One Good Trade: Inside the Highly Competitive World of Proprietary Trading by Mike Bellafiore

Author:Mike Bellafiore [Bellafiore, Mike]
Language: eng
Format: epub, pdf
Tags: Business, Economics, Finance, Non-Fiction
ISBN: 9780470649008
Google: ItVjLyjjqGcC
Amazon: B003VIWRJA
Publisher: Wiley
Published: 2010-07-01T23:00:00+00:00

WHAT IS A GOOD INTRADAY STOCK?

TRADERS ASK: “TELL ME MORE ABOUT INTRADAY STOCKS”

I received this quick, simple e-mail from Reader Sam:Bella,

What characteristics make a good intraday trading stock?

Sam

A good intraday trading stock offers you excellent risk/reward opportunities. It is a stock that you can regularly read is about to trade higher or lower from its present price, offers good prints, and moves. And these moves are predictable, frequent, and catchable.

A good intraday stock offers numerous excellent risk/reward (1 × 5) setups. Trading opportunities where your downside is 5c and your upside is 25c, or your downside is 20c and your upside is $1. With a good intraday stock, you surmise that your risk/reward is 1 × 5 and it actually is. As opposed to your risk/reward really is 1 × 1. Sometimes, stocks look like they offer an excellent risk/reward. But then the stock trades against you and you cannot get out (“What the hell. I can’t get out of this piece of s&%t”). And this is not because you are slow to exit or stubborn. You quickly and painfully learn your risk is much larger than you had calculated. Succinctly, a good intraday stock is a Stock In Play.

A Stock In Play offers us many excellent risk/reward opportunities intraday. This is the whole game. These stocks gift numerous trading setups, where your downside/upside ratio is 1-to-5, and your win rate is at least 60 percent. And as I mentioned, a Stock In Play actually offers you opportunities where you conclude your downside is 1, and it is actually 1, as opposed to stocks where your slippage is underestimated or unknown.

For example, if you buy JPM at 30 and you set an exit price for 29.85, can you actually get out near 29.85? Or are you hitting the 29.50 bid to exit? If you are trading JPM and you conclude you can exit at 84c but really you cannot exit until 50c, then this is not a good trading stock intraday. Stocks In Play are liquid such that you can exit without unexpected slippage.

Again, you are only as good as the stocks you trade. If you are the best trader in the world but your stock does not move, then you cannot make money. Trading a stock that doesn’t move is a trading day wasted. I look for a stock that will move intraday 3 to 5 points at a minimum. For example, at the start of 2009, I selected WYNN before a trading session. WYNN traded from 23 to 21, then 21 to 23, then 23 to 21, then 21 to 22.50 (see Figure 7.1). WYNN moved about 7½ points intraday. This is the movement I need to make money. This is excellent intraday movement.

The next trading session I traded FLS on the Open. FLS moved from 50 to 53, then 53 to 51.50, then 51.5 to 53 before 11 AM (see Figure 7.2). FLS moved about 8 points intraday before lunch.

Now, I don’t want stocks to just move. I seek stocks where I can identify that they are about to move in a certain direction.

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