Buy at pre-market if volume is large and be careful - AVNC

From the news, the company has drugs approved. BUT it is not a so excited drug according to my opinion. This is a concern!!!

Notice the large volume is pre-market and there is no heavy rising. This is a concern!!!

After market open, the price go up. I get in at $3.8. The high is at $4 and I get out at $3.72. Notice that EMA5 cross down the EMA34. LOSE MONEY!!!

What learned?
1) For high volume in the premarket, IF want to buy, buy at the pre-market. The reason? So many people get in, so there maybe no much rising room after market open. IF buy at $3.3 at pre-market, still have a lot profit.

2) Strengthen the idea that if EMA5 cross down EMA34, exit immediately. Don't wait to Fib ext.

Watch out the concern. Look at the chart carefully!!! Be Careful!!!

P.S. I update the whole day graph. It is a pretty perfect open high and close low example. It is confirmed my concerns on this stock. Some typical perfect examples is the open price is the highest price of the day and go down for that day. That's why I should wait to see the trend of the opening 1 to 2 minutes.

IDEA: If I have some concern on one stock, and it is still open and go up at the opening, if the price rise bigger than 50%, then I can short it when EMA5 cross down to EMA34.

Never shortting the leading stock - OMR

OMR found treasures under the sea. Look at the stock price. For the first 30 minutes, the stock go down for almost $1. If we short at the open, then look at the last 30 minutes of the day, then we can get the conclusion that NEVER short the leading stock. The reason? Even if the stock open too high, because it has a good news, there is no much room for it to go down. In other words, the risk is more than the potential profit.

Classical Day Trading of LUNA

This is a very classic day trading graph. Notice the following characteristics

1) Pre-market's volume is small. This is good because most of the buyer is not coming.
2) Entry point at $4.47 @ 9:33 AM EST. This stock breaks the screen criteria of volume>100K after market open. Check the news, bio company has positive result. The price is up. Buy in immediately.
3) Exit at the Fibonacci extension at $5.5.
4) Notice in 1 minute chart, the EMA5 never drop back under EMA 34 in the rising period

Crash!

How to manage the risk?

One way is to permit the maximum loss per trade to 1% of the account.

For example, a $100K account and 1% of the account is $1000. If the stock price is at $25 and the stop price is set to $21, then buy $1000/($25-$21)=400 shares.

The drawback is if a very stable stock suddenly go down a lot. For example, the bank company stock normally is very stable. So we can set small stop. If the price is at $100, and stop is set to $98, then we can buy 500 share. Those 500 shares cost $50K, that is 50% of the account value. If the stock gap down to $50 in one day, then we will lose 25% of our account value.

To prevent this situation, we can either set the diversity rule, that is no one stock can exceeds 20% of the account value, or just buy stock at the position value at fix percentage of the account value, say 20%.

When to buy option?

The only place to buy option is that I expect the stock price will move dramatically in short time and the stock has the possibility to gap in the opposite direction. If the stock is expected to rise, we buy the call and otherwise, buy the put.

For example, I expect AAPL will rise 20% in one week. But maybe AAPL will have small probability to gap down 20%. Notice the gap down. Buy call option can eliminate the gap down.
If the stock is a big stock and have very little possibility to gap large drawdown, then I don't have to buy the option the hedge the lost and waste the premium. I can just use the STOP order.

I don't consider the leverage benefit of the option trading here. Just consider the premium and gap.

The best place to buy the option is the stock price and strike price is the same. At this point, the premium has the best performance/price. For example, if the stock price is at $5, I buy the $5 option. If the stock price is at $5.5, the best bet is wait it back to $5.

But sometimes, you cannot get the stock price is the same as the strike price. In this situation, if you expect the stock will gap and surpass the strike price, then you have to buy in. For example, if the stock price is at $7, and strike price is at $7.5, if you expect the stock price will gap the next day to $8 and will never back to $7.5, then you can then buy the option at $7.

Staddle/Strangle option trading

When a stock is expected to move dramatically and we also do not know which direction the stock will go, then we can use option straddle/strangle strategy. The is the case on some Bio tech company. For example, DNDN, we don't know the future of the company very clear. If the company can get their medicine approved quickly, their stock will rock. But they can't get their drug approved quickly and short of cash or failed on their drug, their stock will go to zero.

So if I buy straddle/strangle, if the price move, we profit. If the price stays constant, we lose premium.

Then when to buy straddle/strangle? The less the premium, the better. So if the price option is at $5 and $7.5, and the stock price at $5/$7.5, it is the best place to buy the $5/$7.5 call/put. If the stock price is in somewhat middle, say $6.25, it is the best place to buy straggle, that is buy $7.5 call and $5 put.

When to buy option for day trading?

If a stock rises or downs greater than 40%, then when to buy option for day trading?

Only the volatile price drop will happen AND I cannot short the stock, then consider to buy the put option.

One situation is the stock rise for 40% in the pre-market, and then rise to 100%. And I cannot short. Then I may consider to buy some put.

2007-5-9 Trading of the day: DNDN

Today I traded DNDN and lost $0.6/share.

I opened my IB's top gainer screener, and found that DNDN was down about 50%. The first idea is they have trouble on approval. So I decided to short DNDN. Then I found that IB just doesn't allow to short on this stock. And at the same time, I found that DNDN is rising from $7.6 to $8. I didn't see the whole graph of the pre-market and changed my mind to BUY because the idea that it may rise flashing into my mind. I bought at $ 8.05 and set stop at $7.5. Then the stock started to go down. IB didn't execute my order. So I cancelled the stop limit order and immediate sell limit at $7.45.

What I have learned from today's trading?

1. IB doesn't support stop order in pre-market. (Maybe because it is market order. I can try stop limit order later.)
2. I have to see the whole picture before action. If I did saw the whole picture, I won't buy it.
3. This is what I already know. For the price drop like 50%, I have never seen one stock will go up in that day. Normally, it is bio stock and some really bad news comes.
4. I should read the whole news.

Other thinks:
The news said their approval for the drug will be delayed. According to the news, I do think the drop is too heavy and I can expect it may rise again. But for the recent two days, it might go down further, maybe to $5. So what I think the best to do is to buy a call at $5 two days later for long term position.

For short day trading, actually, it is ambivalent. I am not sure if it will really go down because the news is not a worst one. Buy a put at current price for short trading is not a good idea. And this stock is not allowed to short, the only thing can do is :
1) Wait to see if today it will have a heavy drop. If it go down to $5 in half hour, maybe I can get $1 retreat profit.