A Great Video Lesson On Trading

This video is about an hour long. So grab a drink, take notes, and watch! Below are the rough notes on the video.

Rehash + Notes of the Great Streaming Video from C2 Trading/Ben Brinneman:
Video/conference was conducted on 12/26/2009 by Ben Brinneman (C2).

With added commentary and analysis by Jim Ditsworth in BLUE

Use limit orders, never market orders.

A Limit Order is a (Buy or Sell) order at the best price.

Market orders can be filled at unusual prices since they are handled by market makers. In other words, you can get screwed. Limit orders will always be filled at the best fill price. The market maker cannot hold onto the order and manipulate the spread for a profit.

Example: Stock is trading at 7.40 and you want to BUY. You can send a BUY limit order using any price above 7.40. This avoids chasing the price with consecutive limit orders that don’t fill.

Example: Stock is trading at 7.40 and you want to SELL. If you enter a limit order at 7.40 it may not fill. But you can type in any price below 7.40 and the order will execute immediately at the best fill price. By law, the market makers are required to fill your order at the best price.

So !! IMPORTANT !! If a stock is trading at $12.42 and you want to BUY the stock, you will place a BUY limit order above the current trading price so that it will almost certainly fill.

Commentary/analysis (using a little internet research):

Limit orders get better treatment on the New York Stock Exchange than on Nasdaq. Specialists on the NYSE floor are required to give limit orders priority over their own trades at the same price. In Nasdaq, where several dealers make a market in the same stock, market makers must honor only their own customers’ limit orders. That’s an improvement from the early 1990s, when Nasdaq dealers routinely ignored less-profitable limit orders. Now, when a Nasdaq dealer receives a limit order better than his own bid or ask price, he must either fill the order or route it to one of nine electronic markets, such as Instinet, Island, or Archipelago, for display to other dealers and investors.

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Understand what will happen when you place a limit order. It can only be executed at the specified price or better.

For a buy limit order, “better” will mean at or lower than the price you set; for a sell limit order, it means at or higher than the price you set.

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(RESTATEMENT OF THE IMPORTANT CONCEPT HERE)

If you’re concerned that the market may move away from your price before your order is executed, consider placing a buy-limit order that’s slightly higher than the quoted market price, or a sell-limit order that’s slightly lower. This allows for a small amount of price movement, while still protecting you from an unexpected execution price.

Market makers are not allowed to fill orders at a price worse than the market price, even if your limit order allows for it. Building in a little extra room to ensure your order is filled will not cause you to overpay—you should still be filled at the prevailing market price when your order comes to the front of the line.

C2 talked about the DJIA from the 1930s and compared it to now. There could be some weakness in the DOW that could manifest itself in the next few months. Be careful going long… Follow the charts. Don’t try to predict the future.

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(Here’s the Skype Chat during the video. Commentary is interspersed with the chat.)

anybody watching the video http://www.ustream.tv/channel/learning-how-to-daytrade

[12/26/2009 10:56:29 AM] rich.blinds: I can hear and see you fine

[12/26/2009 11:01:49 AM] alaska1004: How do you come up with the stocks you are scanning for the day?

Example: BIDU Stock is sitting at the lower vwap/bb on the 6month/daily chart

On a daily chart, look for stocks that are bottom/or upper bb

First of all, look for a stock on a long term chart that is either sitting at the upper BB and upper vwaps; or the lower BB and lower vwaps. If on the long term chart the stock is hovering over the lower BB and is encountering resistance, then you can consider going LONG on short term charts when you are bumping up against the lower BB and/or vwap bands.

If the long term chart of a stock shows the price hovering near the upper BB and/or vwap lines, and is beginning to encounter some resistance, then you can consider going SHORT on short term charts when you are bumping up against the upper BB and/or vwap bands.

Use FINVIZ.com with corresponding tables. See example.

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Look for stocks that have a big move on significant volume. Then go and check the news to see what, if anything, is driving the stock. Look for pullbacks to the opposite vwap (or just the middle vwap if the stock isn’t trading from band to band). Do a little internet research on the stock. Is the move warranted by the news?

You may be able to “catch the move” on news…

Commentary: Open up a new watchlist and put in ALL of the VINWIZ stocks, gainers, new highs, overbought, unusual vol, earnings before, insider buying, etc. Examine ALL of these on a 1 year-Daily. Do any of them meet the above requirements? I.e., are they sitting near an upper BB? Lower BB? Even better, near both upper VWAP and UPPER BB?

Hopefully you will find a few possibles for additional research.

[12/26/2009 11:02:34 AM] rich.blinds: You talked about the EMA flattening out when watching for a stocks movement. Is that when it is running up off the middle bollinger band or the middle VWAP?

Look at RIMM as an example. This is a daily chart. See the gap? This was a short in 71-72 price range.

See the following two charts but there are better ones below when this question is addressed again…

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Look at the EMA on the 1m and 5m charts and watch to see it leveling off. (Example RIMM).
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Here’s the 1 min chart from RIMM’s open on the GAP day. EMA (cyan line) is definitely flat or headed downward.

[What and when do you buy? ]

Look for stocks with big moves on DAILY charts that have been taken to an extreme. You are looking for a pullback. Find a stock that meets the TWS or VWAP parameters. Then switch to the minute chart and find a good buy point in the direction that you want to trade. “Trade with the trend.” This means on longer term charts, if the stock is generally headed higher, you will want to lean towards long trades instead of short trades. On stocks that are generally declining, lean towards short trades vs long trades.

Example: BIDU Options Play that C2 made. Waited for the price to settle down before making the buy. Used 3 day 5 minute chart at the start. Then switched to the 3 day 1 minute chart for the actual buy decision. When you sell, just watch the 1 min chart…

“And when it hits the upper vwap, sell and get out…”

[12/26/2009 11:11:58 AM] rich.blinds: So you bounce back between the 1 min amd 5 min?

[12/26/2009 11:13:29 AM] vnp1688: your entry is base on 1 min or 5 min ?

C2 uses lots of charts, including: 1 year daily, 5 month daily, 3 day 5 minute, then finally when it’s time to buy, he uses the 3-day 1 min.

The bigger time frames allow you to see the overall trend of the stock. Is it generally bullish or bearish?

Decision to purchase the stock is made on the 5 minute chart… Entry is based on the 1 min chart.

“On a 5 minute chart, the candles will sit right on top of the ema”

Jim’s note: EMA leveling off is still not entirely clear to me but I’ll take a look at the 5 min charts in addition to the 1 min charts from now on.

[12/26/2009 11:15:26 AM] rich.blinds: Would you mind discussing stop limits, when you use them and what distance you place between entry and exit

This is personal preference. You can use hard stops or mental stops. Good trading using our TWS and VWAP strategies should lead to very few stops actually happening. And our entry prices should be very good.

For buy trades: stop is 2 or 3 cents below the low of the day; or a “significant distance” below the lower vwap, or at a $300 stop loss. This occurs after the buy, after everything has lined up, after the 5-day ema has leveled out,

[12/26/2009 11:18:57 AM] C Squared Trading: http://www.ustream.tv/channel/learning-how-to-daytrade

[12/26/2009 11:19:03 AM] rich.blinds: So you use the upper VWAP to use to grab profits when its moving up along with the other indicators moving in the same direction.

Yes, when it hits the upper vwap, I’m out.

Mike’s rule: 3 tick rule. If it hits the upper vwap and doesn’t move higher in 3 ticks, he’s out.

This is a good rule that will allow the stock to run.

C2 sometimes sells ½ position on the run up to the upper vwap. Seems like a good idea cuz the stocks don’t always go to the upper vwap!

[12/26/2009 11:22:09 AM] vnp1688: why short MIC now

MIC is riding the upper vwap on the weekly and daily charts and is pretty high on the minute charts. It also has a high beta so if there is a bad day for the market, MIC tracks and follows the market but is more volatile so it should go down plenty.

[12/26/2009 11:25:31 AM] vnp1688: can u take a look on ATI weekly chart for me , yhx

Looks like a short.

[12/26/2009 11:25:57 AM] rich.blinds: Which stocks do you think will have some movement this week?

AAPL may go to 230. It’s broken out to a new trading range. Rumors of new tablet reader. But the volume has been key.

[12/26/2009 11:27:47 AM] rich.blinds: Will you buy options or the stock?

[12/26/2009 11:28:24 AM] rich.blinds: AAPL

[12/26/2009 11:29:28 AM] rich.blinds: Jan expiration

Like to buy the options on stocks that are up in the $200, $300 range. For AAPL, would need for the stock to pull back to the $199, $200 area. Options are tricky. Buying out of the money stocks can give you better pct return than in the money stocks.

[12/26/2009 11:33:40 AM] alaska1004: Had a good xmas. I am still in PUDA in my ira it has had a good run up. do you think I shud sell a portion or let it ride

Not recommending, but would sell at this time. Looks like a stock offering is in the works.

What will Jan 2010 bring?
Usually don’t care what the market is doing. Look at individual stocks and don’t try to predict the future. Look for triple whammies, setups, and vwaps. Don’t focus on overall stock market. But look for individual stocks that are moving.

Discussion of Level II stock screens and manipulation:
Level II screens show the buyers and sellers who are currently in the market. BID = buyers. ASK = sellers. You can get an idea of the strength of buying or selling from the level II screen. Another tool that you can use, but you have to learn how to use it.

Discussion of 2 monitor setup:
On left screen, has 3 level II screens, watchlist, charts in top left, main monitor, news, account…

[12/26/2009 11:39:12 AM] vnp1688: could u please repeat Rich’s question: You talked about the EMA flattening out when watching for a stock’s movement. Is that when it is running up off the middle bollinger band or the middle VWAP?

Timeframes are important. Wanted to buy RIMM and it was tanking from the 70s to 68 or so. On 5 min chart, the EMA was pointing down. On the 1 min chart, the EMA was pointing down. Playing off the bottom vwap. Watched as the 5 min EMA leveled off… Then switched to the 1 min EMA to look for buy point.

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This looks like the time in question. This EMA line (5 day 5 min chart though, not 3 day 5 min which C2 used) is still going down until the 9th candlestick past the last violation of the vwap. That was 9:45 when it finally leveled off. The decision to buy RIMM was made from this screen, as long as everything else pans out on the 1 min screen to follow.

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On the 1 min chart, the EMA line has leveled off at 8:59 or 9:00.

Watch the EMA on the 3 day 5 min and also the 1 day 1 min chart and stay out of the position until the 1 day 1 min EMA is level. Don’t try to catch a falling knife! Look for the candlestick confirmation above the ema. 9:00 candlestock has closed above the cyan ema here.

This is riskier, but C2 also likes to “buy in” when the stock plunges down deep below the vwap lines to hopefully get the lowest price, but then he still looks for ema confirmation (or a quick exit if the stock decides to tank!). This is the difference between scientific chart buying and art. Recognize the risk that is being taken. Or play it safe and don’t buy until the confirmation occurs.

Overview of next week:

Light volume. Stay out of stocks that are < 100,000 daily volume. Focus on the runners and oversold/overbought. Use charting. Let’s look for the runners though cuz you can make a bunch of $ on them if you can find one.

Secrets to trading:
Minimize the trades. Do 1-2 a week. And/or stick to rules. Don’t shoot in the dark like a midnight cowboy. Be consistent. Don’t try to make a big buck in one trade.

Be patient and add to your winners:

Remember to cut your losses. Don’t hold onto your dogs and/or your losses.

[12/26/2009 11:50:55 AM] rich.blinds: When you talk about adding to your position as a price rises, how much of your available trading dollars do you typically use, to use in long positions that you might hold for a few months versus a few days?

Allocate accordingly. How many shares? 10,000. First lot will be 3,000. As stock rises, another 3,000 (on a pullback). Finally, on another pullback, another 3,000. Keep adding 1/3 of a position at a time.

Price target or % target. And then scale out of the position.

Have an overall position in mind before initiating first trade.

[12/26/2009 11:52:58 AM] rich.blinds: It does thanks

[12/26/2009 11:54:25 AM] vnp1688: thx

[12/26/2009 11:54:48 AM] rich.blinds: This has been excellent, thanks for taking your saturday and time to continue to help out! Later.:)

[12/26/2009 11:55:15 AM] C Squared Trading: no worries! Thanks Ill be on next week. (dance)

[12/26/2009 11:55:34 AM] alaska1004: thx ben.