SPDR S&P 500 (SPY)

[ITMS]

This Day Trading Tip Can Save You From Bad Trades And Even Make You Lots Of Money

Who would not want to be a day trader? You wake up in the morning and go straight to your computer and start to look for stocks and equities that could make you money in minutes to hours. A day trader can basically work from anywhere with a decent internet connection. There is no dress code, so many day traders are actually trading in their pajamas every morning. You can also work as little or as much as you want, so you set your own schedule. It sounds like the worlds greatest profession, but without proper knowledge the average person who attempts the day trading world will not last a year in the business.

Day traders try to make money using two simple techniques. The first technique is called scalping, this is when a trader can isolate a stock declining or rising sharply into a major support or resistance zone. The trader will generally try to capture a small gain in the equity they are trading. The scalp play will usually last a few seconds to an hour depending on the particular equity, but the trade is expected to be done quickly and it usually involves a smaller time-frame chart. Then there is the day trade. This is where a trader will look at multiple time-frames and try to isolate a pattern that consistently plays out on the charts over and over. This trade usually last several minutes to several hours. Due to the fast trading action day trading can become very stressful and will require a lot of concentration. Most day traders will find a couple of chart set-ups that they favor and continually look for those patterns and setups to appear before executing a trade.

Today, I'm going to share one simple tip that can help save scalpers and day traders from daily heartache. I simply call this the light volume rule. Often, I find many day traders trying to sell short equities at a resistance level on the chart. While this is fine and usually a good way to make money it is very difficult to do under certain conditions. You see, as a day trader we must examine and take the pulse of the market everyday. We do this be looking at the volume in the SPDR S&P 500 ETF Trust (NYSEArca:SPY). You see, when the SPY volume is light it will generally favor market upside in the S&P 500, NASDAQ Composite and the Dow Jones Industrial Average stocks after 11:00 ET. I cannot tell you how many times a trader will try and short an equity around the lunch hour when volume starts to drop off. So here is rule number 1, if the SPY is trading less than 35 million shares by 12:00 pm ET please be careful trying to day trade equities on the short side, especially the SPY or S&P 500 e-minis contracts (ES-U19). There is simply a lack of institutional selling pressure when the volume is light. It should also be noted that the financial institutions move markets. It is not the person at home with an E-trade account watching fast money that moves the markets, it is the large financial institutions that carry the real power.

Traders and investors can easily look at this chart and notice that the market volume is extremely light. Please note, the low of the day was made at 11:00 am ET. Since that 11:00 am low the markets have slowly rallied higher, making any short trade very difficult. Hopefully, if you are new to day trading you will adopt this policy of monitoring the volume in the SPY every trading session. It has helped save many day traders from making a bad trade during the light volume part of the session. Hopefully noticing this important intra-day volume trend that has been working for years can also help you make a lot of money on your long side day trades.



Nicholas Santiago
InTheMoneyStocks