Guidelines for Intraday Play

A friend of mine asked me for some guidelines as to how I pick intraday plays. So instead of replying to him alone, I thought it would benefit more people if I document it in my blog.

Here are the guidelines:

Pre-Play Preparation

• Typically, I keep abreast of the developments in the various industries/sectors to know what moves the market and individual stocks and by how much.
• So when a news is released, I would need to quickly assess where the stock/market should be moving and estimate by how much. Some stocks need a little piece of news to move a lot while others need a big news to move. e.g. Tech stocks such as RIMM, AAPL, moves a lot.
• For shorting, look out for weak stocks that gapped up and the price is not justified. (However, you would need to be aware of the short rally (over a few days) even for a stock that had been dropping).
• For long play, look out for strong stocks that gapped down.

The Options Play

• Typically, if I play the options, I would like to see a movement of at least $1.50 from my entry point so that I could make at least $0.75 (assuming every 10cts will give me 5 cts in options). i.e. I could make $75 per 1 contract of options.
• I normally play more than one contract per play. (However, for those who are new to this game, please play 1 contract at a time until who have gained enough experience and confidence. If you play big, you could lose big.)
• Choice of options - front month options with the strike price close to the market price, typically out-of-money options.
• Entry and exit depend on the chart formation based on a 5-min chart over a 5-day period and the price movement.
• Identify the support and resistance over a five-day period (if needs be, over one or 3 mths)
• Wait for the right setup before entry.
• Mental Stop Loss must be identified (based on the 5-minute chart) and strictly followed.
• Be aware of time-decay especially if the options is less than 5 days before expiry.

Mental Preparedness

• You need to have a clear mind when you play this game. This is extremely important as you need to cut your losses immediately after your stop loss is triggered. No distraction should be allowed from your trading/home environment.
• While you may have multiple targets, be prepared to close your position immediately and lock-in your profits once any one of your targets is met and the stock starts to reverse. (I assume you have less than $25k in your fund).
• One should not be greedy when playing this game.
• As this is an Intraday play, you must close within the day. The trick is to catch the short trend till it is about to reverse or wait for it to reverse until it is about to reverse again.

- PersianCat04 (Millionaire-in-progress)