Keep in mind that my time frame is daily.
It's hard to explain but this is my process
Here is what I ask.
What the price is doing right now?
Where did it come from?
Based on that, what do I expect it to do next.
Is price being influenced by volume?
What does price do on high volume days?
What has price done in the past?
Is there a tradeable pattern?
Is there anything that makes this trade too risky?
If by looking at the chart I think price may continue to rise I plan my trade.
I calculate my stop. (A trendline or a swing low)
I calculate position size.
I plan my entry based on the price continuing to rise. (I want the price moving in my direction before I buy)
When the market opens I execute the trade as per plan.
I don't chase.
A chart is like a beautiful women. It drips with sex. It wants you. And you want what that chart has to give! Excitement. But not all charts are the same.. some have sexual transmitted diseases, some just want your money... it is the relatively few that are pure.
So the first question is what type of trade set up are you looking at. Is it a ski slope? A down in the dumps stock that has fallen from say $35 to $5 and then has remained at $5 for years? Well in that case you look for a flurry of volume sticks at the end of the pattern. That shows interest are people getting out at the low? Not after a year they had time to do that-- That's a hint that you should explore further. Is it a head and shoulder set up? Are you buying a higher high? Are you on the cup and handle are you in the cup and ready to head higher up?
Another pattern (one of my favorites) you have a stock and it is doing well it has caught your attention and then you notice owch! Big down day followed by one more with volume! And strangely- a late day turn around that brings that days' losses back to zero and the next day it gaps up and guess what-- weak hands are gone and your stock is ready to resume it's natural pattern.
In general when I have huge gains (which is often) I do not like those to come on light volume. It's no 100% rule, stocks drift but when I have a position that usually trades 3 mil and it goes up alot on 600K vol... Well you have to wonder if that surge is going to be taken right back.
Conversely going lower on high volume is almost never well received. In fact when a stock of mine gaps lower I am preying for low volume, for a distortion that will remedy it's self. What's great about investing is each situation brings out a different tactic in yourself-- lets say your stock sells off hard with absolutely huge volume... well that's Ok that means most likely the stock will over shoot it's true value and you simply buy at the end of the frenetic selling.
Behavioral Value is something you learn over time and it serves you well. people panic and that can be to your advantage. Climatic selling that is peak volume / and drip selling that dries up<-- Both are are great tells.
One last thought: People get real tied up watching screens of movers. Vol alerts! Whatever I practically ignore the pre- market- I do all my work first and then toggle over and see what is receiving attention. Don't let the market guide you, don't be a follower looking up some stupid Robin Hood Stock.. Do your own homework, do your own charting and do it all before you look at any hot list.
In general what has worked for me reliably over the years is I have an idea the stk market looks like it is embracing it it jumps up out of the gate... and I buy the early retrace. Usually about 10:30. Then you must decide am I making a day trade out of this or not.
I must say deciding when to sell is a lot harder than when to buy. The worst feeling is closing out a daytade for a 7% gain only to have it really explode the next day. For the knowledge there you have to be inside these companies heads and be able to extrapolate to the general masses.. and other professional investors, what is the hook, the angle that is going to gather eyeballs... Oh it's yet another energy drink but this one has proven to raise metabolism... stuff like that. That's actually from a stock I recently misplayed! maybe not the best example but you need ideas that others can understand even pros.
Lastly the stock symbol. I have been thinking about writing a small book on this and self publishing but the symbol is these days more important than ever. Ok. It grabs the attention of the young investor who relies on little else.... Call your company something catchy that will relate to the younger generation and you will get massive out performance. And it's not just catchy symbols, regular symbols that make sense in relation to the parent company are fine too.. It's just perplexing bad symbols that do not point towards the company itself or the area they compete in- those stocks are to be avoided.
Or symbols that don't pass one crucial test--
The Test I developed myself-- you ought to be able to say the name of the company and or the symbol followed by the phrase " On My Chin " As in Confluent on My Chin. It's not 100% accurate " Chubb On My Chin " Actually is a good insurance play but I would say this metric works 75% of the time.
Hope This Helps ~ stoney
