Zzzzzzzzz…

• July 31, 2001
• Dave Floyd

I think it would be safe to say that Monday went
down as one of the most uneventful days in recent weeks. Eight trades all day,
and a lot of false starts. But that is okay. Trading is like that; it sharpens
your discipline. If you can get through days like yesterday without losing
money, you are way ahead of the game. There was money to be made Monday, but you
had to be a “cherry picker.”

If you look at the two charts below, you will see
a rather odd thing: there were no opportunities in the first half-hour of
trading (circled areas)…this is very unusual. As the charts clearly show, you
had periods of time where the high and low of each successive bar was not
radically different. An active trader needs price action similar to what
occurred shortly before 10:00 a.m. EST.

I am hopeful that Tuesday will be a bit better,
as there are still a few technical numbers here that should offer some good trading
opportunities, the 20-day average in the Spooze, 1211, and the 60% retracement
off the Nasdaq high/low, 1679. Today’s Chicago PMI number at 10:00 a.m. EST
may offer a good trading opportunity.

Key Technical Numbers:

Going back to a theme I saw in the comments I
received from this weekend’s trading lesson — entry points. Some people said,
“Gee, the charts you provided made it look pretty simple. Can it be?”
The answer is no. The entry points are the most difficult and important aspect
of my style. This style of trading does not lend itself to buying or selling
short simply because we have come down to a level; the price action in the
stocks will whip you around. You need to time the entry to the point to where
the offer becomes the bid just after you receive your fill. That is the time
frame you are working on. This feel comes with time, but there are some other
tools which you can use. I will be going into those in more detail in coming
lessons and at my presentation in Las Vegas.

A second theme I saw was one regarding position-sizing. Many questions dealt with how many shares to trade each time. My answer
is as follows:

• What type of trade size will the stock
  support? Is it thin or thick?
• How large is your trading account? Or more importantly, what is your
  buying power?
• What is your appetite for risk? This is the most important.
  I look at it this way: If you are confident in your method and know the
  way the stock trades, trade as much as practically possible on each trade. I
  am not advising this, but that is the way I approach it. When
  the setups and the market are there…I go for the throat. When the markets are
  not there, I scale back or don’t trade. Always remember the old
  adage: LIVE TO TRADE ANOTHER DAY!
• Scared money never wins. So, if you are not confident in your system,
  trade very small, 100 shares each time, until you can
  consistently pull money out of the
  market. As my business partner is fond of saying; “If you can’t make
  money trading 100 shares, why do you think that trading 1000 shares
  would change the outcome?”

Have a great trading day, and feel free to send
me your comments and questions.

Dave