My own feeling that as long as real people account for the majority of the volume being traded each day, even if only a very tiny majority, then nothing has changed for us.

News outlets and people who have space to fill in magazines, newspapers, and television shows, like to try and find a new bogeyman to blame for the financial woes in the world. The “computers are taking over the markets” argument often comes up when markets start falling dramatically. But computers aren’t driving the direction, the micro trades they make are simply following the price, they’re not making it. They might exaggerate price swings to some minor degree, but they aren’t the determining factor. (Incidentally, exaggerated price swings are great news for day traders like us, they make for bigger and easier profits!)

In the meantime, those of us who understand how to read price can continue to profit as we always have done – or even more so while prices are swinging even more than usual.

On a similar theme, shorting has been temporarily banned in some European countries I note. This is of course, a completely ridiculous measure that serves no purpose other than giving the impression that politicians are “doing something”. When you consider than on the other side of any short sale there has to be a buyer, it’s clear why shorting in itself is not responsible for falling markets!

Why not? Well as I’m sure you’ve figured out by now, I like to try and make my life easy and stress-free. So when it comes to trading, I look for stocks with large range and good momentum, because they are easier to trade profitably. Penny stocks have neither range nor momentum. So they’re hard to trade. But don’t just take my word for it, let’s look at a quick example which will illustrate the point.

Here’s a chart for RIMM (yes, it’s an old chart, this is a redux post!) It’s a simple line chart to make the illustration clear:

?
At the time of this chart, RIMM is what I would call a regularly priced stock. Look at the range the price moves in between 9:00 and 11:00 – it goes all the way from $53.80 to $55.50, which is a $1.70 move. If you could take a trade that caught even just a small part of this move, you’d be in for a decent chunk of profit.

If you were trading a thousand shares (easy to do on margin) and you took just 25 cents out of this $1.70 move, you would make $250 profit. 25 cents is around 15% of the move. So as you can see, regular stocks give the opportunity to make good profits even if you miss 85% of the action!

Now let’s compare that regular priced stock with a penny stock. Here’s a chart for ACAD, the same day as the RIMM chart:

The price is around a dollar, which to me qualifies it as a penny stock. In the same time period as RIMM above (9:00 to 11:00), the price moved just 6 cents. Even if we waited until midday, the maximum range was only 10 cents.

Clearly, to make any money trading this stock, you’d have to catch all of the move. Catching a whole move from start to finish is hard! Catching 15% of a move is easy.

15% of the move on RIMM was worth four times as much as 100% of the move on ACAD. I don’t know about you, but I don’t really want to work six times harder to make four times less money.

Now at this point you might be thinking okay, why not just trade penny stocks with bigger size, to make up for the lack of range? To answer that question, we need to add volume to the charts we just looked at. Here’s RIMM again:?

The volume bars are 5 minute intervals, so in our 9:00 to 11:00 range, the volume of stock traded was around 100 – 200 thousand shares every five minutes. Now here’s ACAD with volume:

The volume was under 20 thousand shares traded every five minutes, and most of the time, well under. So you simply can’t trade huge size with penny stocks, because most of the tine there’s nobody to take the other side of your trade.

To recap then: I like to make my life easy. Catching a small part of a large move is easy, and also very profitable. Catching a large part of a small move is difficult, and much less profitable. That’s why I don’t trade penny stocks.

I know a lot of people think the word business means boring sales meetings, endless conference calls, and regret fuelled office parties, but it doesn’t have to mean just that. When I talk about trading being a business, I mean that it is a professional occupation that should be treated as such.

For any business to succeed, it needs certain elements to be in place:

* A clear objective
* A plan of how to achieve that objective
* Competent staff who can carry out that plan

And in any business, there are some important functions that must be carried out in order to ensure its smooth running, and indeed ultimately its survival:

* Record keeping and reporting
* Accounting
* Budgeting
* Disaster planning
* Training

All of the above can be, and should be, applied to trading. Of course, for the average trader, the “competent staff” will be the trader themselves. They will likely also be the record keeper, accountant, and maybe the qualified first-aider too! But just because a trader is a one-man band, doesn’t absolve them from their duties as a business person.

So why do so many people ignore all this? Why do they think they can just open a chart and start trading? My best guess is that it’s because it’s so easy to “just start trading”. The barriers to entry are so low as to be virtually non-existent.

Think about it. If you decide you want to be a trader, what do you need? Some charts and data. That’s easy, there are free charting programs around, and data is cheap at a few dollars a month. Then you need a broker account. The recent crop of web based brokers let you get up and running in no time at all, and with a minimal deposit. Back in the day, you had to sign all sorts of bits of paper and mail them off along with proof of identity, solvency, etc. But that’s all changed, now electronic signatures make the task a breeze. At worst, an emailed scanned signature is enough to get going.

And that’s about it. With minimal time and money, literally anyone can become a “trader” overnight, or quicker. Compare that to starting almost any other kind of business, and it’s plain to see that trading is almost too easy.

This ease comes at a price. With so little distance between having the idea “I want to try trading” and making the first trade, there is little time to consider the training that might be required to make a success of the endeavour. Again, think about what might happen when starting virtually any other career, such as nurse, teacher, submarine captain, or architect. These are not professions you can start practicing overnight. The barriers to entry are high, and they force you to consider the training required.

Trading is not unique in being easy to start. The internet is opening up all sorts of areas of work that were previously the preserve of the well educated and well trained. Journalism and photography are but two examples. Now anyone with a keyboard and a camera can create work and get it online for the world to see. The difference though, is that an amateur photographer or blogger has little to lose aside, perhaps, from a small helping of self-esteem. The trader on the other hand, puts real money at risk the moment they open their first trade.

Low barriers to entry, and relatively high risk mean that many try, and many fail. Which is a real shame, because just a little research and training can make trading a viable option for almost anybody who is willing to put in the effort.

(Here’s the link to Mike’s video, mentioned in my video above)

1. The markets, as always, are so full of wonderful trades, sometimes it just doesn’t leave time to post.

2. I ran out of things to say.

That second one is the main issue. My last series of videos reached a natural conclusion with the final Let’s Get Practical film.

Doing more live trading videos isn’t really where I want to go, because they are of little value (they’re all the same after a while) and because they cost a lot in lost revenue while recording them (for various reasons I won’t bore you with).

Doing more content-based videos I think gives more value, but I want to make sure they are genuinely useful. So if you have suggestions for topics you’d like me to cover, do get in touch and let me know.

Anyway, back to trading. As I mentioned, the markets are awesome right now. I keep getting emails asking “Does your strategy still work?” or “Are you still trading?” etc.

Listen: a properly developed strategy that is based on fundamental market mechanics (or “price” as I prefer to call it!) will always work. My strategy, as anyone who’s read my course knows, is based entirely on price, not some wonder-indicator that only works in market that happens to be doing one particular thing – be that going up down or sideways.

As long as prices move, the strategy works. And prices move every day the market is open. All you need do is find the stocks whose prices are moving the most on any given day.

There are various ways of doing that, but here’s a really really simple one you can use right now: Pick 25 Nasdaq 100 stocks that fit in your price range.

In other words, make your daily watch list, a list of 25 stocks that come from the Nasdaq 100 list. Pick stocks that are trading within your price range as defined by your money management strategy. For example, stocks priced between $10 and $30.

It’s hardly scientific, and it’s certainly not the most efficient way of selecting a watch list. But as many people try and over complicate things, it’s as good a way as any of “dumbing down” and actually getting started (on paper, naturally).

Here are three trades from Monday that were Nasdaq 100 component stocks:

AAPL:

Ok, possibly a bad example I know, because it’s a high priced stock. Don’t forget though, with dynamic sizing you can make most stocks fit most budgets. So if you can’t trade 1000 AAPL shares, why not trade 100? It moves so well you can still make a good profit with smaller size.

Mondays trade went something like this (numbers relate to the circles on the chart):

1. Entered a short position.
2. Covered the short for +$0.50 (= $50 @ 100 shares, or $500 @ 1000 shares)
3. Took another short
4. Covered here for +$1.50 (= $150 @ 100 shares, or $1500 @ 1000 shares)

So even trading just 100 shares, there was a straightforward $200 profit to be had. For those who prefer the afternoon session, have a look at that lovely rally in the last couple of hours – easily $2/share to be had there (so another $200 profit if trading just 100 shares).

Right, next one:

AMZN:

1. Took a short
2. Covered for break even
3. Took another short on the break of the very obvious support
4. Covered for +$0.70 (= $70 @ 100 shares, or $700 @ 1000 shares)

And again, a lovely rally in the afternoon session, worth another $1/share without any trouble.

One more…

EBAY:

1. Took a short here
2. Covered here for +$0.20 (=$20 @ 100 shares, or $200 @ 1000 shares)

Ebay is a much lower priced stock, so although the profit per share was much lower than the other two, you could easily trade larger size to make up for it.

So there you have it – three Nasdaq 100 stocks providing simple trades. Now Monday was a particularly easy day to trade, but the point is there are easy trades like this every day – if you look for them.

“Eight ordinary people are given a million dollars, a fortnight of intensive training and two months to run their own hedge fund. Can they make a killing?”

This is being billed as “The Apprentice, but with stocks and shares”. Find out more here.

It’s nice to see mainstream TV showing what trader really involves, even if it is just cashing in on the current financial situation!

http://www.apple.com/itunes/download/

Once installed, search in the iTunes Store for “Harvey Walsh”, or just follow this link to get to my podcast page:

http://www.daytradingfreedom.com/podcast

Click “Subscribe”, and you’re all set! All my future videos, including my new series of how-to-trade videos, will be automatically delivered directly to you without you having to lift a finger.

First new video will be some time this week….

When I first started producing live trading videos well over a year ago, I broke new ground – I posted them to YouTube for all to see, and at the time, I was the only trader doing so. Then I started distribution through iTunes (more on that in a bit), again breaking new ground.

Since then of course, lots of people have jumped on the bandwagon, and the are loads of videos available on youtube and similar sites. So the bar has been raised, which is great.

The feedback to my videos has been overwhelmingly positive. But watching live trades all the time is only useful to a point. What I can’t do very effectively while trading live, is explain some of my thought processes. In other words, showing what I’m doing is one thing, but I want to explain more about why I’m doing it.

So I’ve decided to take my videos in a new direction. Starting next week, I’m going to be bringing you more background stuff. Instead of live trades, I’ll be sharing with you my thoughts on how to trade.

This is going to be quite organic, and hopefully interactive. I’ve not got a long pre-planned list of subjects to cover, instead, I want to use your feedback to direct me. If there’s something you want me to talk about in a video, then let me know.

I’ll continue to include live trades from time to time as I know they’re popular. But over and above that, the format is open!

Getting The Videos

I mentioned iTunes earlier, and I really think this is the best way for getting your hands on my vids. It doesn’t matter if you use a Mac or a PC, iTunes makes the whole process ridiculously easy. You simply subscribe to my video podcast stream (for free of course), and every time I release something, it’s automatically in your iTunes!

You can watch it straight away on your computer, or if you have an iPod or iPhone, just sync it up and watch wherever you happen to be when you have a few spare minutes.

The great thing about this way of getting the videos is there’s no problem with buffering, or the video stopping and starting during playback, because it’s already downloaded to your iTunes. It also means you can keep copies of my videos on your computer, so if you want to watch more than once, you don’t have to wait for it to download each time.

If you don’t already have iTunes, you can download it for free from here (there are PC and Mac versions):

http://www.apple.com/itunes/download/

Once you’ve got it installed, you can subscribe to my podcast either by clicking this link:

http://www.daytradingfreedom.com/podcast

…or simply search for Harvey Walsh in the iTunes Store. That will bring up my podcast page, and then you just click the Subscribe button.

Priority Access

I always make new videos available on iTunes before they can be seen anywhere else. Starting next week this will be even more the case – iTunes subscribers will get at least a 24 hour head start on anyone else.

Of course, I’ll still be posting videos here to the blog, if you prefer to watch in a browser. But if you want to be first to see what’s new, subscribing through iTunes (for free) is the way to go.

If you’re at all interested in using meditation to improve your focus and discipline while trading, then I highly recommend trying out the trial of these CDs. If you then decide to go for the whole set, they’re available with a full seven month guarantee, which is pretty impressive.

Here’s the site again: Meditation CD Set