RT Trading (Real Time Intra-Day), by J. C. ("Chris") Pratsch
PART II - Intra-Day Trading Techniques
A typical day of an Intra-Day Trader
So, now we have the computer, the software, connections to a reliable database and to a brokerage house, and the data come in. First, a watch list containing "good" high potential stocks must be constructed. We now observe on our screen how the price values of the stocks contained in our watch list(s) change. We click on a chart from time to time to see how price behaves in terms of absolute values and in relation to our "best" selected technical indicators. When "buy" or "sell" signals occur, we act.
In pre-market surveys, recommending stocks on the basis of after-the-market actions, in my personal opinion, such "predictions" most frequently are false, because the next morning already brings critical changes to after-market price levels.
Price action in the morning from the opening bell to about one hour into the day (Central Time in Houston 8:30 to 9:30 am) frequently is stormy; positions occupied or ordered during the night and from many parts of the world will be equalized by the major market players. This may cause great and sudden price changes. If one is in possession of a stock that runs up during the first hour of the news day, one may sell at its peak. If price drops considerably in the early morning, one may wait for price to turn back up. To order a stock in pre-market time (prior to 8:30 am in Houston) is not recommended as one will get a late price (5 -15 minutes into the market), and markets may already behave different from the predictions made before market opening
After about 9:30 CT am, about one hour into the day, the market "settles". Now one can apply trading rules as follows:
Medium-long stochastics (5.3, 7.3) and MACDs (12-20-8) are quite helpful to control price movements.
Of great importance is the behavior of volume of the market in general and of a particular stock. In the TCNet program, money flow or TSV ("Time-Segmented Volume") is an indicator that combines price and volume: When one plots a TSV signal (17, or shorter) over the price curve, the relative position of the TSV signal line versus price indicates what volume and price development is to occur. Often there is a time delay between TSV signal and price action of variable dimension; it may be a few to 20 minutes or more in intra-day actions. Price will always follow the TSV signal motions. Shorter TSV signals (3 to 6 or so) will add some useful "warning"-time, but they contain some signal noise. TSV signals longer than about 20 do not add any useful effect.
Important is to select stocks in the "right" position of the price cycles. For short cycles I use short stochastics like 2.1/2 and 2.2/2, also 5.3/3 and check stocks on daily charts. These signals should not exceed values of about 65 in order to have 2-3 days until their specific turn-over points (assuming a price cycle of 3-6 days). It is advantageous to check signal cycle behavior in the past, say, 3 months on the same stocks; stochastics may stay over 70 for a while.
Now to the "stock picking":
Ideally all "good" stocks from a watch list created the night before should increase in price. This will not happen. On days when markets trend strongly up, the success rate of stocks rising in price may be 70-90%, on negative-market trend days 30-50%. How then does one find the "right" stock at the "right" moment?
This is one of the greatest problems in intra-day trading. Here are some solutions:
It is interesting to speculate here a little on the future of intra-day trading, especially of automatic or automated trading systems. One can foresee further increases of market volatility and perhaps a general trend that further separates traders from investors. Market volatility most likely will increase, and stock price movements may be even less related to market news or to changes in fundamental company finances than before. But here - let's go ahead and start day-trading!
I personally, during a trading day
Thus, in a general sense, intra-day trading quickly turns into a time-consuming and much involved activity that one cannot treat as secondary or minor.
I personally do not, during a trading day,
In summary we may say that a carefully prepared and carefully operating individual can well participate in intra-day trading that should result in financial gains. It is not play but serious work. One will be well advised to do some "paper trading" in the beginning, that is theoretical trading on a piece of paper without investing of (own!) money. Only when experience is obtained should money be used for the real thing.
We should also mention the great theoretical and practical assistance every one interested in stock or fund trading can obtain from several Special Interest Groups (SIG) and their meetings under the HAL-PC umbrella in Houston.
J.C.("Chris") Pratsch has been active in computer-based intra-day trading for over a year. He started investing and trading of stocks and funds in 1966. He can be contacted at firstname.lastname@example.org.