Stack the Odds for Daytrading Success
Trading is all about stacking the odds for success. Risks must be taken in order to get paid, but the key is gauging under which circumstances the potential reward really outweighs that risk.
I discussed taking risks in a recent post, and I felt that a follow-up and an example of what I was referring to was in order. Here it is.
Many of my trades are continuation plays. They can be great for offering situations which warrant putting some money on the line once clues of a continued move are present.
However, there are many opportunities on the intraday timeframe which are exhaustion/reversal kinds of setups.
Buy or sell programs, news, and just plain old momentum drive stocks far beyond the pain thresholds of traders, carrying price a considerable distance in one direction or the other. That opens the door for some recoil, and catching the turning point can be quite lucrative.
Stacking The Odds
Here in a moment, I’m going to show you exactly what I mean in a video, but first let me outline a few keys which combined to produce a great trade in this situation.
- Corresponding market action. With the indexes having a distinct possibility of a short-term turnaround, conditions were ripe for similar price action in individual stocks. This is a point I make over and over in the weekly index videos.
- Prior key level on the daily chart of this stock was being tested. A huge intraday move which carries price right to a previously important level on the daily chart will increase the odds for a quick recoil move.
- Intraday price action suggested the move was becoming exhausted. That indicated that a reversal could quickly develop in the stock.
Here’s a video explaining it. Select the HD option and go full-screen for best quality:
Stack multiple factors in your favor for a great trading situation. They’re worth waiting for!
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
jeff n | Sep 7, 2009 | Reply
nice video. do you use the level 2 a lot for these intraday trades where your risk is so small (10 cents)? a lot of times when i set my risk that small i get shaken out of a lot of trades that end up working.
i feel like if i was trading that stock and had waited for it to get back above 11.00 it would have the tendency to shoot straight up 30 cents without giving a chance to buy it.
TheStockBandit | Sep 7, 2009 | Reply
Hey Jeff,
Yes I do daytrade with the level 2, eyeing the market depth is very helpful with intraday trades. I also am using hotkeys for day trades, in that I can hit one button to enter the trade and another to exit (on the keyboard). It’s nearly instant, so it makes it very easy to manage risk in a situation like this where I know I’ll need out quickly if the trade turns around. However, once this one started to work, I simply set a stop loss and could then focus on booking profits on the way up.
Thanks for stopping by!
Jeff