Question:
Hello Mike,
My question concerns mostly to stock selection and tactic of monitoring the market during the trading session. I’m thinking about it a lot last time and I’m very interested in your opinion on that.

There are always a lot of opportunities on the market, especially during the earnings season.
So we have 2 choices:

1) The first is to choose 1-2 stocks that have good premarket volume and fresh news and stay with them for the whole day unless they behave like rubbish.

+ you know these 2 stocks well, their levels and have a detailed plan for them.

-: this stocks can be too volatile for you, the tape can be unreadable because of too large orderflow, they can trade like rubbish. You need to have a large playbook.

2) The second choice is to choose a basket of stocks you know well for a trading session and to look for 2-3  patterns you trade best in them. I mean choosing 10-15 stocks which are in play and technically attractive or best stocks from in play sectors and define levels of interest in them.

+: you look after more stocks and make “the risk of not being in” lower. You have a list of stocks to choose from and choose the stocks that trade best. You can specialize your trading on 2-3 plays you trade best and look for them in stocks from your list. You use the time more productively.

-: more preparation work. You just can’t watch closely all the stocks from the list and can miss important information on tape.

I understand that my question sounds like Shakespeare’s “to be or not to be” 🙂 But could you give your opinion on that and tell about your market monitoring tactic?

Bella

I prefer focusing on a few Stocks In Play and watching them.  I select these after my after the Close (TAS sheet), night and AM preparation, our AM meeting and then discussion with other traders.  I supplement these ideas by listening to those around me who are taught to find stocks that are moving.  I further supplement all of this with our SMB Radar which finds stocks that are best moving intraday.  As Steve says, “The SMB Radar is a tool that should be on the desk of every profitable trader.”  It is the first tool we have used that consistently grows our P&L.

These stocks move more (XNPT, BBY).

They offer more opportunity (MON yesterday).

The move off of levels cleaner.

This is the most efficient use of my capital.

This is where the action is.  I want the ball in my hands.  I want to maximize my trading skills.

Having said that there are many different ways to make money.  Some trade Stocks In Play exclusively on the 2nd, 3rd and 4th day.  As you mentioned, some trade a basket of stocks.  IBM SINA AAPL NFLX V NFLX CLF POT SPY.  I would add that if you are trading a basket of stocks you must ensure that there is real order flow in the stock.  If not you will suffer a day of HFT money transfers.

What I would hope is that traders see trades as just patterns to master.  Stocks In Play are filled with momentum and trend plays.  If  a stock breaks an important technical level and a trader mostly trades Stocks In Play why can’t they make this technical set up a trend play?  Why can’t traders have a very large playbook, with technical plays and Stocks In Play and Stocks In Play on the 2nd and 3rd and 4th day, with patterns that they have made make sense to them?

Mike Bellafiore

Author, One Good Trade