Trading Baskets II: The Crapolio, A Roll of the Dice in the Stock Market

In a previously written article, we expanded the use of the term "Trading Baskets" to include stocks from different sectors or industries. Now I want to share with you an approach to day trading or swing trading that I had some success with back in the wild and woolly, pinnacle days of day trading that may still work today. Unfortunately, this basket of stocks was dubbed "The Crapolilo", a name it just could not shake. You'll see why.

The crucial element that traders are looking for in any stock, which makes it a good day trade or swing trade, is movement or momentum. There are any numbers of things that can cause movement in a stock. Usually it is news of some sort, either positive or negative. It doesn't really matter. You are only looking for movement, up or down. However, for this particular strategy we are looking for positive news. Keep in mind that it is not your job as a trader to totally understand why or what is causing the movement in a stock, beyond what it takes to make a quick profit.

If you spend enough time glued to a computer monitor with CNBC blaring in the background and are looking for a stock to make a quick buck on, sooner or later you will realize that there are some familiar names that just keep popping up over and over again. From these repeating names you may want to consider building your own Crapolio.

Start by tracking the stocks that keep coming up over and over again. In this scenario the stocks for which we are looking usually play out the same way every time one of the stocks has news of some sort. Traders will jump on the stock, causing a mad scramble to get in on the move, and the stock will run up in price for a nice gain. The challenge is to be as early as possible on the play, get into the money (profitable), and get out before the momentum turns and the stock retreats. Rest assured, they will retreat because that is one thing all of the stocks we are looking for have in common; they hardly ever hold their gains. If you're late to get in and even later to get out, you won't make a dime and will maybe even lose money. It is this phenomenon that the now famous Floyd's 4-Gets are based upon: Get In, Get Profit, Get Out and Get Away!

So here's what I did, but remember that this strategy may or may not be right for you. I set aside a percentage of my trading capital for a basket of stocks that became known as "The Crapolio". I picked a large number of the stocks I had been tracking, low cost stocks under $5-$10 for the most part, but not always. I charted every one of them as far back as I could, looking for the ones that were most likely to continue to repeat the scenario. I came up with what I thought was a recent low that was going to hold for some time; and I bought half the normal lot of shares I usually traded. (See link below to DTM: Decisive Trade Management and Trading Stops for lot sizes.) Then I waited.

The theory is that sooner or later these stocks will once again have some sort of news event that will move them to the upside. As soon as that news hit, I would be in an excellent position having already bought the stock at a recent low. I would then try to buy an additional half lot or a full lot once the new news event hit the street. Overall, I would be in the shares much earlier on average and be able to take advantage of the move and sell for a profit into the momentum. Being in the stock gave me the ability to lock in a nice profit without having to scramble to get in and scramble to sell before the momentum ran out.

Often, I would be in the stock and the news would hit over night, causing the stock to gap up significantly at the market opening in the morning.

However, this is not called "The Crapolio" without a reason. High quality stocks do not usually behave this way to the same degree. Those that do are much more expensive, usually $35 or more, making it cost prohibitive for all but the wealthiest traders to use this plan.

As previously mentioned, most, if not all, of these stocks were under $10 and for a reason. These were not high quality stocks; in fact, the opposite was the case. Most were high-risk speculative tech stocks or bio-techs. Many were dot-coms; remember this was in the hay-days of the dot-com boom. As we all know now, there were a lot more dot-bombs than there were successes.

Obviously, this was my own version of Swing Trading.

IT IS IMPORTANT TO UNDERSTAND THESE WERE "NOT" BROKEN DAYTRADES. Each stock was chosen, charted and watched over a period of time before it was added to "The Crapolio".

I believe this strategy could still work today. However, it is to be considered extremely risky and should only be used with money you can afford to lose.

When trading this or any day trading strategy one should know and use DTM: Decisive Trade Management (see story at http://www.traderaide.com/index.html).

Happy trading!

No permission is needed to reproduce an unedited copy of this article as long the About The Author tag is left in tact and included. We do request that we be informed of where it is posted and reciprocal links will be considered. Email floyd@sbmag.org.

Floyd Snyder has been trading and investing in the stock market for three decades. He was on the forefront of the day trading craze that swept the nation back in the late 1990's both as a trader and as the moderator of one of the Internet's largest real time trading rooms. He is the owner of http://www.TraderAide.com, Strictly Business Magazine at http://www.sbmag.org

---

No Load Mutual Funds: Boost Your Portfolios Returns

Investors who exclusively use broadly diversified, no load mutual funds... Read More

Wall Street Paradigm

In 1960 an engineer working for a watch company in... Read More

Lemmings Are Gathering

Before they go over the cliff to their destruction these... Read More

Option Spread Trading

Spread trading is a technique that can be used to... Read More

Keep Your Profits

It looks like we have now entered a new bull... Read More

A Personal Stock Market Investment Philosophy

∙ Make every investment in the stock market a long-term... Read More

The 401(K): How The Insider Has Stolen Your Retirement!

Mutual funds were moderately successful in creating a presence in... Read More

No Load Mutual Funds: Investment Hype vs. Investment Help

With the internet such a huge part of our daily... Read More

Why the Majority Fail at Stock Investing

The gleam and bright lights of Wall Street lure in... Read More

Stocks & Oil, Sat Jun 18th, 2005

Both the stock market and oil prices rallied recently, which... Read More

Dont Lose All Your Money

That sounds like good advice doesn't it? Don't lose all... Read More

Why Change Funds?

On November 17 I bought 7 different mutual funds and... Read More

How Much Information Do You Need?

You have decided to buy some stock or mutual funds,... Read More

Mutual Fund Commissions

You have heard about a particular mutual fund from a... Read More

10 Tips For Creating Wealth From the Stock Market

1. Do not spread your money too thin.My friend has... Read More

Hold Em and Fold Em

When most analysts, financial planners, fund specialists and investors try... Read More

Direction

It is difficult to make money in a bull market,... Read More

Economists

In today's volatile and confusing stock markets everyone is searching... Read More

What Does it Take to be a Stock Trader?

It takes a total mental commitment to the task. It... Read More

The Secret Method to Selecting a Winning Trading System

Every successful trader has a winning system. There are of... Read More

Cash Is A Position

I go to the Money Show every year to visit... Read More

Online Trading Strategy: Collecting Cash when Stocks Go UP - It PAYS to Know More than Others

When it comes to stock market trading it PAYS to... Read More

Gurgle Gurgle

Caught in a whirlpool and being sucked under. No life... Read More

VooDoo Training For the Stock Market

If you go to Haiti or other places in the... Read More

Understanding the Bulls and the Bears

If you've ever flipped on the television to CNN Financial... Read More

Making a Stock Watch List

I am taking the time to help others learn the... Read More

Trading as a Business

What can I expect to make my first year of... Read More

Stock Trading Success

The ABC's of Stock Trading SuccessStock trading success...why is it... Read More

The Great Stock Market Secret

When the stock market is going up and all your... Read More

Getting Even

I know there are a lot of you out there... Read More

Buy and Hold Investment Strategy

"Buy and hold" is one of the most heralded investment... Read More

The Secret Art of Backtesting

If you have not back tested your trading system, you... Read More

Overseas Investing: Going Against the Mainstream

TOO OFTEN, INVESTORS SIMPLY CHOOSE TO follow the crowd. This... Read More