Many of the stocks that I mention in my articles have had or go on to have substantial price moves.
Hopefully, that shows that I am doing my job correctly by identifying trading opportunities and explaining how retail traders can take advantage of them. Or, at the very least, making them aware of what to look for next time out.
However, not every trade has to be in a huge mover.
Indeed, there is a case to argue that traders might be better off with a little and often approach, that is, smaller but more consistent moves that occur regularly, rather than fewer but larger price swings.
As with so much in the markets, there is no right answer here, though smaller, consistent moves would be synonymous with lower volatility and smaller drawdowns.
Swing traders would likely argue that bigger moves create trends and patterns in the price action that are easier to identify, and that managing your risk and position sizing efficiently should protect you and your account when a trade doesn’t work out.
My thoughts are that you don’t always have to be “hitting for the fences” and that there is a lot to be said for what we might think of as “bread and butter” trades.
Take this example in Centica from Monday, the 19th of May, which I highlighted to a contact just after 3.30 pm London time, saying:
“FWIW, CNA LN catch my eye on the upside with a gap to fill above”
Centrica CNA LN Chart from May 19th
Source: Barchart.com
On my radar most of the day
Now, I didn't just happen on Centrica late on Monday afternoon; they had been on my radar since mid-morning.
Monday was my first day back after a week away, during which I had paid very little attention to the market. Indeed, we chose a remote part of the UK coastline for our break, to quite literally get away from it all.
Which meant that on Monday, I was catching up with correspondence and feeling my way back into the market, which had been pretty lively over the previous 5-days.
Centrica repeatedly caught my attention throughout the day. And if you look at this 2-day, 5-minute candle chart, I think you will see why that was.
Centrica 2-day 5-minute chart, May 20th
Source: Barchart.com
Quite simply, the Centrica share price was edging higher throughout the day on the 19th, and more than that, I got the distinct impression that the stock would like to have gone higher still.
Reading the tape is something of a forgotten art
“ Tape reading in trading involves analysing real-time price and volume data to gain insights into market sentiment and potential price movements. It's a technique used to decipher the flow of orders, revealing the actions of various market participants, and providing traders with a potential leading indicator of future price action.”
Tape reading was popularised and perfected by legendary investor Jesse Livermore (July 26, 1877 – November 28, 1940) and his contemporaries.
Livermore’s life was chronicled in the book Reminiscences of a Stock Operator, written by Edwin Lefevre
Which, in my humble opinion, is the best book about trading ever written, and if you havent read it, then you probably should.
Livermore became adept at reading the tape, which in those days was a continuous paper printout of prices, volumes and price directions, for individual stocks such as those seen in the images below.
By studying, recording and analysing the tape, Livermore was able to get a feel for the market and the direction it was likely to move in next.
He often did this remotely, particularly in his youth when he was based in Boston (remote working is just one of the many items in the book that will strike a chord with the modern trader).
Using those skills, Jesse Livermore built several fortunes and crystallised the concept of trend following.
Never believe your own publicity
I wouldn't be as bold as to compare myself to a Titan of Wall Street, and of course, you should never believe your own publicity. However, I would like to think that in my time in the markets, I have learnt to utilise some of the skills and techniques that Livermore employed.
And on this occasion, the tape in Centrica told me they wanted to go higher.
And that’s just what happened when Centrica announced, on May 20th, that it would sell a stake in the Cygnus North Sea gas field for $215.0 million to Ithaca Energy.
When I flagged Centrica at 15.35 on Monday afternoon, they were trading at 151.80p ; they closed at 152.00p .
On the morning of the 20th, they opened at 152.80p and went on to print up to 155.40p , having traded over 50.0% of their average daily volume by midday.
Given the above, it would have been possible to take a +2.50% to +3.00% turn out of Centrica, in less than 24 hours, not huge, but then again, it's a low-priced stock, which means you can have a bigger position for the same unitary risk. And of course, if you are trading them with CFDs, then you can take advantage of the leverage within the product.
If you want to follow and analyse the prints in a UK-listed stock, then the London Stock Exchange offers 15-minute delayed data on its website, under the trade recap function.
What's more you can download the data into a CSV file that can be opened in a spreadsheet.
Here is the link for trades in Centrica.
https://www.londonstockexchange.com/stock/CNA/centrica-plc/trade-recap
As with so many of the resources I utilise, this service is available for free.
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