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bidding for those shares and no one hits my bid, then it is clear to me that the reported weakness may be hype. Alternatively, if I am offering stock at the inside price or better and no one sees fit to lift my offer, a report that the stock looks strong may also be market hype. A trade in a security means that money is changing hands and that has always proved to me to be the real deal. Talk is cheap, but a trade is a trade. While people are more than willing to give you their insight (which all too often can be self-serving), putting their money on the line is usually a more reliable indicator. |
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Knowing this, the active trader can strategically place orders in a system and gain real insight as these orders are executed against. For example, if I were offering 1000 shares of Apple at 18 7/16 and a while later my machine reports that it was automatically sold, I would immediately look to see if the stock was ripe for an upward move and seriously consider buying even more shares at 18 1/2, figuring that the upward direction was confirmed by the fact that my offer was taken. I am realistic enough to know that I know nothing about intraday pricing on stocks; therefore, it is reasonable to assume that the person buying the stock from me may be more informed about the near-term outlook concerning the stock. If in fact the stock is about to make a move up, I will be fortunate enough to reap the rewards of the upward move; and if I am wrong, I hope I will have the discipline to cut my loss immediately and move to another trading opportunity. The important thing to remember is that the directional indicator was not a graph or a chart, but rather an indicator that was generated by a real trade, one that was personalized for me and therefore known only to me. With the significant reduction in trading spreads today, this technique can be very effective and relatively inexpensive when misinterpreted. This technique is the most popular method I use when trading. I call this ''Putting Your Money Where Their Money Is and Not Just Where Their Mouth Is." An actual trade is the real deal. |
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This concept is elaborated upon by closely monitoring the actual execution of transactions on your trading system's SelectNet screen, ATTAIN, Island, Instinet, TNTO, or other ECN tickers. On these systems, you can observe actual pending |
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