To Hold, Or Not To Hold

By: Stock Barometer | Sun, Jan 25, 2009
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Bi-Weekly Stock Barometer No. 189
1/25/2009 9:14:07 AM

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The biggest question a day trader faces - and here's the answer.

Welcome to the biweekly stock barometer. This article comes out every 2 weeks and gives our big picture view of the market. If you're interested in following our signals and learning more about our system, then I invite you to click here and subscribe to the daily service - since the market can turn on a dime and so too can our interpretation as the market gives its daily clues to the future. Also sign up for our free weekly newsletter, where we provide Alerts from our various traders.

We offer a free weekly indicator chart if you visit our home page and scroll to the bottom. This chart will be updated each week, so be sure to check back frequently for updates. www.stockbarometer.com - don't forget to scroll to the bottom.

First of all, Day Trading really isn't defined. Sure, you can go on Wikopedia and it says:

Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions are usually closed before the market close of the trading day. Traders that participate in day trading are called day traders.

But I can also point to several day trading books that discuss holding positions overnight as part of a day trading strategy. So what's the issue?

The issue is risk. The market is only open from 9:30 to 4. That's 6 ½ hours. Or only 27% of the day. That leaves 73% of the day when the markets are closed (excluding after hours markets which are so thinly traded that I don't know one day trader that would venture into that area).

So - to hold a position overnight to a day trader, means they are exposing themselves to 270% more risk than had they simply held their position during the day. Throw in the fact that most day trades are open for a matter of seconds or minutes, then the risk of an overnight hold goes up almost infinitely.

So don't let a day trader tell you that they hold over night, because then they are simply not a day trader. That would be position trading. Let's put it into perspective.

As a day trader, you are trading very small increments in time looking for small profits on a percentage basis. But the key is that the trades you make should have a high success rate and result in more profits.

In order to benefit from these small pieces of profit, you need to trade large sums of money. And if you're popping in and out of the market with 100k per trade, then you don't want to expose yourself to any risk more than that you can control. You don't even want to look away from the screen when you have these positions on. You need to act fast to collect your profits and even more important, to keep your losses to a minimum. In day trading, money management is king.

Now think about it. If a day trader tells you that they hold positions over night, ask them if they use the same amount of trading capital as they would when trading during the day. I can guarantee to you that they will say no. No one in their right mind would take their day trading capital, that they're so protective of during the day, and then risk it over night in a stock that could gap down upwards of 50%...

That's a loss that will wipe them out. A loss that large will send them back to wherever they came from and they'll spew more and more myths about how dangerous day trading is.

It's not that dangerous, as long as you follow your rules, stay within your system and never RISK too much of your capital in one trade.

If you're going to hold things over night, that's position trading and you then would need to greatly reduce your trading capital and risk per position.

Live to trade another day. Protect your trading capital.

Think people are not trading? Actually, I can tell you that trading volume is increasing. Maybe it's because more people in the financial arena are out of work and in need of money. Which will lead me to my next topic - trading as a business.

Join me in my next bi weekly article and we'll talk about how to treat day trading as a business.

Ok, on to this week's charts.


Explosive Stock Alert
5 position trade/portfolio - Issued as dictated by market action.
$9.95 per month or $95 per year.


Message From The Markets

Market action is ruled by sentiment and by monitoring market internals and studying sentiment you can reasonably predict future market movements. The basis of the Stock Barometer system is overlaying extremes in sentiment with sound technical analysis to predict the likelihood of future price movement. Each indicator and chart measures the hope, fear and greed of investors and traders from different angles. Follow along with my charts and over time, you'll also learn to understand how to read the markets, which is essential prior to setting up each and every trade.

STOCK BAROMETER CHART

The Stock Barometer is my proprietary market timing system. The direction, slope and level of the Stock Barometer determine our outlook. For example, if the barometer line is moving down, we are in Sell Mode. A Buy or Sell Signal is triggered when the indicator clearly changes direction. Trend and support can override the barometer signals.


Day Trading Edge - with Paul Soo
Join a professional Day Trader as he navigates you through 2 to 10 trades per day


EQUITY PUT CALL RATIO CHART

The CBOE put/call ratio is comprised of two sets of data; equity options and index options. The index component contains items that are used as a hedge, thereby distorting the correlation and interpretation of the indicator. We use the equity put/call ratio. This is one of the most accurate read of investor's fear and complacency and thus an accurate contrarian view of the market.


The Advantage Report - with Angelo Campione
S&P and Nasdaq Market timing advice for only $10.95/month


TRIN/ARMS CHART

The arms index or also referred to the Trading Index or TRIN for short, is a measure of the ratio of up stocks and down stocks divided by the ratio of up volume and down volume. Our Spread Chart converts the arms index data into momentum Buy and Sell Signals.


Patrice V. Johnson's - J.E.D.I. Trader
Stocks, Options and Options on futures advisory service (up over 100% in 2008).


TICK CHART

The tick index is represents the sum of all stocks ticking higher minus all stocks ticking lower (a stock is said to be trading on an up tick when it trades at a higher price than the last sale). It's utilized as a day trading tool as it gives you an up to the second read of the intensity of buying and selling.


Lynn T's 1-2-3 PLUS Alert
Provides buying and selling advice with 1/3 Index positioning for trends
use 2.5x Leverage and our advice as a hedge for your current portfolio.


BREADTH (ADVANCE - DECLINE) CHART

Each day several thousand stocks either advance, decline or remain unchanged. The number of advances and declines normally ranges from +2500 to -2500. A high number of advancing stocks normally marks a top just as a high number of declining stocks normally marks a bottom. Monitoring the 5 and 13-day moving averages of this allows us to better predict future prices.


Bill West's Fat Pitch ETF Advisory
ETF Advisor trades a diversified portfolio of the hottest Exchange Traded Funds.


VXO CHART

The VIX is a measure of volatility on options pricing. We use the old VIX, which is now called the VXO. The higher the volatility, the more likely the market is close to a bottom, as traders are willing to pay more premium for puts, which act as Insurance on their long positions.


The McMillan Portfolio ($18.95/Month)
Get specific advice to manage a portfolio of Stocks and Options


Cycle Time

Monday will be day 40 in our UP cycle. That's quite extended and normally we don't remain on a BUY Signal for so long. But we remain bullish so we've remained in Buy Mode as the market continues to remain above support.

The Stock Barometer signals tend to follow a 5, 8 and 13 and sometimes 21 day Fibonacci cycle that balance with 'normal' market cycles. Knowing where you are in the current market cycle is important in deciding how long you expect to maintain a position.


Stock Options Speculator
SOS recommends very aggressive stock options plays that target >100% gains.


Potential Cycle Reversal Dates

2009 Potential Reversal Dates: 1/20, 2/11. We publish these dates up to 2 months in advance.

Ok, if you joined me last time, we now have the inverse to our initial call, with a move lower into 1/20 and a call to move higher into 2/11. That being said, the markets so far have spent a lot of time moving sideways - which isn't a direction we call because we generally can't make money in that direction (unless you join us in our options service).

My timing work is based on numerous cycles and has resulted in the above potential reversal dates. They're predictive and have nothing to do with the barometer cycle times. Due to their accuracy in the past, I post the dates here.

2008 Potential Reversal Dates: 12/31, 1/11, 2/1, 2/13, 3/6, 4/5, 4/22, 5/23, 6/6, 6/27, 7/13, 9/2, 10/3, 10/22, 11/10, 12/11. 2007 Potential Reversal Dates: 1/10, 1/14, 1/27, 1/31, 2/3, 2/17, 3/10, 3/24, 4/21, 5/6, 6/15, 8/29, 10/19, 11/29, 12/13, 12/23, 12/31, 1/11/08. 2006 potential reversal dates: 1/16, 1/30, 2/25, 3/19, 4/8, 5/8, 5/19, 6/6(20), 7/24, 8/20, 8/29, 9/15, 10/11, 11/28. 2005 Potential reversal dates: 12/27, 1/25, 2/16, 3/4, 3/14, 3/29, 4/5, 4/19, 5/2, 6/3, 6/10, 7/13, 7/28, 8/12, 8/30-31, 9/22, 10/4, 11/15, 11/20, 12/16.

Stock Barometer Buy And Sell Signals

QQQQ or SPY Chart: A chart is provided in every bi-weekly report and shows the barometer Buy and Sell Signals (which are provided in my morning updates) as well as showing the next highlighted 'reversal' window. The numbers adjacent to the buy and sell signals are the number of days between signal (cycle time).

Here's one years of our end-of-day buy and sell signals for the Stock Barometer over the past year. They're marked on the QQQQ chart with red and blue lines (or red and blue arrows).

 

2/11

Projected SELL Signal (52 days from last signal)

 

11/25

BUY (3 Days)

 

11/20

CASH (27 Days)

 

10/14

BUY (11 days)

 

09/29

CASH (6 days)

 

09/19

BUY (11 days)

 

09/04

SELL (41 days)

 

07/08

BUY (11 days)

 

06/20

SELL (4 days)

 

06/16

BUY (6 days)

 

06/06

SELL (6 days - intra day signal)

 

05/29

BUY (5 days)

 

05/21

SELL (4 days)

 

05/15

BUY (6 days)

 

05/7

SELL (13 days)

 

04/18

BUY (7 days)

 

04/9

SELL (19 days)

 

03/12

BUY (2 days)

 

03/10

SELL (3 days)

 

03/5

BUY (3 days)

 

02/29

SELL (13 days)

 

02/11

BUY (4 days)

 

02/5

SELL (8 days)

  (historical reversal dates are published on our home page)

Use the following spread/momentum indicators to assist in your trading of the QQQQ, GLD, USD, USO and TLT. They are tuned to deliver signals in line with the Stock Barometer and we use them only in determining our overall outlook for the market and for pinpointing market reversals. The level, direction, and position to the zero line are keys in these indicators. For example, direction determines mode and a buy signal 'above zero' is more bullish than a buy signal 'below zero'.

Gold Spread Indicator (AMEX:GLD)

Want to trade Gold? Use our signals with the Gold ETF AMEX:GLD. Gold gives us a general gage to the overall health of the US Economy and the markets.


Angelo Campione's Advantage Credit Spreads ($49.95/month)
Using Options to Target Consistent & Conservative Profits - up over 100% in 2007!


US Dollar Index Spread Indicator (INDEX:DXY)

Want to trade the US Dollar? Use our signals with the Power Shares AMEX:UUP: US Dollar Index Bullish Fund and AMEX:UDN: US Dollar Index Bearish Fund.


The McMillan Letter ($8.95/Month)
Join Analyst Mark McMillan as he identifies current opportunities


Bonds Spread Indicator (AMEX:TLT)

Want to trade Bonds? Use our signals with Lehman's 20 year ETF AMEX:TLT. The direction of bonds has an impact on the stock market. Normally, as bonds go down, stocks will go up and as bonds go up, stocks will go down.

OIL Spread Indicator (AMEX:USO)

Want to trade OIL? Use our signals with AMEX:USO, the OIL ETF. We look at the price of oil as its level and direction has an impact on the stock market.


Stock Barometer Premier Membership
Receive the Daily Stock Barometer, Stock Options Speculator, QQQQ/Rydex Trader, Fat Pitch ETF Advisory & Explosive Stock Alert all for one low price.

Earn Money referring us to your friends, family and other traders. Click here for details.


Summary & Outlook

We remain in Buy Support Mode, looking for the markets to continue higher into 2/11.

So why do we include charts of gold, the dollar, oil and bonds every day? 2 reasons. First, because these ETFs are easily tradeable. If you want to trade something that doesn't move too much but is more predictable, this is where I'd suggest you start.

Second, to reach big picture conclusions about the market. Oil has come down quite a bit and looks to be forming a base here. I'd be a buyer on a move over the previous high. Bonds are moving lower - which can be bullish for the market as they tend to feed stocks when they drop. Gold is moving back towards new highs - which suggests the potential for inflation. But then so to is the dollar moving higher. One of these is right - and that should resolve soon with the market finally making a move.

How's that play into our call? Well, if we do break below this support level (on the Qs) then we'll move into Sell Mode for a retest of the lows. It may happen very fast, so stay tuned to our daily service for a signal.

I hope you enjoyed the biweekly stock barometer. This article comes out every 2 weeks and gives our big picture view of the market. If you're interested in following our signals and learning more about our system, then I invite you to click here and subscribe to the daily service - since the market can turn on a dime and so too can our interpretation as the market gives its daily clues to the future. Or sign up for ourfree weekly newsletter and get up to date articles from our various newsletters.

We offer a free weekly indicator chart if you visit our home page and scroll to the bottom. This chart is updated each week, so be sure to check back frequently for updates. www.stockbarometer.com - don't forget to scroll to the bottom.

As always, if you have any questions or comments, feel free to email me here at jay@stockbarometer.com.

Regards,

 


 

Stock Barometer

Author: Stock Barometer

www.stockbarometer.com

Stock Barometer is completely independent. We have never and will not ever accept compensation from any company whose stock we recommend.

Our goal is to make you money. We offer you the tools and information to do so and leave it to you, the individual investor, to apply them in the best way possible.

Important Disclosure: Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

Investment Research Group and all individuals affiliated with Investment Research Group assume no responsibilities for your trading and investment results.

Investment Research Group (IRG), as a publisher of a financial newsletter of general and regular circulation, cannot tender individual investment advice. Only a registered broker or investment adviser may advise you individually on the suitability and performance of your portfolio or specific investments.

In making any investment decision, you will rely solely on your own review and examination of the fact and records relating to such investments. Past performance of our recommendations is not an indication of future performance. The publisher shall have no liability of whatever nature in respect of any claims, damages, loss, or expense arising out of or in connection with the reliance by you on the contents of our Web site, any promotion, published material, alert, or update.

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