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The Hard Right Edge
Do you hold positions overnight?

Mark Seleznov
As a Day Trader, I rarely hold positions overnight. Well, let me discuss the few times that I might hold a position overnight.

First of all, let me say that I never hold a losing position overnight. That is absolutely the wrong reason for a Day Trader to hold a stock overnight. Your personal trading plan should always dictate your entry and exit of a position. here are my guidelines for holding a position overnight.

All of the following conditions must be present at the close to hold a long position overnight -

1. The stock should be up by at least 2 points
2. The stock finishes 1/4 or better from its high
3. The S&P Futures finish at premium to Fair Value

In order to hold a short position overnight, the opposite conditions must be present -

1. The stock is down by over 2 points
2. The stock finishes within 1/4 of its low
3. The S&P Futures finish at a discount to Fair Value

The Hard Right Edge
How do you pick the stocks you trade?

Mark Seleznov
I stay away from the four stocks that are always the Top volume leaders. These include DELL, INTC, MSFT, CSCO. These stocks have such large volume, such institutional order flow that you would be competing against, as well as competing against the best Market Maker at each firms that trades those stocks. These Market Makers are the best in the industry. They concentrate in the one stock. Take DELL for example. The stock trades an average of 20 Million shares a day. How would you like to make a 1/16 of 20 Million shares. The best Market Maker at GSCO, MLCO, NITE, HRZG, FBCO, SBSH are trading DELL, along with a support staff.

I like to trade stocks with 1-5 Million a day in average volume. Yes, some of these will have days in which volume surges, but the average day is not 20 Million. The Market Maker in these stocks is probably trading 20-30 stocks. I like stocks that have a good retail following as well. This gives me an opportunity to take advantage of the emotional public.

One of the most important issues that is personal to each trader is determining your own personal trading style and plan. What is your trading style? Are you looking to scalp? Are you looking for a trend that can last all day? How much of a wiggle can you stay in for? DELL can wiggle two full points? ASND may wiggle 3/8 of a point. What is the average spread? Can you manage risk?

I like to learn the Market Makers in the stocks I trade. Do they camouflage? Well, they all camouflage, but how much. Do they care if their intentions are shown? Are there many ECN's being used? Could they be disguising orders on INCA, BRUT, BRTD or other ECN's? It there a critical time of day in my stock? What do they do lunch time? Is the number of times Best of any value? How do they handle refreshes?

I also look at characteristics of the trends. Does the stock trend and breakout? I like that characteristic if I am using momentum trading techniques. Does the stock rally, and then retrace each move? I like stocks like this when I am trying to play Market Maker.

I recommend you have your basic stocks. Learn them well. Learn when to trade them and when not to trade them. Learn how they behave going into earnings.

Then keep a log of your trading profits and loss of each stock you trade. If you trade a stock well, stick with it. If you lose money every time you trade a stock, avoid trading that stock.

The Hard Right Edge
In what ways can you control risk when you trade?

Mark Seleznov
The Risk Parameter is the amount of money you are willing to risk in a trade. Assume you are trading 1,000 shares of a stock.

A scalper trader may have a risk tolerance of 1/8 - 1/4 of a point.
A pattern trader may need to open trading Parameters to 1/2-1 point.
A position trader may have a Parameter in his entry of 1-2 points.

However, these Parameters will certainly vary depending on the stock you are trading and the Time Frame.

Many Day Traders will use 5 Minute bar charts. I try to determine the Range of the Stock and therefore the volatility of the stocks that I trade. I look at 2 range calculations. First, I look at the typical 5 minute bar High to low range. Second, I look at the Daily High to Low range.

Regardless of the style of trading that you are using, the risk or Parameter needed in each of these stocks is completely different.

Let's look at how this may effect a traditional pattern play on a stock. If your stock is trading in a sideways pattern for 2 hours and you believe a break will occur to the upside. You may have a Parameter risk to the bottom of the sideways channel

In one stock, the channel may be 3/8 of a point. That is a manageable risk and a trade you may take often as the breaks can be explosive and profitable. If you have 3-4 losers in a row, it won't hurt your capital as much as a large ranging stock. In another stock, the trading channel may be 2 points wide. Playing the breakout and risking 2 points creates a greater degree of risk. If you have 3-4 losers in a row, it can severally damage your capital. If you have a large trading account and can stomach this kind of volatility, then it is OK. Most traders can not. It is fun to play high volatility stocks. But, before you do, understand the risks and effects that can occur to your trading capital.

I like to use a general 3-1 ratio on my Parameters. For example, if I am going to risk 1/8 of a point, I want to make 3/8 of a point. If I have to risk 1/2of a point, I would like to see potential of 1 1/2 points. On position trades, if I risk 2 points, I would like to see the possibility of 6 points on that trade.

The Hard Right Edge
What trading strategies work with a Level II screen?

Mark Seleznov
I use Level 2 Market Maker screens primarily as a way to know how to execute trade routes, not to tell me if a stock is going up or down. Several years ago, the information displayed on Level 2 Market Maker screen was much more reliable than they are today. Most of the time, the information on Market Makers is unreliable. This is particularly true of some of your more active stocks like DELL, INTC, MSFT and CSCO.

I tell people to think about Level 2 Market Maker postings as a poker game. Do you show your hand to your opponents in poker? Of course you do not. Why would the Market Makers be honest about the amount of stock they want to buy or sell? Many times you will see one Market Maker just sit on the Bid advertising that he has 1,000 shares to buy and he is hit by everyone and just keeps buying. Another time, you will see another Market Maker just sitting on the offer while prints of thousands go off. He is selling not only on the SOES system, but also selling thousands of shares on Selectnet or other private systems.

The only truth is in the charts and the time and sales. The chart shows you the reality of what buying and selling is actually going on. The trades show the actual trades that took place. The Level 2 Market Marker posting is a story that someone wants to paint for you to see.

Try it tomorrow in Dell. How many times will you see 10-15 Market Makers on the offer and think, WOW there must be resistance at that level. Only to watch the stock trade thousands and thousands of shares through that price and run a point higher. Or see 15 Market Makers bidding at the whole number, only to see it break down and run a point lower.

A chart is a chart. Trading is trading. Don't count on Level 2 screens to tell you the whole story. Learn to read charts, technical analysis, trading and risk management. In my opinion, these are the keys to successful trading. These are the keys regardless if you are trading wheat, gold, options, T-Bonds, DELL, or AMZN. SOES, ECN's, and Level 2 is a way to execute trades, Level 2 is not a system of trading.

The Hard Right Edge
How do you determine when to take your profits?

Mark Seleznov
Many traders fail to follow one of the cardinal rules of trading, "Let your profits Run". I hear comments like, "you will never go broke taking a profit". Well, that is correct if you only had profits. But we all have losses. Your best traders often have more losses than winners, but the losses are small. I try to let my profits run. It is not easy in this day of big wiggles in stocks, but when you catch a trend, ride it.

In my opinion, you need to catch some big winners. It is very difficult to trade for 1/4 point winners while risking 1/4.

Look at your risk vs. reward before entering a trade. Try to anticipate a 3-1-risk reward ratio. If you risk 5/16 on a trade, can you make a full point if the stock does what you think? If the answer is yes, I would take the trade. If resistance is only 3/8 of a point away, I would pass on the trade. If you are going to risk 1 full point, look for at least 3 points in profit. The volatility of the Internet stocks requires you to risk large amounts. It is difficult to trade AMZN or YHOO and risk only 3/8.