The Importance of Staying On Point All Day

01/26/2015 6:00 am EST

Focus: STRATEGIES

Steven Spencer

Partner, SMB Capital

Steven Spencer, of SMB Capital, follows up his previous post on pre-market preparation by discussing how he studies stocks in the later morning and afternoon sessions, so he stays focused and doesn’t lose momentum after the rush of the early morning opportunities.

Trading is a grueling and intense profession. There are stocks, futures, and scanners whirling in front of your face all day. Many traders develop very strong routines to make sure they stay focused and are able to execute their trading plans. In our previous post, we discussed the importance of a pre-market routine and how it helped us capitalize on opportunities when the market opens. In this post, I would like to discuss a tool we have built that I will begin using in the later morning and in the afternoon to make sure that I continue to focus on the best opportunities, and not lose momentum after the rush of the early morning opportunities.

The SMB Radar organizes the best stocks to trade on any given day. We run a series of algorithms on about 1,000 stocks and rank them throughout the day based on how they are behaving. At 10:15AM or so each morning I start to review the names that are listed on inPlay, Strong Today, and Weak Today rankings. I want to make sure that if a stock has shown great potential in the first 45 minutes that I am prepared to execute a trade in a stock that fits into my Playbook.

chart
Click to Enlarge

Let’s take a look at two examples from January 21. The first, GNC, popped up on the Radar after making a strong Opening Drive. In these two charts, you can see why I liked this stock’s setup. After trading higher right on the Open, it was in a tight consolidation at a key daily inflection point. Tight consolidations are great entry points for intraday trades as there is very small and clearly defined risk, and an inflection point is a price that a stock tends to move away from strongly if breached.

chart
Click to Enlarge

The second stock is ALNY. It was near the top of the Weak Today list and offered an interesting setup into the Close. It had been weak all day and was consolidating near its intraday low as we approached the final hour of trading, which is a time when large orders are executed. It also was just above major long-term support. So if that support was breached as orders began to pile in at end of day, we could be in store for a fairly powerful down move. Another factor that weighed in favor of ALNY heading lower was its status as #1 inPlay for the day, which increases the likelihood of a strong trend continuing.

chart
Click to Enlarge

So, these were just two of the better examples from the January 21st rankings. I’m sure if you perused other stocks listed in the Top 10, for each list you will find setups that are part of your playbook as well. The key for this to work and be a meaningful part of your results each month is to build in the routine to check-in consistently throughout the day. The tools are there to help you, but it only works if you are identifying the good risk to reward setups each day.

By Steven Spencer, Co-Founder, SMB Capital

Related Articles on STRATEGIES