Hi Mike,

I hope that my email finds you well.  I have a question about trading stocks that are in play.   I’ve studied several approaches to game planning.

1) Come in with 10 – 20 stocks that have potentially good daily set ups, and wait for good intraday price action to confirm that its worth trading.  I’ve found that this approach has led me to over trade, and jump around from stock to stock.  I particularly like to be focused, so this approach has hurt my trading.

2) Come in with 2 – 3 ideas, that are technically sound.  Have a deep understanding of the levels and wait for stock to come into your level or price action to confirm.  I’ve found that with this approach, I can come in with 2 or 3 ideas; however, those stocks may or may not have good price action on that particular day.  Just because I planned for it, this does not mean that the next day it will have money flowing in or out of it.  I could technically come into the office and have nothing to trade because the intraday action is not there.

3) Am I better off coming in the morning and looking for stocks that have fresh news, earnings, i.e. catalyst.  I’ve heard of this approach, however, it seems like with this approach you really won’t prepare well, because you won’t know what to trade until the last minute.

Mike, its imperative that as short term traders we’re involved where the money is at.  How can I better prepare, so I can locate the money and get involved in high probability stocks.  In this particular sense, are scanners a better tool than a watchlist gameplan?

Too many times I find myself trading stocks where money is not coming into them, stocks that are not in play; stocks that have too many candle sticks with tails, instead of solid candles.

What do you suggest is the best approach?

Bella Responds

I love your observation about the wicks in stocks sans fresh news.  So true.  And so why this is not where I want to start for my stock selection.  Great job working on your game here to improve your stock selection.  It’s all stocks selection these days!

There is not a right approach for EVERYONE.   But there is a right approach FOR YOU.  I do have an opinion on the right approach for most and this is what we teach.

We trade the Stocks In Play:

a) stocks with fresh news

b) stocks with unexpected news

c) stocks plus or minus 3% on the open

d) stocks with news that will cause a significant intraday move

e) beats on revs for the full year, improved margins or market share, new drug, are key words that catch my attention

Why do we trade these stocks?

1) they offer more intraday opportunities

2) they tend to trend cleaner intraday (bye bye wicks)

3) they are more liquid so you can trade them with more size (never met a trader who doesn’t want more size)

4) they move more than other non news stocks intraday

5) the order flow, reading the tape, is easier to read

Ok I am going to stop here as you have gotten the point.  Second Day plays are excellent as well in this trading environment.  I will not pass on a stock that has found a very important technical level sans fresh news.   We have built the SMB Radar which helps us find stocks intraday that move like Stocks In Play.

But my first choice is a stock with fresh news.   (Feel free to send [email protected] an email and request a two week free trial of our SMB AM Meeting where we discuss the Stocks In Play.)

Mike Bellafiore

Author, One Good Trade