by Ken Long
One of the regular traders in our trading mastermind has made a successful practice of focusing on just a few stocks and ETF's in his short-term trading strategy. The rest of us have seen him develop an almost uncanny ability to anticipate his targets reactions to news, behavior at certain important price levels and generally stay in tune with the changing price action a day-to-day basis.
We asked him to go through some different ideas of what he looks for in order to develop his mastery and he was happy to share the following considerations with us. Take a look at these and you may discover that they can help you improve your trading as well.
Our master of focused trading examines the following things about the stocks and ETF's he specializes in:
1. the relationship of the stock to the sector it is a part of
2. the relationship of the sector to the market overall
3. the targets relative volatility with respect to changing market conditions
4. the targets relative volatility in terms of its own historical patterns and norms
5. the targets behavior upon release of major news items and earnings events
6. how the target behaves in response to economic news
7. the relationship between the targets of volume and subsequent price action
8. the relationship between volatility in subsequent gains
9. Where the target is in the business cycle and in the equity curve cycle
10. average performance statistics over various periods of time such as three days, 10 days, 30 days, quarters and year-to-date and 12 month trailing.
11. Important price levels for support and resistance and major turning points in the past, especially those dealing with high volumes
12. how the target behaves when the market is crashing or breaking out wildly to the upside
13. whether the target is considered a defensive sector a growth sector or middle-of-the-road
14. average statistics of overnight gaps and subsequent follow-through is
15. the relationship between price action as it approaches popular moving averages such as the 20, 50, and 200 day moving averages
16. any identifiable patterns based on time of day, day of week
17. any patterns of price action that relate to options expiration dates
18. pair trade possibilities between the target and other members of its business sector or the market in general
19. whether or not the target is likely to be affected by regional news or currency events
20. the strength of the correlation between the target and its business sector and regional ETF
He listed more than just these, but you can see from this already rapidly growing list just how much there is to know about any particular target. Knowing these details and having internalized them in order to be able to act quickly is an edge that it is not easy to offset.
Our mastermind has seen firsthand evidence of the power of focus, and so we suggest it as a strategy for you to consider in your trading.