Slow Trader

Tag: stocks

  • Get in, get green, get out.

    My thought process is: get in, get green, get out.

    Get in:

    The first thing I notice is an appropriate stock coming up on my scanner. A scanner is software that searches for stocks based on predefined momentum criteria, such as relative high volume (number of shares traded), price, and price movement (how quickly and strongly the price is changing).

    Within the scanner, I check the float, which is the total number of shares available for public trading, along with the day’s volume (the number of shares traded so far today).

    If these numbers look good, I check the ‘about’ page (company description). Then I check for any recent news catalyst—a major event or announcement that could significantly affect the stock price.

    I then glance at the ownership section, which shows who owns the company’s shares and their stake size, to see how it is distributed among investors.

    If all looks good, I enter the ticker symbol (the stock’s unique identification code) to open the tape. The tape displays Level 2 (real-time order book with bids and asks) and Time & Sales (a list of every actual trade as it happens).

    Volatility—the degree and speed of price movement—can also be measured from time-and-sales data, which records every completed trade, including price (trade value) and size (number of shares per trade).

    Next, I scan the chart for price action, trading volume, RSI oversold signals, and the price’s position relative to the 50- and 200-day simple moving averages. RSI shows momentum by comparing gains and losses. Moving averages indicate the average closing price over 50 or 200 days.

    I then review the chart’s timeframes—specific periods displayed, such as 1-minute, 5-minute and 4-hour views—to learn about recent and historical price movements. I also mark key resistance levels, which are price points where the stock has had trouble moving higher in the past, before proceeding.

    Get green:

    Around 30 seconds in, if it’s an in-play stock (one with high volume and interest) and IWM sentiment is positive, I start looking for a buy setup (a trade entry opportunity).

    Finding a setup, which means identifying a favourable condition to make a trade depending on what’s happening in the market, may be instant, take an hour, or never come.

    A setup is a trade opportunity identified by analysing both the stock chart and the tape. Once buying starts, my focus shifts mainly to reading the tape to gauge the activity and strength of buyers and sellers.

    Get out:

    While the chart often provides a potential sell price by indicating patterns and key levels, my exit decision is ultimately based on reading the tape—watching real-time trades and orders for signals that the stock price may reverse direction.

  • The Russell 2000 (IWM) is a good gauge of market sentiment

    The Russell 2000 (IWM) is a good gauge of market sentiment for small-cap, low-float stocks. Last month’s post noted that the IWM was below its 200-day average; yesterday, it moved to a new high. Quite a recovery.

    During that same period, a few excellent low float stock opportunities emerged in the pre-market.

    I managed to trade some, missed others entirely, and on a few, only caught a small slice of a bigger move.

    At times, I held off buying for too long because the stock’s price was too close to a moving average or a significant prior high, which ultimately didn’t hold.

    Additionally, there were one or two stocks with ownership structures that made me wary—on one occasion, if I had acted, it would have been the trade of the day.

    Every day, I record specific lessons in my trading journal for each trade, such as whether a setup is reactive, my focus, and whether I’m reacting decisively to breakouts and recognising setups that fit my strategy.  

    Looking back over this period, trading was not as easy as the IWM index chart would suggest.

    Nevertheless, I have incurred only a few small losses during this period, and over the last several days, my trades have been 100% winners—not too big a boast, as our account is still too small to take more than one or two trades per day.

    So, I continue to wait for a setup I can fully commit to—an excellent way to trade. Even so, I have occasionally entered trades too late, which I’m now tracking and working to improve.

    Looking ahead, a change to the Pattern Day Trading (PDT) rules will be a positive development for me and for those who have started small and are self-controlled, profitable traders.

    The rule change is now in transition. With the change, as long as an account is above $2,000 (down from the current $25,000), it could qualify for PDT and would not be subject to a fixed capital trading requirement.

    With this adjustment, small accounts can use margin or leverage to make multiple-day trades. Of course, this is great if the trader is profitable, but not so good if they are not.

    Although already approved, this new PDT rule will likely not take effect with brokers until later in the year.

  • All we can do is show up daily and wait for the right trades.

    Why be a reactive day trader in uncertain times? Because I thrive on it.

    This is when experience as a reactive day trader really shines.

    Even though my trades last only minutes, understanding the bigger picture is always beneficial.

    To help keep perspective, I recommend Mohamed A. El-Erian’s free Substack for a regular global overview. Each week, he reviews the broader economy and markets.

    Since I trade low float U.S. stocks, I also track major indices like the S&P and monitor IWM in real time, typically on 4-hour and 15-minute charts. IWM covers about 2,000 small-cap U.S. companies.

    I also consider stock fundamentals, such as float size relative to daily volume. But mismatches aren’t always red flags; market context and news matter for interpreting float and volume.

    Ownership structure is a go/no-go. I prefer mostly private shares. If a large institutional or single-name presence exists, I usually avoid the trade.

    For companies with unclear ownership, I only trade after thorough research.

    A company’s work influences me, but this bias isn’t always reliable—I have favourites like biotech, pharma, and AI.

    Still, I assess most opportunities that hit my scanner.

    I consider a company’s location, though I try not to. If I trade a more exotic name, it’s later in the move, with smaller size and shorter hold.

    I now track my location caution in my Tradervue journal to gauge if it’s justified.

    Market sentiment matters. Recently, the IWM hovered near its 200-day moving average, dipped, and retested. For me, that signals scalp-only trades.

    I act reactively: enter as a stock climbs, exit when momentum weakens—before any pullback.

    The market may be bullish, but it is fickle. Few stocks see persistent buying. All we can do is show up daily and wait for the right trades.

  • The reactive trader

    Not really the trading period I was looking for to progress my twelve-month trading challenge. A couple of weeks after my last post, I didn’t record any trades. I turned up every day, but just watched and waited. Such a cold market. No opportunities for me. Probably opportunities for the larger fund, but even those, I suspect, would have been weak and fleeting.

    Some improvement, however, as we entered March. When I say ‘improvement,’ a few stocks in early March showed strong momentum. VCIG, a consultancy firm, was one. There were also a couple of Biotech and Pharma stocks, which remain my preferred low float opportunities. Other than that, Artificial Intelligence stocks moved occasionally. More recently, energy and defence stocks have moved, albeit irregularly.

    Previously, many stocks would have bounced significantly, but at the moment, I’m happy with a few cents of positive movement. This change in my expectations stems from the extended periods of waiting—weeks in February and days in March before a trade opportunity appears.

    These waiting times can leave me open to mistakes. To mitigate this, recording past trades on the tape (level 2, time and sales) for simulation would be highly beneficial. For example, when a trade popped up recently after days without activity, I entered it manually (rather than using hotkeys or hotbuttons). Still, I didn’t update the inside ask price before hitting the buy button.

    The difference was 30 cents higher than the anticipated price. The stock had a particularly low float and a significantly high relative volume. My limit order was executed immediately. Yes, I did manage to get a 70-cent profit. But with better execution, that profit would have been a whole dollar. Multiplied by the shares traded, it’s easy to calculate the difference.

    I primarily trade with hot keys tied to the ask price. I choose the ask over the bid, unlike most traders, due to my reactive style. I avoid predictive setups whenever I can. Though I sometimes slip, I’m improving at staying reactive.

    Let me explain what I understand as a reactive trade. As Lance Breitstein says, “trade on the right side of the V.” For me, that means whichever timeframe we’re using on a chart, the green bars (long) are winning. This is as opposed to red bars (shorts) winning.

    It is always easy to look at a chart in hindsight and, with total confidence, say, “This is the entry.” This perspective often shapes how most YouTube courses and the like sell their methods—it looks so obvious in hindsight. But, in real time, it is not as clear-cut. That’s why it is so important for each of us to find what works for us.

    Whether we are good with rapid change, whether we can read signals—be it price action, indicators, or both—and which combination suits us best and how proficient we are at reading the tape. Personally, to ensure I’m being reactive rather than falling into the predictive trap, I primarily use the tape. I check the fundamentals that matter to me, and once I have a suitable reaction on the tape, I check the chart for a worthwhile trade setup. This step-by-step approach helps me stay reactive.

    Sometimes a trade entry can follow this simple sequence, especially when the stock is moving so quickly: I glance at the necessary fundamentals, see the tape take off, check the chart for structure, refer back to the tape, and, a moment later, I’ve taken the trade. At this stage, most of my attention is now glued to the tape.

    More often than not, the process is slower. In these cases, I mark resistance levels on the chart and examine all necessary timeframes for clues. Then, I wait for the tape. The danger is during this wait, when we try—consciously or subconsciously—to predict price and chart structure.

    The arrow on the chart above shows an entry. Notice how, for me, the level 2 and time and sales dominate the area rather than the chart itself.

  • Why is trading difficult?

    We make trading difficult for ourselves, often by trying too hard. Trading is an odd skill to learn. It’s not like anything we’ve come across before. It really isn’t “The Wolf of Wall Street” stuff. Proper trading—the skills that mark a competent trader and that can generate lots of money come with extended periods of boredom.

    In cold markets, such as most recently, we can sit for nearly a week without a setup to take. But then, one comes along—it’s not perfect, but maybe good enough—and we have to go with it—trade it, let it move, take profit, and enter again and again if the stock has room to run.

    When suitable trades are not available, and we have the presence of mind to sit on the sidelines, watching and waiting for the best part of a week, it is, I think, quite a mature accomplishment. Something I have not managed previously until this week.

    A justified wait, too. When I reviewed each trading period, I was correct to hold; there had been no trades for me. Yes, some weak opportunities showed themselves, and others might have been available for the bigger account. But for me, looking for low float moves with some catalyst, there was nothing of note. Not just stubbornly waiting for “A” grade trades, but “B” grade or, at a pinch, a “C+”.

    The trade that became available at the end of the week was a “B”. At best, a “B” to my eyes, as the stock price already stood at nearly $9. Blue sky above, no resistance of note once price steadied above $9, all the way to $12.50. I gained a few cents on the trade up to the $9 level. Another setup appeared above $9, and a full-dollar trade was taken as the price eventually reached the $12.50 resistance and pulled back quickly.

    Why was it a “B” trade? At nearly $9, the price was a little high for my small account. Between $2 and $5 is ideal. The float was particularly small. A share float of less than 10 million but more than 1 million is about right—this stock had a float of only 500,000 with a wide bid/offer spread. Yes, volume was high, but liquidity was, as expected, reasonably weak. That made the exit a struggle, even as the price shot up.

    So why do we make trading more difficult than it needs to be? Simply because, when the market goes quiet for an extended period, we try to trade something anyway. Inactivity, boredom, and a general feeling that we ought to do something to justify our time. But, of course, when things do move—and it can happen in moments in the low float world—we have to pounce and not hesitate. A difficult balance to learn.

    We make things too difficult because most of us get those two scenarios the wrong way round. We trade when we should be patient, and on the sidelines, and when something does take off, we freeze or over-analyse.

  • Update on My Trading Setup and Strategy

    As we begin the new year, I wanted to provide you with an update on my trading strategy and the adjustments I’ve made to my trading screen, which I believe will enhance our efforts moving forward.

    Recently, I’ve dedicated time to organising my trading screen to improve my workflow. This organisation enables me to better monitor potential stock opportunities and respond to high-priority trades as they arise. Although I’ve been experimenting with various timeframes, setups, and indicators, the objective is to refine my approach to prioritise ‘A’ list trades.

    The adjustments primarily revolve around the Level 2 and tape information, which remain consistent with my previous setup. I have repositioned my information and context charts to the right of the tape, which seems promising. These charts help identify trends across specific timeframes using a single Exponential Moving Average and a Wilder line, enabling a clearer view of market dynamics.

    On the left side of Level 2, my primary entry chart is now a 1-minute or 2-minute timeframe. Data from my Tradervue results indicate that these timeframes yield higher success rates than shorter periods, such as the 10- or 15-second charts, which is encouraging and aligns with my overall strategy.

    Additionally, I’ve incorporated the Relative Strength Indicator (RSI) with key thresholds at 80 (overbought) and 20 (oversold) to better gauge market conditions. I have found valuable insights from Garrett Drimon of SMB Capital that have reinforced my decision to include this indicator.

    To maintain clarity, I keep my charts simple. The entry chart displays only the Average True Range (ATR) and the Volume Weighted Average Price (VWAP) line, avoiding clutter and making decision-making easier.

    In sum, as a short-term momentum trader, these enhancements to my trading setup will provide greater clarity on entry points and reinforce our trading strategy. The depth of trends shown to the right of Level 2, coupled with indicators to the left, will aid in identifying optimal setups. VWAP with session anchoring I’ve always included; however, the ATR dynamic stop-loss management is a new approach.

  • How to invest

    I have written about investments before. But it is worth going over again.

    The problem is the medium term investment area. Where most of us have our investments. Mutual funds, pensions and the like. This is the near term to 25 year investment timeframe.

    The investment area that works, if done correctly, is following Warren Buffet’s example of investing in undervalued stocks and holding for more than 30 years, indeed he doesn’t sell.

    The other area that works, but is difficult to master, is the very short-term stuff. I cover this every week in this blog.

    Okay, we have only two time-frames that we can invest with confidence: the very long and the very short.

    Why does the middle investment area not work? because of market volatility and the probability of a market crash within that time frame.

    A market crash for the Warren Buffet model, the very long-term investors, is just a blip in the big scheme of things. Not a problem. In the Buffet model we go through many crashes and use them as opportunities to add more stocks.

    A market crash for the day traders and daily chart readers (like myself) is not normally an issue because the signals of a crash will show on the day and get out stops are very tight for these type of investors. Actually, for these guys, if they’re good, a crash is a big payday. They’re taking it all from the mutual funds.

    For the Warren Buffet followers among us we need excellent fundamental information which we review annually. This information we’ll cover in another blog.

    On the other extreme, the short-term investors, day trading and daily chart reading, is not for everyone.

    So that leaves us back with what to do about the middle timeframe investing problem.

    If we have to be a middle term investor then avoid the traditional, heavily biased towards stocks, mutual funds.

    Watch carefully where the mutual fund invests. Few funds balance investments between cash, stocks, bonds and commodities. Funds that do this, and not being more than 25% invested in stocks, are extremely steady funds and good medium term investments.

    If we do have to go the mutual route then costs are a big factor. For every 1% that we pay a mutual fund will result in 20% to the fund managers over the medium time frame. Look for a cost of around 0.5%, no more. Same goes for pension funds.

    The majority of mutual funds, however, invest more heavily in stocks and most don’t beat the index. These mutual funds are in the danger zone. When a stock crash happens the fund profit and much of the capital is wiped out. Allow several years to get back to neutral. Not a lot of fun.

    So, if we have to invest in the middle term investments then look for: a fund (mutual and pension) that has low fund costs; and an investment portfolio that balances bonds, cash, commodities and stocks – and is particularly light on stocks.