Solid Setups

[MywayHighway]

Opening Bell Bull Momentum play

I am a bit of a cheapie at the moment so I use all the free resources out there I can. There are a lot of chat rooms with experienced users posting their scans for the day but everyone knows you can't make $$$ following tips. So what I use is the nasdaq.com pre-market webpage for unusual volume. It gives you a really simple but informational view of the most active stocks pre-market.

Once I get to the page Nasdaq Pre-Market Most Active I look up the 4 or 5 GREEN tickers on stockcharts.com to see if they fit my PPS range, and check out the overall technical picture. Am I seeing a picture of strength? Am I too late to the party? Do I even know what I'm looking at?

After my technical analysis is through and I still think I may have a trade, I check out what the catalyst is driving the stock. Is there any news at all? Is it being pumped? If there is good news then I'm already feeling comfortable because I know it's just a matter of time before I can trade with confidence. The stock has already shown heavy interest via volume, and that I know puts it on everyone's radar. Now I plan my target entry and exit.

The downside is that if the stock has rallied TOO MUCH pre-market, or if it's rallied a day or more before today, then I proceed with caution. I scale back my order size because this means it's probably not the best time to apply my maximum tolerance. I've been in a lot of stocks with heavy pre-market rallying only to crap out after the bell. I can sit out and wait another day if I am just not sure by the mixed signals.

My target entry is almost always the pre-market low. A lot of profit taking happens moments after the bell. Sometimes it takes 5 to 10 minutes to get filled but PATIENCE is critical here as you will either be a loser or leave money on the table if you CHASE the open. I don't use LEVEL2 but I hit "refresh" on the quote screen on whatever broker I'm using to see the current bid/ask size. Simply put, when the BID size is larger than the ASK size, you usually see a price increase. When the ASK is 'stacked up' against the bid I don't want to be entering the trade because you show an immediate loss when you do that, and have to be put to the tough decision whether or not to stop out!

My target exit is usually not the pre-market high unless the high is over 30 percent. If the stock is trading a little far from an even number I will put my sell order in there as I anticipate a mental barrier at that level. It also helps when I have to set my phone aside for a minute at work..sigh...

I don't typically sell in lots as I trade on my mobile phone (WHICH SUCKS) so everything takes a little longer to execute. I also don't like the idea a lot because I don't use an unusually large size and I don't feel it's necessary. If I were using a size that made me uneasy I would sell off 25 percent at a time to ease my tensions and allow myself to ride the trade higher knowing I locked in a profit/cushion.

Trading on a phone is also limiting because I like to add to my position size when the trade is going well, and it just takes too long from the time you decide to add to the time you add and return to the quote screen. Too much has happened. But when I do add to my position "averaging up" the fill price becomes my new stop loss. I also don't use market orders but I do believe there is a place for them. Entering AND exiting.

Everything is felt out and not set in stone. I do like to limit my losses to -25% of my average gains so my risk/reward is at least 1:3 in any given trade. This is easier said than done as you have to let some trades dance before you can decide what kind of action to take.

Gladly I work on my own a lot and my boss is miles away so he can't show up and force me to work through the opening bell. I'm not sure if I missed anything but with a small account I try to go heavy when I feel the time is right. A lot of people limit their trades to 10% of their account size but I feel you have to trade at least $500 a position to make it worth your while. How quick are you going to take profits when you realize a 10 percent gain on 150 dollars vs. 500? See my point? Also, I am a little greedy and selfish. Hope this helps someone. My most profitable trades have been in this fashion and I feel it has the most validation of anything I know at the moment.

Remember, just because it's heavy in volume doesn't mean the market will do what you want it to. Step into the market when you're called, take a small serving, and kindly leave without overstaying your welcome. That is my risk aversion view that makes this trade great. You can get stopped out or make a week's paycheck in less than 20 minutes and be on with your day.

The first 30 minutes of the market open are the most volatile! I will be learning other plays and field testing them.....