Like long-term investors who follow the companies they invest in, smart short-term traders need to be aware of the news of the companies they are trading. While the momentum of a stock may be enough for scalpers to focus on, those who are doing swing trades of a few hours or position trades for a few days are basing their decisions on news regarding the stock. They need to be very tuned in to the nuances of the stocks they are trading, hoping to capitalize on the short-term effects of them.

When I went back to the trading floor, one thing that hadn’t changed was the select group of stocks deemed most popular for trading. Interestingly, many professional day trading scalpers stay away from the very volatile stocks, like CMGI, Inktomi, and JDS Uniphase. They leave these to the “amateurs” at home (like me), who love these stocks.

For example, I sold CMGI a few days ago after holding it for only two weeks. (I say “only” with the long-term investor in mind, who will tell me he or she has food in his refrigerator older than that; conversely, the day trader looks at two weeks as an eternity, and might tell me, “Greenspan could drop dead any day¡ªwhy take a chance by holding overnight?”). CMGI had a strong 60-point run-up in that two-week period and was approaching its 52-week high, which it ended up breaking through a few minutes after I sold it.

By the end of the session, due to a late sell-off, the stock closed 12 points lower than I had sold it for. I decided a 60 percent gain in two weeks was good enough for me. In addition, the NASDAQ had been on a great run for a month and I felt the pressure was building, that it had to release some steam. My decision looked pretty good, especially when the following day proved to be the day the top blew off so the pressure could escape, and all tech stocks took a thrashing. And then, the day after that, they began their climb to even further highs, with no breather until the first week in January 2000, when finally a bout of heavy selling ruined the party.

This stock (CMGI) simply moves too fast for me to consider trying to get a point or two here or there, especially given my not having a direct access execution system. And even with the advantage of an instant execution platform, most day traders have decided it moves too fast for them, too. They prefer a handful of technology stocks that offer high volume, good but not lightning-fast momentum, and a stability of the price spread of no more than one-sixteenth of a point. The big five that were most popular for trading continue to be Intel, Microsoft, Dell, Cisco, and, more recently, Applied Materials.

When the basic stable of trading stocks is limited to these five, traders can more easily become experts in one main stock. Then they can choose one other stock as a backup, or understudy trading stock, following this one as closely as they do their primary trading stock. This kind of close tracking of the primary trading stocks is similar, if not more intense, than what long-term investors do with their core portfolio. Actually, because they are counting on short-term news to move the stock, they need to be even more aware of the news than the longer-term investor, who does not need to be watching so closely when the stock is doing well.

Day traders need to spend time before the market opens and after it closes researching the stocks they are trading. They need to stay up on bulletin board news and opinion and anything happening with the industry the stock is in and how it may affect their particular stock. They need to be very tuned in to the nuances of the stocks they are trading, hoping to capitalize on the short-term movement.

My point then is simple: If you are going to be a disciplined short-term trader, you’ve got to be reading everything related to your one or two main stocks that you can get your eyes on, both online and in hard copy. You’ve got to know as much as any analyst following the company. Like an analyst, you should be able to stand up before a group and lecture on the stock, the company, and everything related to it. If you can’t imagine doing that, you don’t know it well enough. You need to know all about the sector the stock is in and how your stock compares to other stocks in that sector. This will help anticipate short-term moves for swing and position trades.

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