Timing Decisions, Short Term Stock Trading Analysis (32).
The essence of trading short term is to take advantage of the up-down cycles of a stock during the day, week or month. The goal is to make many small net gains that will add up during the year. Furthermore, you wont tie up your cash for a long time and you are able to play again and again.
The requirement is that you have to spend more time understanding the market movements. I personally think its no fun following the market for more than an hour a day. I would advise placing a limit order online with enough range to catch a price you want. You can easily cancel the limit order, or change it to a market order whenever necessary. The following are the basic considerations for playing short term:
1. Company survival
It makes no sense to play when the company is on the verge of collapse. The company has to survive as reflected by its cash holdings and annual profits. When the future seems secure, a price drop represents an opportunity, the larger the better. After following the stock for some time, youll be able to judge a target price to buy or sell for a small profit. If the price does not pass through your set limits, you just wait for the next opportunity to come by.
2. Economic environment
When the environment is toxic like a global recession right now, most stocks are moving in downward cycles. However, after some days, they stabilize and go back up for a while. Then they resume the downward trend again depending on how bad the environment looks. For the stocks of your choice, you need to follow their movements in order to see some trends. Each company has a different rhythm of its own. On the other hand, when the environment improves, most stocks will move up in similar fashion.
3. Intra-day movement
You may even get in and out of a stock within the same day if the daily price range gives you enough elbowroom. Many stocks have ranges close to $1 within the day as shown by some examples in Video #17. You have to observe and find their rhythm of movement.
As far as the New York Stock Exchange is concerned, the period near the opening or closing time normally carries higher volatility. Stock prices tend to fall or rise more sharply. This can be explained by the fact that fewer people trade at those times, so a relatively large order can make the price go further. Generally speaking, within two hours of opening time, either the lowest or the highest price of the day is registered, sometimes both. For the rest of the day, the price usually fluctuates within the limit(s) already set. However, unexpected news can cause the price to break the limit(s).
4. Consolidation
When a stock is on the downtrend, it seldom falls everyday for more than a week except for a bankruptcy case. A temporary consolidation follows where the price may rise for a couple of days due to being oversold earlier. The opposite is true for a stock that is on the uptrend. You can tailor your limit orders to these conditions after following the stock for a while.
5. Ex-dividend date
For those stocks paying high dividends such as Verizon (VZ), Altria Group (MO), General Electric (GE), Merck (MRK), etc. the day previous to the ex-dividend date usually sees a jump in the stock price. The reason is that this day is the last day people buy to claim the dividend payment. You can reasonably expect that the price may come down the day after.
6. Quarterly report
The days leading to a quarterly report are more important than when the report is released. The reason is that all the insiders already know about the companys performance. They are buying or selling accordingly before the report date. For the public who can only follow, here is a general rule. If the price goes up leading to the release date, the report publication will trigger a price fall, and vice versa.
7. News and analysis
As I always emphasize, 90 per cent of the things we hear or read are either out of date or irrelevant. The silver bullet is insider information that we dont have. We can only believe what we see clearly and objectively. If we follow the stock movements for some time and pay attention to the changes in the economic environment, we will come up with some good judgment that can bring good profits.
For further information, please email to stockfessor@comcast.net
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