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a direct access execution system. And even with the advantage of an instant execution platform, most day traders have decided it moves too fast for them, too. They prefer a handful of technology stocks that offer high volume, good but not lightning-fast momentum, and a stability of the price spread of no more than one-sixteenth of a point. The big five that were most popular for trading continue to be Intel, Microsoft, Dell, Cisco, and, more recently, Applied Materials. |
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When the basic stable of trading stocks is limited to these five, traders can more easily become experts in one main stock. Then they can choose one other stock as a backup, or understudy trading stock, following this one as closely as they do their primary trading stock. This kind of close tracking of the primary trading stocks is similar, if not more intense, than what long-term investors do with their core portfolio. Actually, because they are counting on short-term news to move the stock, they need to be even more aware of the news than the longer-term investor, who does not need to be watching so closely when the stock is doing well. |
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Day traders need to spend time before the market opens and after it closes researching the stocks they are trading. They need to stay up on bulletin board news and opinion and anything happening with the industry the stock is in and how it may affect their particular stock. They need to be very tuned in to the nuances of the stocks they are trading, hoping to capitalize on the short-term movement. |
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My point then is simple: If you are going to be a disciplined short-term trader, you've got to be reading everything related to your one or two main stocks that you can get your eyes on, both online and in hard copy. You've got to know as much as any analyst following the company. Like an analyst, you should be able to stand up before a group and lecture on the stock, the company, and everything related to it. If you can't imagine doing that, you don't know it well enough. You need to know all about the sector the stock is in and how your stock compares to other stocks in that sector. This will help anticipate short-term moves for swing and position trades. |
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Consider Holding Positions Longer |
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Experienced active traders know a lot about getting out of stocks quickly. The good ones have stop limits set, at least mentally, to exit a position when their stock has dropped to a specified level. They have learned to always be thinking about the downside risk of their |
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