Tuesday, November 27, 2007

Stepping in Front of Size

Premise:

fairly thin NYSE and ASE stocks, jump in front of someone impatient and taking out a lot of size. Large buyers have trouble accumulating these stocks and when they buy they put the price against themselves. This strategy might not work before for shorts b/c of the uptick rule but that's been eliminated now.

For Buys

  1. A stock must have an ADX reading of above 30 and its + DI greater than its -DI, or the stock must have an RS reading of 95 or higher.
  2. The average daily volume for the stock should be under 200,000 shares a day. The lower the volume, the more money you will make with this strategy.
  3. The stock must be trading higher for the day. This strategy doesn't work for stocks down on the day.
  4. Most importantly, the buyer must show me he is impatient or I must see there is more than one institution trading this strategy. How do I know this? Because I am waiting for two consecutive higher bid prices where there is size to buy. ("Size" means 5,000 shares or more). For example, I want to see a market that has 5,000 shares bid at 52 and 1,000 offered at 52 1/4. I then want to see the big go to 52 1/8 or 52 1/4 with 5,000 shares to buy again. This means someone is desperately looking for stock.
  5. In the previous example, if the market goes to 52 1/8 bid (with 5,000 to buy) and 52 3/8 offer, I will pay the offer side. The only time I will ignore this higher bid is if I see 5,000 shares or more offered there. This means there may be a seller who can accommodate the large buyer.
  6. My protective stop is 1/8 point under the price of the original 5,000 share bid (52).
  7. Where I take profits is very subjective. Many times, if there is size on the offer side or if I see my new friend has been filled on his order, I will automatically take my profits.

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