Kestler with PS

Even though the Dow (DJX | Quote | Chart | News | PowerRating) ended down only 11.68 and was in a narrow trading range throughout most of the day on Wednesday, daytraders were given a number of stocks that were moving exceptionally well and provided ample opportunity for some healthy profits. In the midst of this expiration week, a multitude of stocks were showing up on my scanner for a number of different setups. The two that I had the most success in and was able to trade actively throughout the day were General Motors (GM | Quote | Chart | News | PowerRating) and American Express (AXP | Quote | Chart | News | PowerRating).

I was first alerted to AXP about an hour in to the market by my stock scanner as a Day Low and quickly entered into a short position at 50.01. The 50-day moving average was right at 49.89 and feeling that AXP seemed to be a little extended, I covered my short position and took profits at 49.80. In anticipation of a bounce, I took a long position. Since AXP did not bounce with any kind of authority, I exited my long position and prepared for the opportunity to go short once again if AXP broke its day low as well as its 50-day MA level at 49.89. I was fortunate to establish a short position at $49.80 as well as $49.50 and then quickly covered my shorts at $49.30. It was at this point that I realized a number of sellers starting to appear in the tape as well as in the NYSE OpenBook.

As price action always seems to lead the news services, breaking news was announced in AXP. American Express Chief Executive Officer Ken Chenault released comments regarding analyst estimates for the upcoming quarter, stating that analysts were far too aggressive in their estimates. AXP then approached its day low and once again I saw the sellers lining up. I established a short position at $49.30 and added to it $49.14. As AXP was breaking the $49.00 level I attempted to get short once again because the sellers were still quite apparent by the manner in which the specialist was printing. As soon as I attempted to add to my position at $49, the specialist dropped his bid to $48. At this point I knew I had an excellent position on and my only concern was where to cover my short position.

I did three things at this time: I sent a Limit Order for part of my position to buy at $48.50 because if the specialist printed down to $48.00 I wanted to be a part of the clean-up print. I also covered some of my position on an ECN at $48.50 because I wanted to lock in some profit just in case the specialist only printed down 10 or 20 cents. With the remaining portion of my position, I wanted to wait to see where the Specialist was going to print. I waited for a print for over 5 minutes, but AXP was halted due to a massive order imbalance. At this point I felt that AXP would open up below its 200 -ay moving average of $48.10 and I would look to add to my position once again. The Specialist opened AXP at $48.50, so I immediately covered the rest of my position at $48.55. Since AXP failed to break its 200-day moving average and the sellers seem to disappear, I began looking for entry points to go long AXP. I initially went long at $48.70 and lost .20 cents. When AXP approached $48.80 I went long again and added to my position at $50.00. Since AXP had negative news and had already halted once, I looked to take profits often as it steadily moved back up during the course of the afternoon. AXP was a daytrader’s dream Wednesday.

It is action like this that can make your day and possibly your month. By learning to “read the tape”, take quick profits, and trade both sides of the action, proper daytrading can maximize the potential on days like these.

General Motors was also an excellent trader, with extremely high volume and activity. It was a stock that was trading at an 18-year low. Almost from the open, General Motors (GM | Quote | Chart | News | PowerRating) was showing up as a new 52-week low on my stock scanner. I tried to sell every hard rally and cover on every sharp drop down. This is not something that happens every day, but it was a textbook example of how to trade a stock in a downtrend.

As a daytrader, finding opportunity and having the ability to move quickly in and out of a liquid stock is essential. Recognizing the price action, reading the tape, and identifying the true buyers and sellers is the skill set I will be teaching along with strategies that I use to enter into my trades during my Professional Day Trader’s Boot Camp held Dec. 4-Dec. 7. There's only 1 day left to save $500  Click here to register now.

Mike Kestler

P.S. I will be holding an Open House at my Scottsdale, Arizona office this Friday. Please visit http://www.evotrading.com for more details.

Michael Kestler is a full-time professional trader and managing partner for Evolution Capital LLC., a proprietary trading firm. Mr. Kestler specializes in intraday trading of NYSE listed stocks. Before founding Evolution Capital LLC., Michael began his career on the floor of the CBOE. Mr. Kestler was previously a Mid-Cap and Nasdaq Market Maker.