By: Marc Sperling
When I first started trading in 1994, traders were able to leave the trading floor and forget about the stock market at the end of the trading day, arrive at work moments before the open and start trading just about anything successfully. Quite frankly, since that time the market has changed significantly. I witnessed the tech stock frenzy and subsequent collapse, the low volatility grind higher from 2003-2007 and the implosion of subprime and the financial industry. Exchanges moved from the fractions system, to the decimal system, specialists were replaced with computers running high frequency algorithms, yet as always, traders came and traders went. The point here is that the market is dynamic, and any trader looking to survive, thrive, and make a career as an active market participant must also approach markets in a dynamic way.
No longer do I roll out of bed, stroll into the office and start hammering the keys into positions largely unprepared. About seven months ago, when my second child could not sleep as an infant,I lucked into one of those light-bulb moments. I started intently studying charts every night and created a “universe” of stocks that I liked to trade, was familiar with how they traded, and was comfortable with their important technical levels. My universe consists of a variety of stocks, in a variety of sectors–I have my core stocks to in the financials, the high betas, the energies, the Chinese stocks, the solars, the casinos, etc. Occasionally new stocks will enter my core universe; however, for the most part I hone in on a consistent set of stocks.
Each night, I now devote at least an hour to breaking down my universe’s technical levels on multiple timeframes. Starting with the daily chart, I cycle through my core searching for patterns and setups. I then search through the same universe of stocks on the 60 minute charts, the 15 minute charts and lastly, the 5 minute charts. On each timeframe, I seek out patterns that I, as a trader, felt comfortable with trading. Personally I love trading flags, bull or bear. Some people like gap fills, gap and goes, wedges, or any of a host of other patterns. The only way to learn your preference is to familiarize yourself with as many patterns as possible and to watch how they play out on a daily basis.
Each trader has to find their own level of comfort with the stocks they trade, their important levels, and the patterns they see. This comes through hard work. Whereas in the past traders could “fake” knowing their information, hit happy hour after work and slip into the office hungover and exhausted in the morning, now we absolutely have to do our homework. Those who have not adapted and changed with the markets have either left this profession or are on their way out, while those who are putting in the time are finding new opportunities and new rewards.
