Friday, January 26, 2007

Buying a Stock on Good News

A super stock trader posted this trading tactic in a chat room a couple years ago - he said others should pass it on so here it is. (I used it this morning successfully for CAT on its earnings report.) If a stock has significant news AND you like the news & want to enter a position, watch the opening five minutes. Take the high of that five minute bar and subtract the prior day's close. Then compute Fibonacci buy points using the 23%, 38%, 50% and 62% retracement levels (I use two digits for simplicity). Subtract from the five minute bar high price mentioned. These are your buy limit prices. Allocate your desired position according to your risk & perception of getting the stock you want, placing limit orders. This morning I just used the 50% level as I already had a 1/2 position & the stock is very liquid. I got a good fill on the bid side very quickly & could have gotten more about 30 minutes later. Put stops as you need them if you are a short-term trader, possibly at the prior day's close. There are two other ways to do this that seem to work OK, too. I'll post those later. (This can work for commodities, too, sometimes on a multi-day basis.)

No comments: