Day Trading Advice: Capture The Spread
Check out this video from Lightspeed Trading's Trader Talk Series. It's great advice from a real trader on what to do before you buy a stock. Visit http://www.lightspeedtrading.com/tradertalk.aspx for more unfair advantages!
Step 1: Capturing The Spread
One of the biggest things that I try to explain to all of my traders is capturing the spread. I think the most important thing that I could teach somebody is that before you go ahead and buy a stock, number one, know where it's coming from!
Step 2: Past Results
his means you need to look at a chart, look at an hourly chart, look at a daily chart and then go back and say alright what has this stock been doing for the past three months?
Step 3: Trading Mathematics
If stock is trading at sixteen fifty or sixteen seventy-five, the average trader out there, the average retail guy would pay the seventy-fifty, so you're immediately down two hundred and fifty dollars on a thousand share position.
Step 4: Bettering The Bid
Let's go ahead and buy fifty's and one of the great things about lightspeed we could go ahead and penny the fifty bid put in a fifty one bid and hide by going "H" on island. The other thing we could do is we could show it on Arca and we could hit reserve so that all we are showing is one hundred shares and even the people that are bidding fifty might want to hit you just to get you out of the way from what we used to call teening them in the old days, now you're bettering their bid by a penny increment, go ahead and show a hundred shares even though you have possibly a thousand and save yourself and really capture the spread.
Step 5: Electronic Communications Network
The other thing is all of the ECNs (Electronic Communications networks) out there who pay you to add liquidity to the markets, they charge you to take liquidity from the markets, so if you're at a sliding scale and you're paying five dollars plus pass crews or point zero zero five or five cents plus pass crews if you were to pay or buy stocks on the bid you're automatically knocking your commission down to three instead of seven and that's huge.
Step 6: Trading Spreads
A hundred thousand shares a day, it all adds up. Besides capturing that spread of twenty five cents, you're also gaining so much more knowledge and you're not just acting on impulse, you're being disciplined, you're showing patience and with that patience, that two hundred and fifty dollars, ten times a day, is a career, thats' twenty five hundred dollars a day, it's twelve thousand five hundred dollars a week, forty eight thousand dollars a month, it's a half a million dollars a year.
Step 7: Market Bidding
The only time that you should hit a bid, or take an offer is when you are wrong. The market is going to come into you, you're going to buy it where you want after you are in the position you are going to want to get out to another buyer at an attractive place. Sell into strength buy into weakness that's what good market makers do.
