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Sharing a few thoughts on Directional Trading now that I've started Trading it in a small way. Mike Bellafiore always says that 'you are only as good as the stocks you Trade'. The full implications of this very profound statement are only now becoming apparent to me.
You have to identify the best Tradable Stocks every day and marry them with 'setups with an edge' to give yourself the best chance of making Money. At SMB these are called 'Stocks in Play'. There are many ways of finding these.
I am currently using methods like identifying stocks which had large moves the previous day and closed near the top or bottom end of the Range- 2nd day Plays as they are called, Stocks with a news catalyst, Stocks with a Strong Opening Drive at the open etc
I have seen some very interesting methods of identifying such Stocks by @SubhadipNandy who uses OI combined with Volitility studies and by @jyotibudhia who uses OI in conjunction with the relative Position of Price on the chart and how it opens. I find both approaches appealing
The Stock Selection has to be fitted with a way in which to Trade it- the Setup. SMB has well defined Setups to Trade these kind of situations- The Playbook- which provides an edge or Positive Expectancy. Both the Traders I have mentioned also have a well developed methodology
Finally of course is the execution of the Trade. The entry, Management, exit both profitably or for a small loss and the discipline this involves is the main difference between success and failure and requires to be honed over many many Trades
Previously I used to think that I should focus on only 4-5 Stocks and Trade opportunities only on them. But I find this way more logical and fruitful by way of the opportunities it presents for larger potential moves and Profits. It's much harder work but appears to be worth it
Of course this way of Trading is new for me so these should just be taken as my initial thoughts on this subject and in no way as something that has achieved any measure of success. Hopefully will be able to write with more authority in a couple of months
