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How Trading Is a Lot Like Fishing
By Ken Wolff
12/3/2004 2:30 PM EST
Trading Strategies
The very volatile trading 'runners' are back in force in the market. To trade them successfully, you have to be prepared and focused. GeoPharma gave traders a great chance for big profits this week.
The trading runners are back. These are stocks that make unusually large climbs in a short amount of time, often propelled by news, an unusual increase in volume, a small float and a manic trading environment.And to trade them, you have to be ready and waiting for them.
I learned a good lesson this week about staying focused and being prepared when opportunity knocks. Trading is a lot like fishing: You spend many hours just sitting there, watching and waiting. Sometimes you get a bite and sometimes you don't. It's very easy to get bored, distracted or tired and lose focus. But if you aren't in the right place at the right time, opportunity will pass you by. And if you are there, that one big catch can make it all worthwhile.
We've had a string of runners in the market lately. They tend to run in patterns, so when one pops up, you need to be on the lookout for more. Whenever we see one, it creates a feeding frenzy where traders are ready to jump on anything, anxious to catch the next runner. In a kind of self-fulfilling prophecy, they wind up actually creating the next runner.
You might remember that we had this kind of environment back in March and April, when stocks such as Mamma.com (MAMA:) were running.
Well, that kind of action has recently been returning in stocks such as Dynamic Materials (BOOM:), China Automotive Systems (CAAS:), LMI Aerospace (LMIA:) and GeoPharma (GORX:).
Early Wednesday morning we caught the GeoPharma news in my trading chat room and noticed it gapping up in the premarket from $4.43 to roughly $6.
Sometimes these news stocks run so fast, you have only seconds to catch them. I've moved my chat room to an audio format to try to minimize delay. We had just a few seconds to discuss the situation and make our move. Quick, decisive reactions are a must, so you have to be focused.
Let It Run
GeoPharma had a wild day Wednesday
Even though the stock was already gapping up 35%, we talked it over and decided to go long. One of the reasons was the small float and active volume. GeoPharma only has 7.7 million shares outstanding and a float of 3.2 million shares. But the more important reason was the recent "runner market." If you have a pattern of running, a euphoric crowd, a little news and a small float, then the sky's the limit.You need to get in right away, though, because runners will often take off early. Greed is a strong emotion, so in a frenzied runner environment, buyers will not wait long before moving in. Pullbacks, if they come at all, will be shallow. To catch them long you have to be prepared, recognize the early signs of a runner, and jump in immediately.
Trading on the West Coast, the market opens for us at 6:30 a.m. That means I need to get up and start scanning for news by 5 a.m. That early, I'm still pretty groggy until I get my second dose of caffeine. I tried a long around 6 a.m., but it wasn't filled so I just let it go and didn't pursue it further. I lost focus and let a great opportunity slip by.
My trading buddy Scott Whaley, on the other hand, is on the East Coast. He was much more awake, and much more persistent.
His order for 10,000 shares was filled at about $6.50, and naturally he set a tight stop. We had an upside target of $9, but when it got up around $8.50 Scott saw some stalling in level two and made his exit with a $2 gain. He then turned around and went short for another quick gain. He played it both up and down, making thousands of dollars before the market had even opened and before I had even finished my first cup of coffee. The early bird does indeed get the worm if he is focused.
Any news play demands focus, discipline and quick reactions. Intel (INTC:) was no exception after the close on Thursday, and again Whale beat me out and taught me a lesson about keeping your eye on the ball.
Instead of waiting around for Intel's midquarter conference call, I took off early. Whale, on the other hand, was sitting and waiting like a spider when the company raised guidance. It paid off. He immediately moved in long at $23.45 with 14,000 shares and a target of $24.50.
That might seem like an excessive number of shares at first glance, but if you assess the situation like he did, what was his risk? First of all, he is one of the most disciplined traders I know, always keeping tight stops. Next, Intel had not really participated in the recent rally, so there was a lot of upside potential. And it was a big guidance hike. He knew ahead of time what analysts were expecting, and he knew that Intel hadn't raised guidance this much in a long time. He also got in at a price not too far from Thursday's open price. So his risk was next to nothing. And his focus and quick reactions paid off in a fast $1 gain.
These kinds of opportunities do not appear every day, and they can fly by so quickly. To catch them, be ready for them. We may put in a lot of time watching and waiting, and many days we won't even get a nibble. But if we can keep our focus, one of those big catches can make it all worthwhile.
Minu arvates väga õpetlik lugu. Kauplema ei pea kogu aeg. Aga kui võimalus tuleb, tuleb sellest võimalikult palju kasu saada. Käib ilmselt ka investeerimise kohta.sB
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so?
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Scott Whaley lugu veidi pikemalt:
http://www.mtrader.com/meetmtraders/whale.htm
Päris lõbus lugemine.
Tartz? huh?
GORX-i puhul istus meie head-trader tol hommikul, näpp nupul ja nägu nagu küsimärk. Peek raputas pead. Pärast oli kolepaha olla küll :(
Kuigi ma eriti sellist ülikiiret tõmblemist ei armasta, siis tol korral oli vähemalt lühiajaliselt tõenäosus meie poolel. Coulda woulda shoulda. -
Bettie
tahtsin vaid öelda, et suurem enamus langeb neist tõenäoliselt esmaspäeval ka... -
AGA
midagi raban isegi ligi -
Tartz, asja mõte ei olnud mitte mingeid aktsiapicke anda, vaid lihtsalt oli see hea kirjeldus selle kohta, kuidas turul on võimalik raha teenida. Mainitud aktsiad on suures osas rämps. Aga näe, mingid vennad lõid selle rahaks.
sB -
Ja sel ajal kui Hr. East Coast ja loomulikult ka Hr. West Coast silmi hõõruvad, on eurpooplasel ammu plaan valmis mõeldud. Väike eelis meie kontinendile.
