the week before he announced them and see if there was unusual volume. The best way to make money off the guy would be to own what he recommends before he recommends it, and then sell into the rush of buyers that his pick generates. Don't just be one of the crowd; do something different, and use the crowd to your advantage.

 

[Reyaj]

Good advice. Cramer is actually 2 for 3 now

He recommended Lowe (LOW) yesterday and althought it did go up during the day, by close it was below the opening bid. It opened at 31.14 and closed at 30.55

I wish I had a crystal ball to know what Cramer would reocmmend before hand. I guess by studying charts you can see some movements happening. I bet a lot of insiders still buy up stock at various points and thats what reflects.

I'll keep a tab on some Cramer picks this week and see how they do just for the heck of it.

I want to get a good command of the stock market, and then I'll hit up that Forex Thread... where it seems the real volatility is!

 

[Bible_Belt]

'The Cramer Effect' is going to have a strength that is inverse to the volume of the stock. LOW has giant volume, so Cramer's people won't move it even if they all buy at the same time. Institutional and mutual fund trading in big volume stocks like that are what move price.

(The dow is hitting 12,000 now, and I am stuck writing school assignments. I can't wait to get back to the markets.)

As a basic strategy, look to own stocks that are near their 52-week high and conversely be short stocks that are near their 52-week low. You have to have strict discipline on stop losses, because you are buying stocks that are already extended, but stocks that are high tend to go higher, stocks that are low tend to go lower. To a trader using stop losses, short positions are not any riskier than long positions; media like cnbc still say that shorting is risky, but that is just a common myth. Timing entry points is difficult and takes practice. At first, stop losses will seem like your enemy, because you keep getting stopped out for small losses, but as you get better at timing entry points, you will not get stopped out as much.

When you get a level 2 screen, institutions trade mostly through Instinet, abbreviated INCA. The nyse screen does not show as much information, but you can still infer institutional trading from size and volume on the tape. Whether institutions are insiders is a matter of debate, but unlike Cramer they always have the size to move the market. Their actions often coincidentally appear to be made with a crystal ball in regard to future news, but then again so do the trades of a savvy trader who sees the institution on the tape and rides their wake as they move the price.

 

[Reyaj]

Yeah I read that Dow article today, it like hit one of its peaks.... So I'm guessing the time to really buy was a year ago lol

I agree with your theory on short selling. I actually have never sold short only because you need to set up a margin account in order to do so. I've been losing my money, no need in losing money I don't have yet.

Would the instituion be like a Brokerage Firm? ie: Morgan Stanley, Merril Lynch?

Bible: Do you have any books you would recommend for someone getting started like me? I have read Reminissnces of Stock Operator, yet the lessons from that book seem to be more philosophical if anything.

Do you know of any books that really make the whole way the market works make sense?

I definitely have learned a lot from your posts.

I have bought some stocks over the year or so, but I guess I get impatient sometimes and I sell them for losses. Then like the next week I see they went up. It can be frustrating!

What would you say is the best way to determine or analyzie when a stock is approximately at its 52 week high?

Thanks man!

 

[Bible_Belt]

Use stock screeners to pick out the stocks that are doing the very best and the very worst. Here are the links from a great reference site, daytradingthemarkets.com

http://www.daytradingthemarkets.com/resources/stockscreeners.html

You may also compare the stock to others within the same sector, and you can compare that sector to the other sectors to see which one is the strongest. The different sectors each have a symbol that can be charted, $sox used to be the chip sector I think. I would look at buying the strongest stocks in the strongest sector, and the final check point is to try to be long when the market is going up. You can buy when the market is still dipping, but you think will soon rebound. For shorts, flip these criteria and short the worst dogs you can find, "dogs with fleas" to use a quote from the movie "Wall Street." Back when Enron was plummeting, CNBC started doing a daily segment at lunch, something like "how low will Enron go today?" A stock like that does not care about the overall performance of the market. What happened with Enron was that the market sniffed out the accounting scandal news far ahead of the public, and that was very evident by watching the stock steadily decline to zero. The people with the big money always know first. afoaf who graduated from Harvard and then traded for merril lynch in nyc said that he could pick up the phone and instantly get through to whoever was the top economic analyst for whatever sector was in the news. He had the best minds in the country working for him, as well as being a very intelligent person himself, trading for his firm. The big firms trade a little to speculate, but their big money is in order flow from mutual funds. When a fund decides to buy a stock or make an adjustment in weighting, then the share size of their order can be huge. You don't send a 10,000,000 share buy order to Ameritrade. Even with a direct access account, you can't just throw out a giant bid like that; the stock would go nuts as every seller ran away from you with higher and higher offers. It takes skill to work a big order. Traders buy into dips, and they do everything in the world to hide the fact that they have a big order. Tape reading is seeing the big order through the tape and riding the movement that a big order creates; it's also a way to see what the best minds are thinking. You don't have to understand the intricacies of the company's product or accounting scheme, or be an insider to know that up is good, down is bad. I didn't have to learn accounting to know that Enron was a bad stock. But other than watching how the market behaves and practicing reading charts, too much academic analysis will get in the way of your improvement.

I think the best trading advice is to just stay in the game and keep plunking away until you get a feel for it; you have to do something in order to get better at it. Notice that this advice is remarkably similar to the consensus opinion on this site about how to improve skills with women; it probably works for any endeavor in life. Regarding books, it is hard to separate the good ones. Although honestly I have not read it yet, I would recommend "The Master Swing Trader" by Alan Farley. I have corresponded with Alan for years on siliconinvestor.com and he very obviously knows his stuff. You can read the reviews on elitetrader.com but most of the criticism is for being too complex to understand; that is just a sign of Alan's knowledge. Alan's site is www.hardrightedge.com Another guy on SI who is a skilled trader runs www.realitytrader.com You might check it out as well. Other than these two guys, I don't trust "how to trade" books; there are too many bad ones.

 

[Celadus]

Bible,

I'm starting at Bright in January. Just went through their three day class. They are pretty big on tape reading. Didn't get a chance to talk to them much about it. What would you suggest to learning the basics of tape reading? I'd like to learn as much as I can before I start using real money, even though its going to take actual experience to really learn it. Any good websites or books?

Celadus

 

[Bible_Belt]

It's not an easy time to be a day trader, or at least as easy as it used to be ten years ago. Decimalization and the nasdaq crash made scalping become much more difficult. A living can still be made, but movement is more difficult to find. Intraday ranges on most stocks are not very wide. Some days are just sideways chop, and there may not be much point in trading at all. I would still do the same thing as always, buying off new highs and shorting new lows, but try to be more selective and sit out on days when the market is going nowhere. On a choppy day, you will burn yourself up with commissions.

Tape reading is sniffing out the big order. When a stock is setting new highs, the next point to check is to look for a specific big buyer. They are easiest to see when the market is going down. The bid will hold for longer than it should before the price drops to each level. Look at the volume of trades that scroll by on the time and sales at that price level. They are probably all the same guy buying. If the market is dropping and every other stock is going down, but the bid on your stock is holding while a large volume of shares trade by at that level, then there's your buyer. He is working a big order. Jump along with him, and then when the market turns around and goes up, this stock will go up even more than others, because the big buyer has absorbed the sellers with his large order. That's tape reading.

 

[spider_007]

I just made 600 bucks

http://finance.google.com/finance?q=TSE:EXL

ching-ching (knock on wood)

the only problem is, i'll probably correct tomorow....

I have a dog too:

http://finance.google.com/finance?q=TSE:ATA

***** just don't want to move

 

[Bible_Belt]

This is not investment advice or a stock pick, but the first stock that you made money on has a respectable long-term chart. The other one stinks.

 

[spider_007]

i know, i was looking for nice correction, but it just stalled....next minor correction, and i'll get rid of it.


HERE IS A KICK IN THE STOMACK

the stock i was holding for a year, and sold it last month at 6,48 (AND LOST MONEY AT) went up 33% in the last month.
it's sh!t like that, that makes me wana say; "FVCK IT, I GIVE UP"
http://finance.google.com/finance?q=TSE:IUC

i missed the boat totaly.

 

[TooColdUlrick]

oil & defense

IBD is better than the WSJ.

I have consulted for IBD, in part to develop some "other things" associated with their super duper CANSLILM system.

IBD is a complete scam. The entire publication is designed to lull suckers into the CANSLIM program. Once you are there, the upsell...then another uspsell...then another upsell...and so on until you pay a good $5,000-$6,000 for the personalized one on one (sort of) program.

When I first entered the offices in Marina Del Rey, there was this strange feeling of cult...cult...cult.

I asked one of the guru expert CANSLIM "Cup & Handle" dorks one simple question...

"If it works as outlined, why are you working here and not living in the Bahama's"?

No answer.

The "evidence" of their IBD 100 outperforming (massively) the S&P 500 is utter bullsh!t...a complete statistical manipulation, "verified" by only one lame ass "research" organization.

I did what I was hired to do, took my $50k consulting fee, and gladly disassociated myself from them. I was instructed to refer to William O'Neil, not as O'Neil, as is common in research circles with the last name, but as Mr. O'Neil. Instead I didn't refer to him at all.

Moral of the story:

If a system such as CANSLIM, or any other system based on technicals, actually did work in that it outperformed on a risk adjusted basis, it would quickly NOT WORK. Especially when you advertise the super duper system on TELEVISION (for the low cost of 3 EASY PAYMENTS OF $29.99). The extra returns would be competed away, especially since Investment Bankers pump tremendous amounts of capital into research and hire the absolute best mathematicians and economists in the world.

I am not saying you can't make a boatload of $$$ in investing because you can...if your little crystal ball is just a bit clearer than the rest. That's all it takes to get much higher average returns over the long run.

How? Economics Baby, that is where it's at.

PS: Jim Cramer is a complete FAWKING MORON. Look at the total returns of his recommendations over the last 5-8 years and well... you would be eating cat food right about now.

http://www.thestreet.com/funds/smarter/891820.html

He basically advised one to put ALL their money in these stocks. You would have lost about 94% of your money. Funny how this is forgotten in all his know-it-all hype. Need I say more?