Use Caution at the Open for any sector. Why...????
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     wallmann
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| | Tuesday, June 25, 2002 - 01:10 pm: |  
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Trades accumulate before the bell and once
the market opens the market makers get to work on this stack of orders.
Traders often do not know the quanity of orders out there waiting and whether
or not they are buys or sells. This makes it very tough to tell where the
stock is headed in the minutes after the open or how long it will take for
orders to be filled. If your stock is trading for the first time or has been
volatile, it can have tumultuous opening minutes. Once the market is open you
have a better and clearer idea of what is happening.
Here is another tip about stops and some of the difficulty you may have at certain times. When you set a stop, you are specifying a particular price that you don't wish to hold the stock "under". For example, maybe you bought XYZ at 40 and you want to sell it if it falls under 38.50 and just take the loss and move on.
Now, in a "normal market" if XYZ is falling, it will trigger off your stop and you will indeed get sold out of your position "somewhere" close to your stop. In our example, maybe we sold at 38.49 or 38.50, or 38.47 etc. Close enough. But, what happens when you have a day where stocks are falling so fast that the stock crashes right through your stop? That becomes a problem.
Just like insane "gap downs" in the morning, a stock that plunges seriously under your stop will become a "market order" and fire off when it's the "next one up" in line. This is why we suggest you take your stops off when its clear a morning open is going to open your stocks below your stop. Why do that? Because most big gap down opens often reverse and we get some sort of a push higher later in the morning. If you left your stops on, chances are that you were going to get sold off right at the opening low.
Well, the same thing applies when we get a wild intra day reversal. Often selling is so vicious that stocks fall faster than the order flow can keep up with. Once that stop is actually violated to the downside, it becomes a market order and you get fired off when its your "turn". Interestingly, your turn will generally be at some sort of low! So, in a case like that, it is often wiser to take your stops off and simply watch. We'll give you an example.
Once, we were playing with MSFT. There was a decent amount of volatility on the stock and we played 3 separate "bounces" for 25, 45, and 52 cents each. Then at 2:30 we left for a while and when we returned MSFT was falling like a rock! In fact it had already dropped about 40 cents under our stop and it hadn't sold yet. We took the stop off and waited. Sure enough twenty minutes later the stock was up over 60 cents from where we would have gotten stopped out.
If the stock you are in falls like a rock for no apparent reason, it's often wise to dump it. Something may have been said someplace and you just haven't seen it yet. When the entire market blows off like that and your stocks "didn't do anything wrong", chances are pretty good that you will get back into the green if you lift your stops and wait for a bounce. Will it always work? Absolutely not, nothing does, but it should more than not and that's all we can hope for.
[W:Trading tips are welcome but please do not advertise links to other sites or newsletters. Thanks. Colin]
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Tonka
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| | Tuesday, June 25, 2002 - 06:48 pm: |
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Well said !
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-Merlin-
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| | Friday, June 28, 2002 - 11:06 am: |
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uhhmm wallmann
perhaps another hint to consider is "if thou shallt day-trade, thou shallt do nothing else" re--> MSFT
-Merlin-
follow thy own lead
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MidGe
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| | Friday, June 28, 2002 - 07:23 pm: |
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From my broker I can get a Market Depth for any stock. it shows the order stack with the following details for both sell and buy orders: qty, price, no. of orders int e stack, for ten prices steps on both side.
I ALWAYS look at this before putting an order. The service is free for customers.
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