Friday, 2 February 2007

Avoid Wide Ranges

online stock market buy sell chartOne of the important points, which a Day Trader would benefit to bear in mind is to try to avoid Wide Ranging Stocks. This is best explained by the example below:

Let's take two stocks from the FTSE100; AstraZeneca (AZN) & Sage Grp(SGE):

In general, AZN can have daily movements of up to 100 Pence or Points ( as it's referred to in CFD) or sometimes even more, whereas a stock like SGE could have a ceiling movement of 10 Points per day, obviously ignoring for days where these companies make their trading updates or their financial reports.

So taking the above explanation, we can easily see, if we opened a £1 PP position on AZN and the market was trending against us for a few days (let's say 4 days) our account could be something in the region of £400 in deficit by the end of the 4th day - take it from me, when this happens to only one of our positions, even experienced traders could lose their confidence as well as the large sum which they already have lost.

Whereas, In the case of stocks like SGE, even if the market went against us for a few days, as our losses are not as big, we could still hold on to our position and wait until the market turns in our favour. Hence, we have just proved one of the factors which would make a big difference in being successful or unsuccessful.

During my time as a trader, I have seen lots of traders going bust as a result of trading Long Ranging Stocks, because they eventually ran out of Margin and were forced to close their positions at a big loss .....

While we are on this subject, a certain stock springs to mind, which I reckon should be best left to those who keep large amount of cash in their accounts or alternatively those who play the market with virtually Pennies. The stock in question is none but our beloved Google (GOOG). In yesterday's trading I noticed Google at one stage, spiked a Candlestick of roughly $13.00 or 1300 points. Could you imagine what could happen if one was on the wrong end of this stock and was only a small player ......?!

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