One of the things a new trader learns within a few weeks or so of beginning his new adventure into the world of day trading is the difference between three symbol stocks and four symbol stocks.

The first thing to be learned, with a few exceptions, is that three symbol stocks are listed on the NYSE (New York Stock Exchange) or the AMEX (American Stock Exchange), while the four symbol stocks are listed on the NASDAQ (National Association of Securities Dealers Automatic Quotation System). You can read more about the three different exchanges and how they operate by visiting their individual web sites.

Next, the new trader usually learns that most day traders prefer to trade NASDAQ stocks over “listed”, a term that usually refers to AMEX and NYSE stocks but not NASAQ stocks.

The reason is quite simple. Historically, the root of it goes back to the hay days of day trading in the pre year 2000 bubble days. Most of the fast moving stocks were NASDAQ stocks. This is where the largest percentage of the high tech wonders were traded. It was then, and is today, where most of the day trading action is.

A lot of tools were developed or made available to day traders for the first time, and many of them were based on trading NASDAQ stocks.

However, along with that action comes a much higher degree of risk. NASDAQ stocks are much more likely to give you huge moves up and down with tremendous spurts of volume, making them much more risky. Of course, with that higher risk also comes the potential of higher profits…or larger… much larger losses than slower, more orderly moving stocks.

That’s why I like three symbol stocks.

As a general rule they will move in a much more orderly fashion. You are less likely to get whip lashed all over the street on listed stocks. They usually move much more slowly, making it easier to read the potential move via such tools as Level2 and Stochastic charts.

However, even three symbol stocks with the right news or set of events can trade in huge volume, causing wide swings and added risks. Yet, as a general rule they will trade somewhat boring compared to their cousins on the NASDAQ.

Normal everyday events like analyst upgrade and downgrades usually do not send the average NYSE or AMEX listed stock into a mania move. Instead they will trade in a more orderly pattern. Depending on the news they will often slowly tick up or down, very often taking thirty minutes, an hour or even more to get a decent profit. They often make a number of stop and goes, minor pullbacks, but they usually do not make the drastic pullbacks that NASDAQ stocks so often do. In Daytraders.com I refer to that as a pop’n flop.

I find both Level 2 and Stochastics charts much easier to use in predicting their behavior. (See: Tools of the Trader at www.TraderAide.com and other information on Level 2 and Stochastics if you are not familiar with these terms.

Keep in mind I am talking in general terms here. Certain three symbols, NYSE or AMEX stocks, can trade every bit as radically as any stock on any exchange. There are few that have a huge day trader following and can be sent into a frenzy if the right news hits the tape.

Some these “high flyers” come out the high tech sector, which includes the Internet stocks and semiconductors. Other “high flyers” come from the biotech stocks, which have increased volatility from such news as FDA approvals. After a while you will recognize the symbols because there are fewer of them than on the NASDAQ that trade like a house on fire on the right news.

Give them a try and see if you don’t lower you blood pressure just a bit!

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 hot links included. Questions and comments can be sent to Floyd at floyd@TraderAide.com.

About the Author

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, http://Daytraders.com. He is the owner of http://www.TraderAide.com and Strictly Business Magazine at http://www.sbmag.org

Why should you want to steal someone else’s stock market lesson plans?

First, let me tell you that a trading plan is only useful if you follow it. Following your plan will make you successful, yet many traders circumvent the stock market lesson plans that they have carefully created. They become emotional invested in a trade, to the point where they ignore all warning signs. Remember, when the market corrects itself, which it always does, no position is immune, no matter how strongly your ego may be tied to it.

Many investors have stock market lesson plans that watch as their portfolio values are cut in half or more, yet they will still hold their positions. They may fear being left out of a big gain, or be so deep in loss that they felt they couldn’t possibly sell at that point. But even if you believe that all positions will recover from their losses, and the truth is that not all of them will, this is a terrible way to trade.

You tie up too much capital, and your rate of return plummets. Just as you shouldn’t become emotionally involved in a trade, you should also never become tied to ideas. By this I mean becoming so fond of a particular strategy or trend that you cling to it even after it has stopped working. You need to have strategies, and to have plans, but you must also be aware of the shifts and swings of the market, the beginning and the ends of trends.

When you first form your plan for a trade, you should consider what price or price range you think the stock is likely to reach. This is often called a target price, which gives some traders the wrong impression. A target price is not a price that the stock has to meet. A stock does not have to do anything. If you treat your target price as a goal, it can lead to many problems. Your target price should only be used as a guideline.

The target price helps you figure out your risk to reward ratio, and it gives you an exit point in your trade. At the least, it should give you a point where you’ll reassess the trade’s ability to continue to moving upward. But your trade may never reach your target price. Many market factors can interfere with its progress, and you may have set your target higher than you should have. Since there’s no way all your trades will hit your price targets, it is a good idea to sell half your position at a more conservative target. Routinely taking profits will reward you in the long run.

There are a number of things that can interfere with a stock’s movement and force you to close your position sooner than you’d anticipated. Your stock market lesson plans should cover all of these possibilities, but here are some reasons that should always prompt you to close a position:

1. The end of a trend. All trends end some time, and you should be prepared for this.

2. The stock’s upward movement has slowed or been abruptly broken, ending its momentum.

3. The stock is approaching a major psychological barrier, perhaps reaching 100 dollars or 200 dollars a share, which should have been anticipated in your plan

4. The stock is about to reach a resistance level it has been unable to break through before.

This technical barrier should also have been anticipated in your plan.

5. A sudden market wide decline, or the threat of one, or some other serious uncertainty,

which leads to unsafe market conditions.

Exiting a losing trade is not a big deal. Ending a position whether or not the stock reaches its target price, in accordance with your stock market lesson plans, is good trading. The best traders would rather lose a small profit than take an unnecessary risk. You don’t have to win on every trade; no one does, and it’s dangerous to try. In fact, by limiting losses, a good trader can be profitable overall, and make money on only 40 percent of his trades. Cut your losses and start fresh with something else when you need to. You’ll be happier, and you’ll make much more money.

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