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How to Beat the Market Makers at Their Own Game: Uncovering the Mysteries of Day Trading by Fausto Pugliese

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CHAPTER 6 Picking Tradable Stocks, Part II

In my workshops, I take my students through an exercise in which they are asked to determine whether or not a stock is tradable within the parameters of the nine rules outlined in the previous chapter. In this chapter, we will evaluate whether or not a particular stock is tradable within the precise guidelines we have established.

When reviewing each stock, ask yourself if it meets the criteria set in the nine rules:

  1. Is the stock trading at prices over $30?
  2. Is the stock a brand-name stock?
  3. Is there sufficient tier depth on both the bid and ask sides?
  4. Is the stock's trading volume too low?
  5. Is the stock's trading volume too high?
  6. Are there enough market makers on both the bid and ask sides?
  7. What is the spread?
  8. Is the stock following the trend?
  9. Do you see any Market Maker Traps on Level II?

Example 1: Symantec Corporation

SYMC is the symbol for Symantec Corporation. This stock follows the first rule for tradability—it is priced at less than $30. However, it fails to meet the criteria in Rule #2 because it is a brand-name stock. While most consumers have never heard of this company, it is a brand name on the Nasdaq. SYMC is a member of the Nasdaq 100 and is one of the most actively traded stocks in the market.

One of the great things about this system of picking stocks is that the criteria create the standard of all or nothing. In other words, the stock must follow all nine rules in order to be tradable. Consequently, once you discover ...

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