Trading Baskets Part I

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Trading Baskets Part I

Q. What is a basket?

A basket is a group of up to 50 stocks that you can trade, manage and track as one entity.

In another article, I wrote about a rather conservative method of being in the stock market. See: "A Triple Dipper: How to Make 3 Profits on 1 Stock" at http://www.traderaide.com/Selected_Articles/Tripple_Dipper.html.

This time let's talk a little about trading "baskets". The definition above maybe needs to be expanded just a bit. You can trade baskets using longer term buy and hold strategies, a shorter-term swing trading approach or as a day trader. A basket of stocks is nothing more then any group of stocks that someone has grouped together for any of a number of reasons. They may be of the same sector, or they may be made up of a number of stocks in different sectors.

An example of a few baskets could look like what is sited below. To save time and space I'll use the stock symbols only. You can look them up later if you are interested. Let's say you see stem cell research as the thing of the future and wanted to be invested in it. If you don't know which stock is going to fair the best, you may want buy a basket of stocks that is made up of ASTM GERN and STEM. This would be a basket of stem cell stocks. Now let's say you think the Internet stocks look good and, again, you are not sure which ones will do the best. In your Internet basket you may want to pick up some shares of EBAY, YHOO and AMZN. Obviously your basket can contain any number of stocks you want. Many online brokers will actually allow you to set up baskets in your account, and you can put in a sell order all at once on the entire basket or pick and chose which ones you want to sell. I'm not recommending these stocks in any way, shape or form, but merely using them as examples.

Okay, that's pretty basic, but I'm sure you get the picture. The examples above would more or less be the type of baskets you would probably be thinking of holding for some time and not day trading.

Most day traders have an entirely different kind of basket of stocks. A day trader may have any number of stocks in his trading basket that he or she has been become very familiar with. They have studied them and even charted them for intraday movement (I hope) for some time and have learned the trading habits of the individual stocks. They have a fairly good idea of how the stock moves on a daily basis with or without news. They have knowledge of how it reacts to earnings, analyst upgrades, analyst downgrades and other events that may be reoccurring. They have also probably learned how they trade when hit by surprise events as well. They know which market makers to watch the closest. They also know who the main market maker in the stock is, often referred to as the axe.

A day trader's basket may be any number of stocks. A good average could be somewhere between 25-50 stocks. But it may also be larger or smaller. I have known traders that traded one stock all day long and nothing else. I have known others that were able to watch 300 stocks. Personally, I think that is way too many.

When I was trading I had a basket of about 75 stocks. Some I knew were only going to be in play on news or when reporting earnings. Others were fairly reliable moves on a daily basis. And still others were extremely sensitive to any sort of news or event.

Today, if I was going to put together a basket of stocks, I would be looking at the following symbols: GOOG, TASR, TZOO, AIRT, QLGC, SYMC, PLMO, KMRT, EBAY, SINA, RIMM, RMBS, PCLN, and DCLK as well as other NASDAQ stocks. I would not over look New York Stock Exchange stocks, although many do. I would be looking at: MO, PFE, CAT, GE, GM, TYC, MRK, MOT, and others as well. Keep in mind, I am not recommending any of these stocks specifically for you to buy or trade. I am merely trying to give you an example of what a basket may look like. You have to decide yourself what stocks you would add to you your basket based on your own knowledge gained through experience and research on each stock.

I think every trader should have a basket of stocks he or she follows and trades. Day trading without your own basket raises the risk level and puts you in a position where you are always looking for something to trade. On slow days where the market is just not offering up much in the way of trading opportunities, you may have a tendency to jump on stocks, that under different circumstances, you would have passed on. Having your own basket of stocks will lower your exposure to risk. They may not move any better under slow market conditions, but at least you will have some knowledge of how they move. In Part II I will tell you about a special trading basket technique I used during the early boom days of day trading. It may still be a valid concept today.

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. We do request that we be informed of where it is posted so reciprocal links can 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 late1990'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 http://www.FrameHouseGallery.com and http://www.EducationResourcesNetwork.com

In The News:

Yahoo! News: Top Stories

Dow drops nearly 680 on consumer spending worries (AP)

AP - The reality that the nation is indeed in recession and that the downturn may well be prolonged sent Wall Street plunging Monday, hurtling the Dow Jones industrials down nearly 700 points and wiping out more than half of last week's big gains. All the major indicators fell more than 7 percent, with the Standard & Poor's 500 index down nearly 9 percent.

Obama announces Clinton, Gates for Cabinet (AP)

AP - President-elect Barack Obama picked a national security team headed by former campaign rival Hillary Rodham Clinton and Bush administration holdover Robert Gates on Monday, and said he wants to consult with military commanders before settling on a firm timetable to withdraw U.S. combat troops from Iraq.

It's official: U.S. has been in recession since Dec. '07 (AP)

AP - The U.S. economy has been in a recession since December 2007, the National Bureau of Economic Research said Monday. The NBER a private, nonprofit research organization said its group of academic economists who determine business cycles met and decided that the U.S. recession began last December.

India demands strong action from Pakistan (AP)

AP - India demanded Monday that Pakistan take "strong action" against those behind the deadly Mumbai attacks, and Washington pressured Islamabad to cooperate with the investigation.

Bush uses final 50 days in office to tout legacy (AP)

AP - President George W. Bush says history will judge him, but he is getting his own crack first. Bush is using his final 50 days in office to tout his legacy, hoping to leave a lasting impression of overshadowed progress. On Monday, World AIDS Day, Bush was heralded for his leadership in fighting the disease, a point that even his Democratic critics readily concede.

Parents: Slain anchorwoman was sexually assaulted (AP)

AP - The parents of the television anchorwoman who was beaten to death said Monday there is evidence their daughter also was sexually assaulted, and that she broke her hand fighting her attacker. Five days after a suspect was arrested in the Oct. 20 beating of KATV anchorwoman Anne Pressly, Guy and Patti Cannady said on NBC's "Today" that the family still has many questions about the killing.

Palin implores Ga. Republicans to back Chambliss (AP)

AP - Alaska Gov. Sarah Palin urged Georgia voters to back Sen. Saxby Chambliss in Tuesday's runoff in an election eve appeal that underscored her popularity within the Republican Party and the GOP's efforts to stave off erosion of its shrinking Senate numbers.

1 in 5 young adults has personality disorder (AP)

AP - Almost one in five young American adults has a personality disorder that interferes with everyday life, and even more abuse alcohol or drugs, researchers reported Monday in the most extensive study of its kind.

Man says God ordered him to ram vehicle at 100 mph (AP)

AP - A man who rammed his truck into a woman's vehicle on a highway early Friday told authorities he crashed into her while going more than 100 mph because God told him "she needed to be taken off the road."

NYC police investigating hospital that treated Giants' Burress (AP)

AP - Plaxico Burress was led out of a police precinct in handcuffs Monday after surrendering on a weapons possession charge, and authorities said that teammate Antonio Pierce is being investigated over his role in an accidental shooting at a Manhattan nightclub.

Obama names Clinton, Gates to lead foreign policy (Reuters)

Reuters - U.S. President-elect Barack Obama named former rival Hillary Clinton as secretary of state on Monday and said Robert Gates would remain defense secretary in a national security team charged with recasting America's leadership role in the world.

Stocks slide as economy, Bernanke raise fears (Reuters)

Reuters - Stocks tumbled on Monday as news pointing to the deepening economic slump around the world erased much of last week's sharp gains, with financial services companies and retailers among Wall Street's biggest casualties.

India demands Pakistan act decisively on Mumbai attack (Reuters)

Reuters - India demanded Pakistan take decisive action over deadly attacks in Mumbai it said were carried out by militants from its nuclear-armed rival, while the West urged cooperation to ease tension.

Bush calls flawed Iraq intelligence biggest regret (Reuters)

Reuters - President George W. Bush said the biggest regret of his presidency was flawed intelligence that Iraq had weapons of mass destruction and told ABC "World News" in an interview airing on Monday that he was unprepared for war when he took office.

U.S. in recession as Europe debates spending hikes (Reuters)

Reuters - The U.S. economy has slumped into a recession, the nation's business cycle arbiter declared on Monday, while European leaders clashed over how much public money to spend tackling a deepening downturn.

House to push $500 billion stimulus bill (Reuters)

Reuters - U.S. House of Representatives Speaker Nancy Pelosi met leading governors on Monday to discuss the size and shape of an economic stimulus package that one Democratic aide said was likely to cost around $500 billion.

Thai protesters consolidate hold on airport (Reuters)

Reuters - Thai protesters prepared to end their three-month occupation of the Prime Minister's office on Monday to consolidate their grip on the main airport ahead of a court verdict that could dissolve the elected government.

Alabama mayor arrested on corruption charges (Reuters)

Reuters - Federal authorities arrested the mayor of Birmingham, Alabama, on Monday in a corruption probe surrounding a massive sewer bond debt that has forced Jefferson County to the brink of bankruptcy.

Hawkish Obama names Clinton as top diplomat (AFP)

AFP - Barack Obama on Monday nominated Hillary Clinton to be his "tough," "smart" secretary of state as his former foe vowed to give her all to steer America through a storm of international crises.

Mumbai attacks: India demands Pakistan take 'strong action' (AFP)

AFP - India on Monday formally accused "elements" in Pakistan of being behind the devastating Islamic militant attacks in Mumbai and demanded that Islamabad take "strong action".

Trading Baskets Part I

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