Day Trading & Forex Forum

Q - How do you read market sentiment during the day?

A - I start with a bias and let the market show me what it wants to do. If price action supports my bias, I get more aggressive. If it’s opposing my bias, I slow down and reconsider my point of view. Many traders confine their analysis to just "up" or "down" for the day, but rigid opinions leave you unprepared to take action if the tape moves against you.

Q - Do you implement a "turnaround" strategy?

A – I operate under the premise that each trade setup, long or short, needs to stand on its own merits. Hitting a stop loss doesn’t automatically make it a good trade in the opposite direction. In fact, getting the direction right is the easy part. The hard part is finding reward:risk that’s favorable for the new setup.

Q – Bad days seems to come without warning. How do I defend myself?

A - Develop an instinct for how aggressive or defensive you need to be on a given day. This should reflect the danger or opportunity in the market at that time. I call this collaring. Get defensive in dangerous conditions by raising cash and taking smaller positions. Get aggressive in benign conditions by taking bigger positions and pressing the trades.

Q - What indicators do you apply to your intraday charts?

(click to enlarge)

A – The Teva Pharmaceuticals (TEVA) graphic shows the technical indicator setup I use for all my real-time charts.

Q – When should I scale into positions?
 
A – Scale into trades when you think you’re right and price action is moving in your favor. It’s important to recognize when the market is offering you a gift.  If everything lines up perfectly, listen to that inner voice and add to the position.

Q – Do you have a sentiment indicator that determines when a rally is short covering vs. real buying?

A - Short covering is easier to see on the tape than on the indicators. It usually looks like water torture, i.e. one tick up at a time and building in intensity. Also many stocks you’re watching just sit there because the squeeze is usually confined to sectors favored by traders, like chips or telecom.

Over the years I’ve found one perfect indicator for a short squeeze. Get real short and then wait. Notice how it ends exactly one tick after you give up and cover your position.

Q – Is it a reversal signal when a stock runs counter to the daily index trend?
 
A - You can’t make a rule that works in this situation all of the time. There are many reasons a stock moves counter to the market. Instead, use the observation as a signal to do more investigation. A strong stock in a selloff market may foretell an acquisition or hidden news. But it can just as easily turn tail the next day and track the market.

Q – What times of day are prone to false breakouts?

A - The markets display numerous intraday time quirks. There is a 3rd bar reversal 15 minutes into the new session. Good moves fade and reverse into the lunch hour. 2:30pm and 3:30pm start well-documented selling impulses. The most dependable moves come in the first and last hours, where the biggest fakeouts also occur.

Q - The market seems harder now than in the past. What’s your take?

A – Nothing has changed and nothing ever changes. I once commented to my wife it had been a tough week to find good trades. She cut me off (rightly so) and told me there’s always opportunity, and if I didn’t see it, it was my problem and not the market’s problem.