Truth be told I am somewhat amused each morning when our intern AGray pops by my station seeking our “Best AM Idea” for the Open. I am a trader and not a predictor. As a trader part of your job is to identify the MOST important prices in a stock and if a stock touches one such price you are obliged to figure out what trade to make, if any.
This morning before the Open my mentee asked me about getting short EL below 55. I said to him that seemed like a reasonable idea. As Bella would say that was an incomplete answer. What I should have said to him was that shorting a weak stock below support is a good trade BUT what happens if the support level drops and there are a ton of people prepared to buy right below the level? What happens if EL quickly takes out the pre-market resistance level and finds higher ground? I probably also should have asked him if EL had a history of bouncing after showing significant weakness. By asking such questions I would be in effect prompting him to open his mind to a bunch of different trading possibilities.
It is great to come in with a bias and a plan before the market opens. But please allow your mind to remain open to other possibilities. If not, you will severely under perform as a trader.
This was one of my stocks for the Open. But then I realized that it had a conference call at 9:30 AM. Would you avoid trading a stock with a conference call on the Open, even though it is driving up strongly like EL did today? I feel that you never know what the execs are going to say during the conference call, so I’m worried about unpredictable sharp moves that could result.
Dax, I trade at home, so yes, I do take such things into account by researching briefly the news for a particular stock because if I avoid the trades that can result in problems because I just can’t be as fast as someone who works at a prop firm (no sweep keys), not only do I protect my trading capital, but also my mental one. One kind of trade that works for me is when the CC is around 10 to 11Am, and the stock is clearly uptrending into it, I will take that and get out before the CC.