High Velocity Trading, Redux

HVT In The Year 2005

Yes, you saw correctly, HVT.  While many readers may have
thought that HVT (high velocity trading) had been abandoned by me in favor of
FX, the reality is that HVT has been around the whole time it has simply needed
to adapt to take advantage of the ever changing market.  So what has changed?

First, it is rare to be able to trade the same one or two
stocks each and everyday like we could back in 2000-2002, now the markets rotate
between sectors so quickly that this hours hot stock is quickly the laggard 10
minutes later.  Secondly, the reliance on the S&P futures as your lead indicator
has become almost obsolete.  Technical patterns on individual stocks are far
more relevant than the current tick by tick action of the S&P’s.  So while you
cannot completely ignore the S&P’s, I rarely get caught up in reacting to every
zig and zag.

OK Dave, well you told me something I pretty much already
knew, but how can I apply this to my trading? 

First, let’s begin to focus on sectors and their respective
indices as a better way to determine where the “hot money” is.  For instance,
most of my/our (traders in my office) always keep track of the major sectors,
technically speaking.  The first thing you will notice is that the sectors,
unlike the S&P’s, tend to trend and have range expansion bars on the 1 and 5-min
charts.  These will typically make for great lead indicators.  Below are the
sectors we follow closely:

Oil Index                                            XAU

Oil Drilling Index                                OSX

Banking Index                                    BKX

Brokers                                              BKX

Retailers                                             RLX

Drugs                                                 DRG

Biotech                                              BTK

Pull each of these up on a 1 and 5-min chart relative to the
S&P’s and you will see much better technical patterns than you do on an S&P

Let’s look at an example from yesterday of the S&P’s versus
the Biotech Index

Amgen (AMGN) was the stock in the biotech sector that
had the highest velocity, we simply bought the first pull-back after the opening
break higher and watched it and the BTK rip higher.

This can be an effective approach, although a bit labor
intensive since you constantly need to be monitoring each sector and the stocks
in it for the ones that are moving around well.

We rely upon this approach but tend to favor filtering for
“price velocity” and “technical patterns” that are identical to the ones I laid
out in my book, “How I’ve Achieved Triple Digit Returns Day Trading”.  From
there we can use the stocks representative index as a lead indicator, or simply
trade the pattern as prices play out.

So while this approach might be different in terms of the
laser beam focus of the original HVT, it is very effective in the current
marketplace.  Below are a few trades from this morning that we took.  I will
begin to share with you the set-ups that we are spotting each day after the
opening 2 hours, I trust it will be a useful exercise in allowing you to see how
I trade the market currently

Feel free to send me your comments and questions.