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For example, I recently observed JDS Uniphase being bid up eight points in the premarket. At the open the stock began rising, continuing up another three points. After about 15 minutes, it began a swift reversal that wiped away all of the 11 points it had been up. What happens to the people who think it's going to continue up and buy when it reaches its high of 11 points up? They get their head handed to them on a platter, that's what. This is why common knowledge suggests that you not get caught in this early trading action. Traders know it, and investors need to know it, too. |
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Some traders believe the reversal stage is a good time to jump in and buy. But unless you are following the action very closely, you will find it tough timing your entrance just right. |
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While it is never transparent to the trader or investor how much influence the market makers actually have in pushing the market versus responding to computer buy and sell programs or large orders from money managers and institutional traders, it is wise to be very careful in volatile stocks by always using limit orders to buy and sell. |
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I will almost never use a market order at any time of the day, as I am unwilling to be tossed around in the stormy sea of quickly moving numbers. No stock ever seems worth chasing at any priceeither I will control the price I pay or I will not play the gamevery simple. And if it doesn't hit my price one time, I know there will always be another opportunity. This is where the discipline of being able to wait patiently for your price comes into play. |
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The only time I will even consider a market order is when it is clear from Level II that there is plenty of stock to buy or sell at the price I am wanting and that trading is proceeding relatively slowly. Then and only then I may safely enter a market order and not risk surprise. |
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For those who favor limit orders as I do, one recent related development for your consideration: As of early 2000 there is at least one company, R. J. Thompson, a new start-up online brokerage (rjt.com), offering both market and limit orders at the price of $5. Up to now, investors have always had to pay slightly more for limit orders. Now that this is changing, there is little reason not to protect yourself and use limit orders for almost all trades. |
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Intelligent Trading Stage |
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From about 10 to 11:30 A.M. or 12 noon EST (7 to 8:30 or 9 A.M. PST), the market settles down and a predominant trading trend until the afternoon session tends to be established. It is during this period that |
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