Whenever I tell people that I’m a day trader they always look at me as if I said a dirty word. Why do day traders get a bad rap? Day trades are the lowest risk trades you can put on. You’re in and out of your trade in just a couple of minutes or sometimes it can take a couple of hours depending on how fast your stock moves and where your target is.
Swing trading incurs a much larger risk. When you hold stocks overnight, you have no control over where they are going to open up the next day. There could be a number of reasons why your stock gaps down against you. For one thing, your company could come out with an earnings warning, or a company in the same sector can warn that their earnings are not going to come in line and your stock can go down in sympathy.
Another reason it can gap against you is that some analyst downgrades it or lowers its price target. Besides these warnings we must not forget about mother nature. In the past 30 years, I’ve traded through some natural disasters like earthquakes, tsunami’s and hurricanes. Unfortunately, I’ve also traded through some man made disasters; acts of terrorism are the scariest and saddest events that one can trade through. We never know what we’re going to wake up to in the morning. This is why day trading carries the lowest risks.
I teach my traders that you should only risk .04-.05 to make .20-.50. Many times, you can make even more if you find a stock that has really great momentum. This usually happens during earnings season. You can grab over a few dollars on stocks that have just come out with earnings. My favorites are the stocks that either gap up or down after they report. They are either going to gap up and go higher, or they are going to pop up and drop down. How do you know which way they are going to go?
I teach my traders a great strategy for determining which way they are going to go once the market is opened. We use the 15 exponential moving average on the five-minute chart to determine if the trend is going to continue its trend or change. The secret is to wait fifteen minutes after the opening bell.
The first fifteen minutes is the shake out period. Once the market is opened for fifteen minutes, we look at which side of the 15 exponential moving average the stock is trading on. If it’s trading above it, we’re bullish that it will continue higher and be a gap and go higher trade. If after fifteen minutes the stock is trading below the 15 EMA, we’re bearish that it will be a pop up and drop down trade. Here is a recent example of this strategy on Chico’s, stock symbol CHS.
Chico’s reported earnings on August 31st. The stock gapped up .82 in the morning. Here is the chart of CHS with the 15 EMA on it. You’ll see that just after 15 minutes, CHS was trading above the 15ema therefore this was a gap up and go higher trade and oh boy did it go. It ran up almost a dollar.
There are a few other great things we look for as well when picking high probability day trades. We look for dark pool prints and we look to see if there is refreshing on the offer and the bid.
That’s how the big guys bluff. They don’t want to show you that they have hundred thousand shares to buy or sell, so they just put up a small share size, but every time they get filled, they refresh it. This is how they buy and sell thousands of shares without moving the stock up or down. These are all the things that I teach my traders in my live online trading room.
The most important aspect is that you have great day trading strategies in place before you begin day trading. Most people trading right now are simply gambling and that’s why day trading has had such a bad stigma attached to it. I have a few basic rules that have given me a 93% success rate on my FREE “Whisper of the Day” YouTube videos.
Every morning I create a video with my hottest stock picks. I don’t just call out a stock and say buy it or sell it. I always give you a level that I’m bullish or bearish on based on premarket price action. My most important rule in picking the whisper is that they need to have at least 100K shares traded before the market is opened.
This is my road map as to where the big buyers and the big sellers are lined up. Having a lot of volume premarket creates tremendous momentum once the market opens up. There is nothing worse than being in a stock that isn’t going anywhere. Volume is the gasoline that you need to catapult your stock like a rocket ship.
I have a few other rules that help me with risk management. Picking lower priced stocks under $40 is one of them. This is how I keep my stop losses at only .04-.05. You don’t have to trade higher priced stocks to find stocks that move. Many lower priced stocks have great movement as long as you combine it with premarket volume.
Another important rule is to choose stocks that only have a penny spread. This is how we can keep the odds in our favor and avoid the manipulation that occurs with wider spread stocks. Liquidity is a key component to choosing low risk stocks and ETF’s. Only trade stocks and ETF’s that trade at least a million shares daily. This helps you avoid stocks that can move up and down on air. You want real volume, not marshmallow fluff that will take you out.
The trend is your friend as I already shared with you my favorite gap strategy trade, but we like to take it a step further. By picking stocks that are up trending on the daily chart you’re going along with the upward gravitational force when you buy them as a day trade.
By picking stocks that are down trending on the daily chart you’re going along with the gravitational downward force when we short them as a day trade. We use another exponential moving average to determine their longer term trend. We call it the 8 train, because we like to ride it up and down the track.
Below is a chart of the S&P 500 with the Eight exponential moving average in black running up and down the chart. When any stock or index closes above the 8ema we like to ride it up the track.
Put the 8 exponential moving average on your daily chart tomorrow and let me know if you like it. I fell in love with it instantly and put it on every single chart I have.
If you live on the west coast, you can day trade from 5-8AM and then go to work or back to sleep.
If you live on east coast, you can sleep a little bit later.
Come watch me trade live along with my amazing traders at the Java Pit online trading room. www.thestockwhisperer.com
Until next time,
Stefanie Kammerman, has trained thousands of students worldwide how to Day Trade and Swing Trade over the past 22 years. She is the Founder and Managing Director of The Stock Whisperer Trading Company, www.thestockwhisperer.com where she runs an online educational trading room called “The Java Pit”. Her unique approach of old fashioned trading in a high tech world teaches her students how to trade by reading the tape and following the Dark Pool, which is how she spotted the last 9 corrections weeks before they happened.