Day traders are always searching for an edge. From the start of their day trading career they read anything they can get their hands on. From "Beginner Guide to Online Day Trading" to "Day trading stock online." Day trading equities is very tough business and only the tough and INFORMED will survive. But survival is not the point. The point is not to survive but to thrive.
Here we find a very reliable and profitable strategy:
Inverse relationships
One of my favorite tried and true strategies involves trading stocks that have
an inverse relationship. I have made very good money trading oil and
transportation stocks. I tend to focus on the bigger oil stocks (IE: XOM,
CVX, COP, HES, and BP) and the airlines are my favorite on the
transportation side (IE: CAL, AMR, UAUA). When oil is down you will see
the airline stocks usually take off relative to the decrease in the price of oil.
This happens due to the cost of jet fuel for the airlines - this is by far their
largest expense and a nice dip in the price of the commodity sets the stocks
off on a nice spike up. Of course, the opposite is true as well.
The way I play this move is to keep my eye on CNBC and the futures price
of oil. Obviously it is not as easy as straight buying the stock as soon as you
see the direction of the price prior to open but it does give a nice direction
that often plays out for the rest of the day. At times the market will become
choppy or volatile and you have to pay closer attention or back off of this
move altogether. Most of the time, however, it will play out and provide a
nice return. I always use limit orders and usually wait until 10:00 or 10:30
EST.. If oil is up and moving to a high or near high for the price of the
commodity then I will place a limit order about a ¼ point above its high. I
will then turn around and do the same for the short side on the inverse stock.
For example, oil is up .45 at the open and stays about the same for the first
30 minutes. At 10:00 it begins to turn up for the next 20 minutes - this is
usually a pretty bullish sign for the oil stocks so I will put my limit order in
on XOM and turn around and put a short order in on CAL.
This is more of a day trade than it is a swing trade so I usually check in on it
on an hourly basis and lock in profits (something I like to do with all of my
day trades). I have also found these stocks to be very good gap trades; we
discuss this more at our blog site (Beginner Guide to Online Day Trading).
Keep in mind that the 10:00 hour is a very important time period for this
trade because this is the start of the NYMEX Open outcry. Trading closes at
2:30. After hours futures trading are conducted after that period of time. This
is good to know because volume really picks up during the open outcry and
most importantly the real direction of the price unfolds shortly after the
open. That is why I tend to look for the commodity making its high around
the 10:30 time period.
There is one more nice set up I'd like to make note of one more opportunity
with oil/airline stocks. One time a week, usually on Wednesday at 10:30 you
have the EIA petroleum Status Report. This is where they tell the market if
there is ample supply of petroleum out there. This is important to us because
it moves the market. We are not concerned abut which direction it moves only
that it moves. Remember we can play both sides because of the inverse
relationship. Use the correct limit orders and you will usually do very well.