The daytrading world has changed…here’s how I’ve changed with it
While
the following statements/comments may be stating the obvious, I state
it simply as a way to frame the context of today’s column and also to bring
newer readers up to speed on how I trade on any given day.
Back in 2001 when I first
joined TradingMarkets, my sole focus at the time was day trading NYSE stocks, something I
had done since 1994. Over the subsequent years I continued to write articles
about scalping, or HVT (High Velocity Trading) and even wrote a
book and educational DVD that described
my trading strategies.
When 2003 rolled around it
became obvious that the markets had completely changed in terms of day to day
price action, adjustments needed to be made if I were to survive as a trader.
Gone were the days of trading the same one or two stocks each day — now the
market demanded that you go find where the action was, and of course that
changed by the minute. It became very difficult, if not impossible to do that
without the assistance of software that could locate stocks that met my
parameters.
My experience showed that I was
most effective in the opening 90-minutes each day, especially the first 15-20
minutes, and that the remainder of the day was not nearly as rewarding relative
to the time spent in front of the screens. It was time for a decision.
First, it became obvious that I
would need to create software that could assist me in my trading as well as the
traders in my office. I hired a programmer and after several months of coding
and testing, we have software* that is essential to our ability to make money
each day. I also stopped trading each day between 8 and 8:30 AM PDT.
Second, I had a whole day in
front of me after I finished trading NYSE stocks — it was then I realized that
turning to the FX markets for swing and position trading would be a way to
transfer my set of skills into a market that had scalability and allowed for
less screen intensive trading. The prospect of managing large sums of money
without diluting the strategy, which is the draw-back of trying to manage a
large pool of assets with only a scalping style of trading, was very appealing.
So here we are nearly three
years later, a little older and wiser, and I feel that this approach is ideal
given the current market conditions as well as my professional aspirations.
With that in mind, I would like to start sharing with you on Tuesday’s and
Thursday’s, a look into HVT trading. The goal will be to provide the following:
- Overview of current trading
conditions - Review trades that worked as
well as did not work and explain the rationale
With that being said, let’s
simply review what constitutes a stock that is in play and the 3 primary trades
I look for once I (the HVT software) identify that stock(s)
For a stock to be in play, it
needs to have a few basic characteristics, the obvious ones being range, volume
and perhaps some technical merit (broke to a new 52-week high etc..). While these are key pieces, they are not adequate enough in today’s market.
Rather, we need stocks that are moving now, or more importantly, about to make a
big move — there is simply no time to wait and wait and wait for a stock to move
and ultimately have it do nothing.
Today’s market–combined with
computing power–makes it possible to get a list of solid candidates in
real-time that one can then tape read or analyze technically and know within
minutes if there is something worth trading or moving on to the next idea. A
stock’s price action can be analyzed with a computer tick by tick that can reveal
clues for traders, from there it is simply a matter of applying some basic rules
for the trade set-ups outlined below:
- Buying pull-backs within
1-minute uptrends - Shorting rallies within
1-minute downtrends - Reversal trades
The chart below shows a common
trade set-up, 2 longs and 1 short. The pink dotted line denotes the change from
an ‘uptrend’ to a ‘downtrend’.
The other thing that has
changed is that I am far less concerned with every tick up or down on the S&P
futures, or as some traders call it, the market overlay strategy. This takes
time to adjust to, especially if you have become accustomed to taking your cues
from the S&P’s. Now, it is far better to rely on the fact that a stock is “in
play†and trade it based on its own technical merits.
Over the next few weeks, my
goal is to provide you with some valuable insight as how HVT is conducted each
day in the markets.
As always, feel free to send me
your comments and questions.
*If you would like to learn
more about my software,
click here.
Dave Floyd is President of
Aspen Trading Group, which provides research/trade ideas on the FX and
equity markets as well as analytical software. Aspen Trading Group is based in
Bend, OR.