AN "OPENING GAP"  TACTIC

In cases where the markets are set to open up strongly, there will often be large gaps in the opening prices of certain stocks from the prior day's closing prices. This can provide profitable opportunities for day traders. The following sets out an easy to implement strategy or tactic that may be used to capitalize on these opportunities.

Suppose that, prior to the opening bell, indications are that the market will open up quite strongly. A large amount of buy orders for many stocks that have been placed prior to the market open will cause market makers to increase the price of such stocks at the commencement of trading. In many cases, the amount which the market maker opens or "gaps" up a particular stock will be higher than what is justified. This creates what is often referred to as a "Bull Trap".

In other words, the stock is sometimes opened up excessively high to entice investors to buy simply because the stock shows strength at the open.The setting up of a Bull Trap is the main reason why many stocks that gap up at the open tend to retreat back in price after the first hour or so of trading. Once the pre-market open buy orders have all been filled, the demand for these stocks often subsides.

There are exceptions, however, and these are what create some potentially profitable day trading opportunities. In particular, chances are good that if a stock thathas opened up is able to reach a new daily high after the first hour of trading, the strength shown at the open was real and not artificial because there has been additional and continued buying after the pre-market orders have been filled. This provides day traders the opportunity to use the following tactic or strategy:

1. Choose a Stock
Choose a stock that has opened by at least Re. 1.00 over the prior day's closing price.
2. Allow Trading for One Hour
Permit the stock to trade for the first hour after the market opens and monitor it closely.
3. Set the Alert
After the first hour, set an alert 1/4 point above the high of the day
If the stock in fact moves to a new daily high, the alert will be triggered and you should then immediately buy and, at the same time, place a stop loss sell order below days low.

Summary

This tactic or strategy provides day traders with a fair degree of profit potential. There is also limited down side risk because of the protective stop loss sell order.

 PERSONALITY TRAITS OF SUCCESSFUL TRADERS

Personality

Confidence

Discipline

Decisiveness

Good day traders do not hesitate to "pull the trigger" when entering and exiting trades. Traders who are in the habit of being tentative or indecisive will never become successful.

Passion

Most successful day traders have a true love or passion about their trading activities. If you do not enjoy reading charts, dealing with numbers, reading market news, interpreting quote screens, learning new trading strategies and working independently in a fast-paced environment, then day trading is probably not your cup of tea.

Ability to Accept Failure

Ability to Accept Risk

Another personality trait of good traders is that they are comfortable with risk and are prepared to lose money from time to time. If you are afraid that you will, on occasion, lose money, then day trading is not for you.

Patience

Good traders do not rush into trades. They take the time to select good trading opportunities and do not place orders simply for the sake of holding a position in the markets at all times. On some market days, where few good trading opportunities exist, they are content to simply stand aside and wait.

Concentration

FUNDAMENTAL V/S TECHNICAL ANALYSIS

There are two general schools of stock analysis: fundamental and technical. This feature describes the two schools and the key differences between them.

Fundamental Analysis

Fundamental stock analysis requires, among other things, a close examination of the financial statements for the company to determine its current financial strength, future growth and profitability prospects, and current management skills, in order to estimate whether the stock's price is undervalued or overvalued. A good deal of reliance is placed on annual and quarterly earnings reports, the economic, political and competitive environment facing the company, as well as any current news items or rumours relating to the company's operations. Simply put, fundamental analysis concerns itself with the "basics" of the business in assessing the worth of a stock. Numerous ratios, derived from balance sheet and income statement data, are used in fundamental analysis including such widely used ratios as, Working Capital Ratio, Debt-equity Ratio, Return on Equity Ratio, Earnings per Share, etc.

Technical Analysis

The basic foundations or premises of technical analysis are that a stock's current price discounts all information available in the market, that price movements are not random, and that patterns in price movements, in very many cases, tend to repeat themselves or trend in some direction.

Bob Prechter, a famous practitioner of technical analysis once commented that, "... the main problem with fundamental analysis is that its indicators are removed from the market itself. The analyst assumes causality between external events and market movements, a concept which is almost certainly false. But, just as important, and less recognized, is that fundamental analysis almost always requires a forecast of the fundamental data itself before conclusions about the market are drawn. The analyst is then forced to take a second step in coming to a conclusion about how those forecasted events will affect the markets! Technicians only have one step to take, which gives them an edge right off the bat. Their main advantage is that they don't have to forecast their indicators."

While technical analysis can be a great help in trading the market, no technical indicator is infallible. Further, technical analysis is only as good as its interpreter. Finally, a significant of time must be spent in learning the principles of technical analysis, and in how to properly interpret the various charts and other technical indicators.