Today was a great example of the overwhelming importance of the open in day trading.
The market gapped down on the after-the-close news Monday that North Korea fired a missile over Japan. And once again, as has so often happened in this bull market, the dip was met with buyers and the market started up almost immediately to close the day near its highs again. It hasn’t really gone anywhere in the last week or so but it’s moved up and down a lot, a perfect intraday environment for day traders.
At the end of the day Monday, two of my daily signal were on sells — short-term breadth and volatility — but the price signal was giving a buy for today’s open and long-term breadth, the most important indicator for the overall mass psychology of the market, was also positive. Long-term breadth also — not always, but usually — makes overnight news irrelevant. Going into the day, it wasn’t as if one could expect a home run but a single or a double might be possible.
So let’s go back to the open.
This day, as it turned out, was also great because it provided four of my bellwether stocks on individual buys for the open coming into the day — AAPL, FB, NFLX and NVDA. The criteria for those buy signals was that each stock ended Monday above its Monday open and above a short 3-5 bar average on a 5-minute chart. That simple. Now this is when day-trader must have faith and believe to put in market orders to buy at the open no matter what is happening in the overnight.
How did that turn out? Great day.
See the chart panel below. Not one of those four stocks threatened a loss from the open to the close with AAPL up 1.68% on the trade (on the charts, the number in the white rectangle on lower right is the return per $100K), FB was up 1.39%, NFLX was up 1.92% and NVDA was up 1.26%.
When I say “threatened a loss” I mean not one of those four stocks went back through its open at any time during the day. A close below the open is the stop loss. The trade is initially at risk for a stop loss five minutes into the day. That’s all. After that the trade, if not stopped, is in profits, and can then be managed on an whole set of additional criteria – break-evens stops, trailing points or percentages stops, technical indicators like the short term average, whatever…or just letting it play out to the end of the day (like today).
It needs to be noted getting stopped after five minutes happens. Quite a lot in some markets. There are only four things that can happen on any trade – a little loser, a little winner, a big loser, a big winner. Can’t do anything about the little losers and little winners but one must be able to eliminate the big losers in order to get the big winners. These first five minutes generally do that.
FYI, four more of the bellwether stocks meet the criteria for at-the-market buys on tomorrow’s open — FSLR, GS, TSLA, NVDA.
REMINDER: This information is for entertainment purposes only and should not be construed as investment or trading advice.
As for the today’s end-of-day:
SWING TRADING SIGNALS:
PRICE: Buy. (Day 2).
SHORT-TERM BREADTH: Sell. (Day 2).
VOLATILITY: Sell, (Day 2).
LONG-TERM BREADTH: Buy, (Day 3).
CNN MONEY’S FEAR AND GREED INDEX: (29 rising, at fear level).
NIFTY-50 STOCK LIST: 22 Buys; 6 Overbought, 8 Oversold, 6 new buys today, 5 new sells.
(click on the chart for a larger view)