What is the best time of day to trade stocks? The answer may surprise you.
The best time of day to trade stocks is not at market open for the average amateur trader. Professional traders will often fade stocks at market open. For example, if the market gaps up and rises, professional traders will short the market for the anticipated move down. If the market gaps down and falls, professional traders will go long the market for the anticipated move up.
Let us take a look at a trade I made today, and lost 5% on for not respecting the best time of the day to trade rule. The best you can do is limit your losses with a disciplined stop loss and then learn from your mistakes. A wise trader will learn from the mistakes of others so that he doesn’t make the same mistakes. Continue reading “What is the Best Time of Day to Trade Stocks”
Rocket Fuel (FUEL) had its IPO at the end of September 2013. The stock ran up to $65 a share shortly after the IPO which put a market cap on the stock of $2.1 billion.
FUEL doesn’t make money so they have no P/E ratio. They have revenue of about $30 million a quarter or $120 million in revenue per year. There’s no way that a company that does $120 million in revenue per year should be valued at $2.1 billion. A company can have all the revenue in the world but if it doesn’t make it to the bottom line, it doesn’t mean much. FUEL lost $1.8 million dollars last quarter which was a bigger loss than many had hoped. Because FUEL was an IPO, it had a 30 day limit restriction for the underwriters on short selling. As the 30 day limit expired on short selling at the end of October, the short sellers began moving in.
Compare FUEL to the recent Twitter (TWTR) IPO. Twitter’s market cap was way overvalued at $25 billion, just like FUEL’s market cap was overvalued at $2.1 billion.
Just like Twitter, FUEL ran up 90% on the first day of trading in the secondary markets:
First… Here’s FUEL:
Now Here’s Twitter:
Twitter doesn’t make money so they have no P/E ratio, just like FUEL. Twitter has revenue of about $127 million a quarter or about $500 million per year. It’s absurd that a company that has $500 million in revenue per year is valued at $25 billion. Just like FUEL, the currently value of the stock is way above what the financials suggest it should be at. As Twitter proves, a company can have great revenue growth but if it doesn’t translate into the bottom line, it means little. Twitter lost $35 million last quarter. Just like FUEL, Twitter is losing millions of dollars a quarter.
30 Day Moratorium on Short Selling an IPO
The underwriters can’t loan out the shares of Twitter for short selling until 30 days after the IPO. Institutional traders and retail investors that hold shares of Twitter can, but the underwriters that control most of the Twitter shares cannot. I believe this has created an abnormally low level of short sellers in Twitter. Once the 30 day moratorium on short selling Twitter ends, I think this temporary abnormal condition in the market will correct itself by a huge number of short sellers moving into the stock. This is exactly what happened on FUEL. Notice that right after the 30 day moratorium on shorting selling FUEL came to an end, FUEL’s stock tanked:
In my opinion, Twitter will likely follow the same boom then bust cycle that FUEL recently followed. Think about it. JP Morgan is an underwriter on the Twitter IPO.
JP Morgan put up some of the money to fund the IPO and “buys” the shares of the company before they are actually listed on a stock exchange. JP Morgan makes its profit on the difference in price between what they paid before the IPO and when the shares are officially offered to the public.
JP Morgan then pushes the shares it “bought” before they were listed on a major exchange, into JP Morgan funds like J.P. MORGAN DIGITAL GROWTH FUND and J.P. MORGAN INVESTMENT MANAGEMENT so that these fund holders buy the shares from JP Morgan at the market price and JP Morgan pockets the difference.
Now JP Morgan waits 30 days then its active trading desks short sell the stock by borrowing the shares from the JP Morgan funds, and JP Morgan makes money on the downward move as well. What about JP Morgan fund holders complaining about Twitter dropping? Fund holders are told, “Naw dog, it’s all good. You shouldn’t look at short term market fluctuations. Twitter stock will come back within a couple of years, just look at what Facebook did.”
The best lessons come from losing trades. In this lesson, I look at a losing trade and what lessons can be gained from this trade. As a famous trader once said, “The only thing that stopped me from making even more money trading was my winning trades.” Think about that. While we all hate losing trades, the best lessons come from them. Continue reading “Swing Trading 101: 6 Lessons From a Losing Trade”
A lot of the mistakes stock traders make comes from not identifying the type of market we are trading in, and adapting the right stock trading strategy to compensate. In this lesson, you will learn about trending vs trading markets and how it pays to adjust your trading strategy in each. Continue reading “Trend Trading For a Living”
Fibonacci retracements are a valuable tool for both day trader and swing trader. The most popular Fibonacci Retracement levels are 38.2%, 50%, and 61.8%. These levels are often where a stock, after a big move up, will retrace or pull back to. Knowing these amazing levels can help you better time your entry in a stock. Don’t chase it, Fibonacci Retracement. Continue reading “How To Use Fibonacci Retracement”
A pattern that you will see swing traders use time and time again to make money is the Ascending Triangle. Stock technical analysis does not have to be complex or even difficult. In this lesson I will teach you more about the Ascending Triangle and how to trade it. Continue reading “Stock Technical Analysis – Ascending Triangle”