Good evening StockBandits!
The market finally was able to put together a decent bounce today. A positive tone developed early, although the morning price action was anything but smooth, with several spikes and selloffs taking place in the opening few hours. However, the afternoon movement was gradually higher, leaving the market well in the green for the session. While it was far from impressive, each of the major averages posted gains of 1% – the most upside we’ve seen since the highs were set in January.
A session like this is difficult to analyze all on its own. Today’s bars were inside days on the charts with weak volume, making it difficult to trust at best. At the same time, this market is in need of a multi-day bounce after the decline it’s seen, so we need to also be mindful of that and respect the bounce should it happen to find follow through tomorrow. Sometimes a modest initial bounce can relieve concerns that the dust has settled and invite more buyers, so I’m going to see how this one plays out in the coming few days.
I am expecting the first multi-day bounce to result in a lower high on the daily charts once it happens. If we do see a continued rebound, volume will remain a key factor in the character of the move, so I’ll be watching that closely as well.
Please leave your comments and/or questions below if you have any, I always enjoy the interaction.
Here is tonight’s video:
The Bandit Broadcast Video – Click to Watch!
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Video Stocks Discussed: COH, CAT, UTX, COF, GES, NYX, DCP
Swing Trading Candidates:
NONE TONIGHT
Bullish Watch:
COCO, PVX, GNW, MMR, PFCB, EL
Bearish Watch:
NYX, AVB, EQIX, BBY, COF, ITRI, GES, IOC, PCP, COH, DCP, CAT, NTES
The Hit List will be coming out soon with discussion on open positions and swing trade stops and targets, so be sure to watch for it.
Jeff,
A general question about day trades. I normally calculate my position size based on my risk tolerance. For example, x% of my account. In your suggested day trades today, GES and DCP are much more thinly traded than COF and NYX.
Using my normal calculation, my order for DCP would have been 1/2 of the total normal volume on the 1 minute chart. That is, DCP normally trades 5,000 shares per minute & my position would have been 2,500 shares. I am worried about the amount of slippage that may occur.
Do you use volume data to calculate your position size? How does average volume impact your postion size? For day trades do you look at 1 minute, 5 minute, or daily volume when you calculate your position size? As usual, any insight is appreciated!
Chuck
Hey Chuck!
The liquidity in a stock at the time of triggering will absolutely affect my position size. I really try to avoid listing any stocks which are thinly traded on a regular basis in the nightly video, but sometimes the early volume in a stock is light right after the open. While that limited liquidity might prove quite favorable if the stock starts going my direction (and price moves quickly due to few shares being at each level), it is a double-sided coin in that it can also hurt badly if price makes an adverse move, making it really difficult to exit if there are few orders to execute against. I always want buyers available when I go to sell, and I always want sellers available when I go to buy.
I do not have a volume-based formula that I use to calculate position size, so I will just eyeball the early activity and adjust to a level I feel comfortable with. That’s going to be based on the total volume on the day so far, the pace at which volume is climbing, and of course the quote window (to see if there appear to be good-sized orders, a narrow spread, and plenty of price levels represented at both higher and lower prices)….all of which will impact slippage. I also will see in Trade-Ideas as the stock is hitting a high or low for the day what the Relative Volume is, and that helps me quickly gauge if it’s light or strong.
It’s more important to me to be placing trades which are resulting in quality fills, rather than blindly sticking to a position-size model in every single situation. Liquidity will vary, and sometimes it takes a little while to emerge on a given day, so I’ll just do my best to gauge from experience and from what I’m seeing in the stock’s activity what an appropriate trade size for me will be. Sometimes that’s full size, other times it might be as little as 1/3 of what I intended to take.
I hope this helps!