Page 358 - THE MARKET WHISPERER

354 PART 10 - Winning Trades

Right at the start of trading, our trading room team executed a short
on Dean Foods below the $10 level. The stock had shown weakness the
previous day, and it seemed natural that it would continue dropping. At
breakdown the stock dropped by 61 cents [2] for five consecutive five-
minute candles, virtually without looking back. It was a great trade to start
the day.

Trending up: when a stock traded for a lengthy period beneath $5 begins
to climb and looks as though it will break out above the $5 level (being the
price at which some funds may begin buying), a situation is created where
traders familiar with institutional behavior starting “pushing” the stock
upwards in large volume, assuming that fairly soon the institutional funds
will start purchasing.

Important: When I am considering whether to trade in small caps, I
relate to stocks that belong wholly and solely to the stock exchange’s main
trading list. These stocks show daily volumes of above one million shares.
It is absolutely forbidden to trade in stocks not on this list, such as pink
sheet stocks, which you will easily recognize by the PK suffix next to their
symbol. I also believe you should keep away from “Penny stocks”. Penny
stocks is one of the most dangerous scams in trading. They are cheap for
a good reason. All institutional funds and big traders never trade or invest
in them. Beginners get attracted to penny stocks because they think that
they can profit easily and because penny stocks are cheap. In reality, penny
stocks are easily manipulated by scammers, very volatile and very risky
to trade. Scammers use junk emails, one page “Stock Picking” websites
and forums to push traders to invest in penny stocks. When the beginners
are buying the scammers are the sellers. Sometimes scammers go as far
as offering “Penny Stock Courses” or sell “Penny Stock Picking” services,
which is even more dangerous. In fact, novice, unexperienced traders, are
paying in order to be scammed.

How Can Small Caps Be Found?

Small caps are generally dormant stocks that “awaken” for a few days.
When they do, they can be identified on the first significantly volatile day
based on volume increase or sharp price changes, or on the following day.
We can expect that the momentum will keep them moving for some days.
Every day you should make a list of the small caps that appear interesting
on that day. You can identify them in various ways: by a follow-up list, or by
using free, simple programs called stock screening software which we will
learn more about later. Define these programs according to the following