One of our talented young remote traders sent me the following email a few days ago and I thought this was an important topic to address. Below is his email:

Gman,

I had a hell of a time with ACN this morning. There were a lot of screw jobs, and fake outs. The price action was very choppy and it did not respect support and resistance very well. That being said I still feel like I could have done better because there some good trades that I missed that presented themselves and also some trades that were poor that I shouldn’t have taken.

My question is how do you decide whether or not it’s worth it to trade a stock again or black list it?
After taking a little ripper with stock like ACN would you try it again if it’s in play and make adjustments or would you stick to something easier?

I’m trying to come up with a framework for dealing with these types of situations in the future and would greatly appreciate any insight.

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I think this is one of the hardest thing to learn when you first start to actively trade. In my opinion there is a fine line between a stock being nasty but is tradable and one that that is just outright disgusting. Those that you want to stay away for the day will trade disgustingly right from the open. Some signs of being just untradable are: unreadable substantial moves, bigger than average spreads, illiquid within a 5 cent range (if you try to buy 1000 and you have to pay 5 cents + to get the stock knowing that for a comparable priced stock that isn’t the case).

On the other hand, a stock that is nasty but tradable will have some moves that are readable but hard to stay in. Will be liquid and not have these insane point plus moves for no apparent reason. These are the ones that you just have to stick with it. As a rule of thumb if the specialist screws me on a play that normally would work (unusual holds, holds and holds lower/higher, etc) 3-4 times in a row then I let him go for the day. I make notes about the stock and give it a second shot in a different day that is in play again. If i experience the same silliness then I blacklist the sucker.

There are stocks that are just FoS for lack of a better word, or just have some crazy programs that do not necessarily need to be blacklisted. Most often they are just not tradable for the day. If you find it that the stock is always too silly 2-3 times when it is supposed to be very in play then I would actually blacklist it.

In the end what is important is that you develop your own system for scoring the stocks. It is important to keep track of the good/bad stocks, those with the silly erratic programs and those that are hard but offer plenty of opportunity. I have outlined a few of the things that I look for in a stock early in the day before I make the decision to stick with it or to let it go. But you need to come up with your own and stick with it. After all it is about finding easy money and trading stocks that do not add a ton of stress to your trading. Just an excellent question. Hope this helps.