Less volatility can often mean less movement up or down in any stock during a given period.
If there’s less movement on any given day, it means the day trader can’t frequently go for those ‘bigger moves’. It’s a market where it can be better to bat for singles, letting small gains add up.
Below I’ve broken down one long and one short trade from recent weeks.
Lesson: In a quieter market you may want to ensure you have a strong edge to compete. Watch TrendSpider’s webinar to see a demonstration of pro trading software that may help you improve your edge whilst trading stocks online.
$ISEE was a good opportunity to go long
The stock dipped at the open to $12.27 before reaching a high of $15.44, roughly where I exited the last part of my trade. The total potential gain between these two numbers is just short of 26%. But what indicated it could be a long opportunity?
It had a positive catalyst and a reason to be ‘gapping up’, reporting ‘positive topline data’ on its phase 3 study, reportedhere.
The chart broke out to new, multi month highs after the release of its recent news. It doesn’t appear to encounter further heavy resistance until around the $16.40 level.
The company has a fairly large float and market cap, which may indicate it’s harder for the stock to make new highs. However, it was also fairly cheap to borrow with many brokers, highly institutionally owned and with a fairly high ‘short float %’. All elements that may indicate the stock could go higher.
Lesson: For more trade break downs for those trading stocks online: an excellent resource is from TradeZero’s Talking Tickers episode where JTrader and I talk through some of the best learning opportunities in August here.
$BBBY: a nice back-side short.
On September 1, $BBBY provided a solid opportunity to short from the $9.40s to around the $8.70s. This is not as big a % gain to capture but it’s still a good ‘single’ day trade to take and ‘singles can add up over time’.
The yellow square indicates the day the short trade was taken. After the stock ran in mid-August it has since given back most of its gains.
Why it was a good short: the ‘bag holder theory’.
It could be argued that a lot of traders would have taken a long trade in the $20s $22s $25s - or frankly anywhere on the way up of the stock’s run.
Some day traders likely still haven’t sold in the hope that it will bounce back or make new highs. These people are often identified as ‘bag holders’ as they’re holding the bag of their loss.
These bag holders held too long and now need to exit their positions for the smallest loss they can manage.
Many will often sell into any bounce they can if it means they lose a little less of their original investment, creating extra selling pressure on the stock.
For short sellers, selling pressure makes the stock heavy with more supply than demand. I feel that this improved the odds of the short on September 1 and on days prior.
The main difference between the long and the short
- The day they move: The best longs can often be identified as stocks moving on ‘Day 1’ of the move - the day the catalyst is generated and the day the stock begins to move with some level of volatility. The $ISEE long was a ‘day 1’ trade. The $BBBY short was a ‘Day 10, 11, maybe even 12 short**’** but absolutely not close to day 1.
- Their catalyst: Catalysts are critical, in the last edition of Trades & Trends it was identified why the $BBBY catalyst was no longer considered strong. The $ISEE catalyst, however, can be identified as strong as it is positive news for the future of the company.
- The price action: it takes time for a day trader to determine this when trading stocks online but when some stocks are traded live they feel heavy (good to short) or light (good to long) but it’s something to learn to get a feel for only with experience.
Thanks for watching and if you do want to get started trading stocks online check out zero commission brokers like TradeZero here.
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- TradeZero: YouTube: Tools the hedge funds DON'T want you to have | Moe Saidi interviews Dan Ushman**:** Accessed 9/6/22 (https://www.youtube.com/watch?v=Sf94OWHVbcU&ab_channel=TradeZero)
- TrendSpider website: partnership promotion link | Accessed 9/6/22 (Save 50% off your 1st invoice after your 90 day trial - Try Automated Chart Analysis Software Risk-Free | TrendSpider)
- TradeZero: Zero Pro: accessed: 9/6/22
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- FlashSEC: platform| private user search: accessed: 9/6/22
- TradeZero: YouTube: Talking Tickers: August review with JTrader & Stephen Johnson | ****Accessed 9/6/22 (https://www.youtube.com/watch?v=Sf94OWHVbcU&ab_channel=TradeZero)
- TradeZero: YouTube: Tip 1: Risk management by Stephen Kalayjian | ****Accessed 9/6/22 (https://www.youtube.com/watch?v=HKX3WrDoavU&ab_channel=TradeZero)
- TradeZero: Trades & Trends | Accessed 9/6/22 (https://us.tradezero.co/blog/tradestrends-no-4-markets-bounce-while-bed--bath-goes-beyond/828/)
- TradeZero: Home page| ****Accessed 9/6/22 (https://www.youtube.com/watch?v=HKX3WrDoavU&ab_channel=TradeZero)