Saturday, May 27, 2006

SPECIALIZATION,,,are you a specialist?


I need to specialize. Knowing broad trends and strategies in general is nice, but you need to specailize on the stock your going to trade. Knowing everything about the company you are trading and knowing exact support and resistance levels can give you the confidence to make the right trading decisions. I use to specialize in biotech stocks. That's how I first got into trading. I would study the OHLC for the day and look at the volume. I would determine if the spike up in the biotech was valid, and if not, I would apply my shorting strategy, which would most of the time be a swing trade. I would make 5% per trade. Swing trades give you more time for your target to be hit. Options with time are even better, especially when you use credit spreads.

If your going to day trade, focus on the first 2 hours. If you aren't consistently profitable during the first 2 hours, then obviously you shouldn't day trade at all.

I've noticed that when a tick trend line has formed and it is broken, this sets up for a good trade in the direction of the ticks. Also, you have to remember what way the market is going. If we just had a 400 point selloff and we had a good rebound day , that rebound may continue as long as the trend line hasn't been broken. Also, take note of where the ticks have been most the day and where the trin is headed.

What it all comes down to is support and resistance, or supply and demand. People say, I want to buy stock XYZ for $10. If stock XYZ goes to $12, people are less inclined to buy, buy supply increases. As stock XYZ goes to $8, more people want to buy but supply decreases. Most of the time you need a catalyst to move a stock past a resistance or support zone. This catalyst is most likely news related, but can also be based on technical analysis of where support and resistance sit and where the moving averages and major trend lines are directed.

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