Resource: EliteTrader.com, revisited

I think I will take back some of what I said about elitetrader.com. I posted some strategies there and included a link to this blog page for reference, and they deleted my post and blocked my account! I have to agree that elitetrader.com is probably one of the best resources there is about trading (because resources in the trading world is rare, and sharing of strategies is rarer). They may not want me to share strategies that are working for them, but it only makes me feel that this information needs to be shared.

Resource: EliteTrader.com

A great site for people looking for information on trading. I usually hang out there, but the culture there (and everywhere else in the trading world) is to keep secrets and strategies to themselves. Seeing the lack of public information out there, and the number of talented day traders turned down because no one is willing to lend a hand, I for one would like to change that. So this blog will be regularly updated for valuable information that no one else will share.

Basic Strategy: Riding a momentum

The basics of stock trading is to buy low, sell high or sell high, cover low. OK, but how? Do you wonder why some stocks keep going up and up and up? Momentum. It doesn't usually appear on large cap stocks (which on better traded for liquidity fees). This strategy can be used by traders with retail brokerages (I suggest IB).

In the morning, scan for news and abnormal premarket activities. If there is a stock with an abnormal premarket volume and it keeps going up, watch it. Check to see if it is a small cap stock. You need to find stocks that have a small float, so the supply will be very limited and we already know the demand is great. If it continues to go up when the market starts, buy it and hold! Obviously, it won't happen every single time, but if you buy with the same amount of money for 10 different stocks that fit the description, chances are 7 or 8 of these times will earn you money. Simple enough? You can also go deeper with more analysis, but experience tells me these stocks only move based on supply and demand theories, and you can ignore the bad propect of the company or how you think it will have bad earnings. If at that moment, everyone wants that stock, then it will skyrocket, simple as that. It's not too unusually to see stocks go up 20, 30, 100% in a day. Usually it won't sustain if you buy long term, but the momentum will usually last within the day.

Moderate Strategy: Earning liquidity fees from ECNs

For most day traders using retail brokerage, this will seem like a stupid idea. But for day traders trading with a firm that takes very little execution fees (like 1 cent per trade) or pays a flat fee for how many trades you make, this can be a very easy way to earn money. The basics: put limit orders on ECNs that will pay YOU liquidity fees for people to take away shares from your order. This used to only apply to NASDAQ, but NYSE is catching on. If you do it correctly, buying and selling at the same price (or even buying at a slightly higher price than the selling price) can earn you a handsome profit. What you want to do is:

• find slow moving, yet liquid stocks
• lower priced stocks will give you better profits because of less fees
• put big amounts of shares onto ECNs that have liquidity
• let people take your shares, and you try to cover your shares ASAP by using a limit order

OK, for seasoned day traders, I know you want to know some REAL strategies...here's a few:

If you have figured out a stock that will rise/drop no more than a certain amount per move, ie. MSFT will not drop 20 consecutive cents (just an example), then you can spread out your shares over the 20 cents, and each order will be the double of the previous order. ie. 100shrs at 27.50, 200shrs at 27.48, 400shrs at 27.46, 800shrs at 27.44 etc etc. Needless to say, this can be a dangerous strategy if it really keeps dropping/rising, but trading involves risk!

A modification of the above strategy: a stock usually accelerates faster towards the end of a run. For example, MSFT is dropping and is dropping at an increasing rate (review your Calculus). With experience and guts, you can apply the above strategy, usually at tighter price levels (ie. one order at each price level), and watch your orders get filled. This is where you will need guts: you will be losing money at this point, and you are losing more and more as the stock goes down faster, but you have to be patient. The bounce back is usually more rewarding. Once it starts to turn, you can either sit back a little and cover at a higher point, or you can buy even more shares and help push the bounce back. This strategy guarantees that you will get your limit orders filled, thus earning fees, and may reward you with the sudden bounce back which is usually a reflection of the rate of the decrease.

Modification on above strategies: you don't have to keep doubling in shares, try different factors, such as having 1.5times number of shares at each subsequent levels, or even just have the same number of shares.

Find programs that will tell you if a stock is increasing/decreasing at an abnormal rate, and that you have confidence in a bounce back. Apply the above strategies. Watching the charts of frequently traded stocks will also find those times when it is moving at an increasing rate.

With experience, determine when it is near the end of the run! Do not do this at the beginning of a run! If you know the stock's tolerance to these runs is 50 cents for example, only put orders starting at -45 cents! If it bounces back before your orders are filled, it's ok, just wait for the next run on another stock.

Do not use this strategy when news came out or other factors that you know will add momentum to the stock.

Wow, all that typing was just related to one type of strategy....OK, here are some tips for getting orders filled:

Put orders on liquid ECNs (BATS is a good one for more liquidity fees as well as abnormal buying/selling activities) (what I mean by abnormal buying/selling activities is that sometimes large buyers/sellers come on just that one ECN and take your stock without moving the price of the stock).

Queue up your orders early. Put in as many orders as you can in the morning (you can even do it premarket). Let the orders sit as the price moves. When your experience tells you the price will move against your order, simply cancel it and wait for the next one to be filled. If your order is filled and you think the price will move against you, it's ok to cover your shares by removing liquidity (this will cause you to lose fees). It's better than to lose gross on a large order of shares. Sometimes, you may be able to remove liquidity on a source that will let you pay less fees than you've earned initially, thus you have earned money. You will sense the full power of queuing priority in the afternoon if you queued up in the morning. Your shares will get filled and there are lots of shares behind you waiting to get filled, so you will have a cushion to move around.

On <$1 NASDAQ stocks, some brokerage firms will allow you to enter orders for up to 4 decimal places, ie. 0.9987. In this case, you may earn money even if you lose let say, $0.0005 in gross. Also, you can line up just 0.0001 before a large order to avoid competing with him. Check the ECNs liquidity fees schedule for below dollar stocks, it may be different.

There are so much more to tell, but I will leave that to a later date, depending on feedbacks I get and what you guys what to hear.

Advanced topic: NYFIX trading (also known as Millennium or MILN)

This is probably the most successful arbitrage strategy that regular day traders use. The basics is to find a buyer or seller trading under NYFIX, and try to exploit them. This is available for NYSE and NASDAQ. Retail brokerages don't have access to NYFIX directly, but many day trading firms do. This is how people earn thousands a day with limited risk.

I will reveal the complete strategy upon popular request. This only applies to the small percentage of people trading under firms that have access to NYFIX, so most of you may not be interested.

Questions for me?

Please post any questions you have on this site, so all users will have a chance to learn from it. This is only fair. No private questions please. I will answer questions promptly, so please visit regularly for answers to questions, feedbacks from users, and new tips and tricks I decide to pull out.

Welcome!

This is a page that will regularly updates with tips and tricks to day trading. Whether you are a seasoned day trader, or just a college grad thinking about day trading, here is the information that will help.