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For those who have not already heard, the SEC has voted to remove the “short sale tick test”, Rule 17 CFR 240.10a-1 for all equity securities. Effective Friday, July 6, traders will be able to short all securities on an up, down, or zero tick.

WOW! All these years of having to wait for an uptick to grab a trade on the short side has finally resulted in the simple removal of the rule. This means that on Friday, short selling will be just as easy as buying a security, as the uptick rule will no longer apply. Faster fills on shorts will mean less slippage and a greater ability to add exposure on the dark side for those who are willing to trade it.

Up until now, ETF’s have been shortable on downticks, as well as select securities which were a part of the SEC’s short sale tick test. The Regulation SHO pilot program began in May 2005. It suspended all short sale price tests for a select group of over 1,000 equity securities. But now the gates will fling wide open and there will be no restrictions on what you can sell short on downticks other than if your broker has shares available to borrow.

Ironically, we just happen to be in quite a bull market with the NAZ at 52-week highs, so shorting heavily at this point may not be the solution to all your trading problems! Stay selective out there and don’t let a rule change dictate your next move. Stick with the charts and let them determine your course of action. It’s just that now when that calls for shorting a stock, it’ll be easier for you!

For more info regarding Rule 17 CFR 240.10a-1 and the SEC’s proposal to remove the rule, visit the following links:

http://www.sec.gov/news/speech/2006/spch120406ccc-10a.htm

http://www.sec.gov/news/press/2007/2007-114.htm

Trade with Discipline!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

Technorati Tags: Stock Market, Day Trading, Stock Trading, Investing, Swing Trading

Day trading candidates are often listed in the Bandit Broadcast stock newsletter for the more active traders at TheStockBandit.com, offering some additional opportunities to grab some gains on an intraday basis. With earnings season underway, we’re still swing trading some, but right now is a good time to shorten timeframes a bit until the scheduled news passes.

While most day traders pay close attention to the price action, one of the most important indicators for short-term momentum can be found in the volume levels, particularly in relative volume. I keep a close eye on relative volume via Trade-Ideas Pro, a real-time scanner. Relative volume is the comparison between current volume levels in a stock and what the volume levels typically are for the same time of day. So for example, if XYZ is hitting highs on 2x relative volume, it is seeing twice the volume today as it typically sees for this exact time of day.

On Monday night, GROW was provided for our members as a day trade candidate in the Bandit Broadcast with a $31.50 buy point. The stock had pulled back slightly on the daily chart, but the pattern wasn’t quite clean enough to warrant a swing entry. There was a small descending trend line just overhead which was acting as resistance, and a push up through that level ($31.50) was likely to generate a quick pop to the upside. Here’s the original chart that was shown with the trade:

(Click for full size.) Chart Courtesy of TeleChart.

On Tuesday, GROW cleared the $31.50 buy point not long after the market opened, and quickly shot higher as momentum players jumped into the stock. However, the relative volume was only running right at 1 in my Trade-Ideas filter, which meant it was merely average volume. With the stock up $1.20 past my buy point (a 3.8% move) in less than 45 minutes, I decided it was time to ring the register. I posted my exit on the Bandit Bulletin trading blog for members, and moved to the sidelines with a nice chunk of change. The comment I made at the time of my exit was that it was “too good of a move not to book when volume is only average.”

That proved to be true, and I was relieved to have pocketed the profits as the day progressed, with GROW slowly fading all the way back to the trend line area by the end of the day. Timing really is everything in trading. Here’s a look at the intraday chart which shows all of Tuesday’s trading, including the gradual slide back down after our exit:

(Click for full size.) Chart Courtesy of TeleChart.

Sometimes the simplest things can be the most beneficial to watch. Trade-Ideas offers some amazing tools for day traders, and yet I seem to find ample value in the Relative Volume feature (they have several new features in the works as well). So the next time you’re catching a nice move in a short-term trade, be sure the volume is strong enough to support it. If it isn’t, you’re probably looking at the perfect time to book that gain and move back to the sidelines.

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

Technorati Tags: Stock Market, Day Trading, Stock Trading, Investing, Swing Trading, Trade-Ideas

Yes it’s true, Day Traders are Making a Comeback on Wall Street! For years there have been quite a few of us, but I suppose the steady uptrend which started last summer and ran for nearly 8 months is part of the reason. Dirt-cheap commissions at direct-access brokerages also contributes to the rise of day trading, along with just greater education and awareness of active trading.

I used to purely be a day trader, but I’ve been swing trading more in the past few years. I still make a fair amount of day trades when I see inefficiencies that I feel I can capitalize on, and I’ll continue to do so for as long as there are opportunities to pull some profits out of the market, in spite of the ongoing debate about day trading.

If you’re considering doing some day trading, you’ll no doubt find it easy to get spooked away. With countless stories of traders who got their head handed to them (via TraderMike’s QuickLinks), you might change your mind before you ever even get started! However, there are a few things to keep in mind that are positive aspects of day trading:

Day Trading Helps You Manage Risk

It’s true! By looking “under the microscope” and shortening trading timeframes, the risk is inherently lower on a per-trade basis. Overnight gap risk is not a factor. Event risk is limited. Stated more plainly, closing out trades by the end of the day would have saved countless “investors” a lot of money by not holding onto losers!

Day Trading Offers Higher Leverage

Leverage can be a double-edged sword, and should be used only by those who understand & respect it. If you meet both of those requirements, you can get up to 4:1 leverage for day trades that will enable to you profit by a greater percentage than would be possible without margin. That’s a big benefit that offsets the shorter holding times of day traders, but I cannot stress the importance of understanding leverage and respecting it.

Day Trading Allows Money to Compound Faster

This is probably the biggest advantage of day trading, as the more rapid turnover of funds and adding up more small gains will lead to the faster compounding of money. Einstein called compound interest “the greatest mathematical discovery of all time.” That certainly supports the concept of frequent incremental gains adding up very rapidly for day traders, and it’s hard to ignore. Gary B. Smith made a great point a few years ago that a trader starting out with $5,000 who increases it only 0.5% each trading day will end up with quite an impressive sum after 5 years: $3,000,000!

So of course, do your homework, determine what trading timeframe is right for you and your needs, and investigate some day trading strategies. If you’re slow to act or if you’re a compulsive gambler, then day trading is absolutely not for you. However, it just might suit you and provide you with another trading method to build up your account.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

Technorati Tags: Stock Market, Day Trading, Stock Trading, Investing, Swing Trading

As I watched CNBC’s clip on the return of day trading Friday, I was entertained by the banter. On one side was Trey Robinson, an acquaintance of mine from CyberTrader who just happens to be the Director of Business Development (who would possibly know more about the scope of traders in the market today?). On the other side of the argument was Michael Farr, a long-term portfolio manager who clearly knows very little about day traders being that he only deals with buy-and-hope hold investors.

Day Trading Differently

Trey discussed the higher net-worth clients that are accounting for the increased level of day trading in recent months (there has been a lot of buzz lately regarding this), and it’s not surprising to hear that much of today’s trading crowd is notably different than the bubble crowd of several years ago.

Trey Robinson of CyberTrader discusses today’s day trader on CNBC. (Click image to launch video)

By taking a portion of their portfolio to day trade, the new crowd is able to diversify their timeframe rather than just attempt to match the market’s returns over time. They’re also using sophisticated tools to help execute their trading strategy while reducing risk. Truly a sophisticated new breed of day traders, no doubt.

Long-Term Investing Contradictions

As Michael started to speak about day traders, he wasted little time before jumping right to unfounded claims such as “these people are speculating and not investing,” and that “when the music stops, it’s over.” He also added that “when the general trend turns down, these people don’t make money.”

How ironic! He failed to mention that a long-term investor such as himself can indeed suffer considerable losses during a market correction, especially considering how few are hedged or short selling the way most day traders do. It’s also interesting to note that his long-term investors can be at greater risk than a day trader during a downturn, especially considering that they are mostly invested at all times and a day trader can take a position in cash (thereby preserving capital, not losing it).

Michael also failed to mention that even long-term investing also involves a level of speculation. After all, what guarantee does any investor have that his choice of investment (whether day trading or long-term investing) will produce a profit as expected? There are no guarantees in the stock market, regardless of timeframe.

Day Trading Reduces Exposure to Risk

On Friday at TheStockBandit.com, some members and I were discussing on my trading blog the sizeable downside gap in HAR after the company had reported earnings. Interestingly, a day trader would have had no exposure to the risk of an earnings gap which occurs overnight, but the long-term “investor” would have felt the full sting.

Same thing for the incredible downside market gap which followed 9/11: no harm to the pure day traders, but long-term investors needed considerable time to recover.

It’s pretty clear that even long-term investing involves significant risk (geopolitical event risk, earnings gaps, analyst downgrades, etc.), but one can easily argue that day trading reduces the exposure to risk due to the limited holding periods. Who can disagree with that?

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

Technorati Tags: Stock Trading, Day Trading, CNBC, Stock Market