DAY TRADING:

2 Books In 1
The Beginners Guide To Expert Practical Strategies. Swing And
Day Trading, Options, Money Management and Prices. Including
Trade Psychology and Profit Secret Tips.

DOUGLAS ALLEN
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 THIS BOOK INCLUDES

BOOK 1:
DAY TRADING FOR BEGINNERS:
Simple And Useful Information To Invest On The Stock Market: Swing And Day Trading, Options, Money
Management, Prices And Much More. Including Profit Secret Tips.

BOOK 2:
DAY TRADING OPTIONS
The Beginners Guide To Expert Practical Strategies. Simple Information On Investing, Swing Trading, Stock
Market, Trade Psychology And Options
DAY TRADING FOR BEGINNERS:

Simple And Useful Information To Invest On The Stock

Market: Swing And Day Trading, Options, Money
Management, Prices And Much More. Including Profit
Secret Tips.

DOUGLAS ALLEN
 Table Of Contents

Introduction
Chapter 1: How Day Trading Works
Chapter 2: Similarity And Difference Between Swing Trading And Day Trading.
Chapter 3: Risk And Account Management
Chapter 4: Important Psychology Of Trading
Chapter 5: How To Find Stocks For Trade
Chapter 6: Volatility And Volumes
Chapter 7: Tools And Platforms
Chapter 8: Day Trading Strategies Part 1
Chapter 9: Day Trading Strategies Part 2
Chapter 10: Day Trading Strategies Part 3
Chapter 11: Reading And Using Candlesticks
Chapter 12: Price Action And Mass Psychology
Chapter 13: Trading Plan
Chapter 14: Why And Why Not Use A Trading Simulator
Chapter 15: Choosing The Right Stock To Trade
Chapter 16: Understanding Trading Orders
Chapter 17: Using Risk-Reward Ratio
Chapter 18: How To Profit From A Stock That Is Going Nowhere
Chapter 19: Reading Charts
Chapter 20: Technical Analysis Of Day Trading
Chapter 21: Developing Trading Models
Chapter 22: How Much Do Day Traders Make?
Chapter 23: Common Obstacles And How To Avoid Them
Chapter 24: How Can You Handle Mistakes?
Chapter 25: 5 Money Mistake To Avoid
Chapter 26: Money Management
Chapter 27: Money Management And How It Affects Your Psychology
Chapter 28: Time Management
Chapter 29: Journaling
Chapter 30: Common Mistakes To Avoid
Chapter 31: Profit Secret Tips
Chapter 32: Easy Day Trading Tips
Conclusion
 Introduction

A ll over the world, stock markets open in the morning. Those day
traders who think they can start trading while munching on their
breakfast, with no preparation, are among those who make losses.
All businesses open in the morning. No successful business person just gets
up, yawns, and starts his business activities. Successful professionals arrive in
their office with a clear idea of how they will tackle the work and related
challenges. Likewise, to succeed in day trading, one must prepare
beforehand. These preparations include many aspects, such as mental,
physical, emotional, and financial.
Professional traders have clear advice for day traders; never trade if you are
tired or stressed; never trade if you are feeling highly emotional, and trade
with clear money management concepts. Day trading is a sophisticated
business activity, where people try to earn money by using their intelligence.
Therefore, physical or emotional stress can cause harm to your trading
business. You will not be able to make rational decisions if you are tired or
feeling stressed.
Before you start the day's trading, you should be physically, mentally, and
emotionally alert. A good night's sleep is necessary for traders to tackle the
roller coaster ride of stock markets.
Before going to sleep, keep your trading plan ready. Check the stock chart,
make notes on the chart what significant patterns the price created in the past
session. Note down the critical support and resistance levels. Then mentally
go over this chart and imagine how you will trade in the next session in
different trend conditions.
Do not spend too much time watching the news about stock markets or
anything else. Watching the news may create doubts in your mind about
stock trends and influence your decision-making power for the next session.
If possible, do some breathing exercises or meditation before going to sleep,
which will sharpen your focusing power and reduce stress.
Also, prepare your money-plans for the next trading session. How much will
you invest? What will be your loss tolerance level? And what will be your
profit booking point? During the trading hours, these decisions have to be
made in a split second, and if you are already prepared, you will not hesitate
to make the right decision. These will also help you set your goals for
intraday trading. Just stick to your goals, and you will not face any decision-
making problems during the trading hours.
The final stage of your preparation will be an hour before the markets open in
the morning. This is the time when you check the news reports about the
business and financial world, and the economic calendar. By doing so, you
will know what events could influence that day's trading pattern in the stock
market. You can also check how the world markets are trading in that
session. Sometimes all markets trade in one direction, which will be
beneficial to know before your local stock markets open.
 CHAPTER 1:

How Day Trading Works

Buying Long

A long trade commences from buying a stock with the plan of

selling at a higher price in the future. Depending on the trading
software that you are using, you will have an entry button marked
long or buy. Both terms are used interchangeably to mean the same thing
while trading. You will come across some traders saying that they are going
long; this means that they are willing to buy some underlying stocks or any
financial instrument that they would like to take part in. For instance, I could
be showing some interest in buying shares from the apple company. You
might find me saying that I want to go long on 100 shares of Apple stock. In
this investment plan, there is a high likelihood of acquiring huge profits. The
value of the primary asset is expected to rise with time. If you bought the
shares at $100 each, you might be selling them at $120 at a later date.
Selling Short Retail
When it comes to short trades, the trader can sell the underlying asset before
purchasing them; at this time, they hope that the prices will lower so they can
earn a profit. As a new trader, you may be confused by this trade and fail to
understand how it works. Primarily, we are used to the idea of purchasing
something. Then we get to sell it. It might be a challenge if you are now
introduced to a concept where you sell items that you do not have. In the
trading market, you can either buy the financial instruments or sell them, or
you can sell then you buy. The decisions that you make are based on what
you feel comfortable with as a trader. At times, you will come across traders
using the term short and sell interchangeably. For instance, I could say that I
will short my shares in a given company. When I say so, I mean that I want to
sell the shares that I have in the said company. If you are a professional
trader, you can easily earn a profit from short trades.
Institutional Traders High-Frequency Trading (HFT)
HFT is a big automated trading platform that is utilized by institutional
investors, hedge funds, and investment banks. It uses very powerful
computers to carry out vast transactions of orders at a very high speed. In this
trading platform, it is possible to carry out multiple trades. At the same time,
it is possible to scan the market in a small duration, and thus, it gives the
institutional traders an added advantage in the open market. The system uses
a sophisticated algorithm while performing various functions. Traders using
HFT are more advantaged than those utilizing other methods.
Retail vs. Institutional traders
There are two types of players in day trading: institutional and retail.
Institutional
Institutional traders are those that trade on behalf of companies, such as
corporations. They may also participate in the market for the sake of a group
like pensioners or people who invest via banks.

One of the most significant distinctions between institutional and retail

traders is the complexity of the transactions. Institutional traders handle
significant potential investments (think of thousands or even millions in a
day!). As an example, let us talk about a day trader for mutual funds.
Mutual funds are assets that come from different investors, say, you and your
two friends. Each of you contributes a certain amount of money to the fund.
Once the ideal amount has been raised, the funds are then traded by a
manager or administrator. It is his job to ensure that you earn a profit from
your investment as much as possible. Or if the market is not doing well, at
least your loss is not a lot. For his work, he gets a small management fee.
Institutional trading can be considered high risk due to the vast potential loss
from one wrong decision. However, since the account is also significant,
these types of traders often have bargaining power. This means they can
negotiate prices and execution directly or through an intermediary, who is
called a broker.
They also have:
More access to financial resources and tools
Less worry when it comes to capital or investment funds
Several members that make up the support, research, and analysis team
Retail
Retail traders, meanwhile, are those that invest by piecemeal. But that is not
really piecemeal per se since lots can sell securities like stocks. To be more
specific, if you invest in the stock market and you wish to buy shares, the
minimum maybe 100, 100, or 1,000 shares, in which each bunch of shares is
called a lot. You cannot buy 90, 99, or 999.
Because the securities can be purchased by "piecemeal," the trader can now
participate in the market despite his limited funds. In fact, they can trade in
small-cap stocks or those stocks that have low price prices. This way, the
trader has the option to place his capital on many different types of stocks or
companies in the market.
A retail trader relies on the assistance and expertise of a broker or an
administrator, as in the case of the example above about mutual funds.
Retail traders are not exempted from the loss, and if they play their cards
wrong, they can lose everything they have ever invested. However, the loss
still remains small compared to that of an institutional trader.
Some financial pundits delegate another group of traders, whom they call as
auto traders. These people trade using specialized computer software and
other tools, which usually execute the trader's options and prices. They can
also perform complicated analyses, although the actual interpretation still
depends on the trader.
Both retail and institutional traders, however, can also manage the market
online.
Trade the Best, Leave the Rest
In the end, your goal is to make sure that you can say, "It was a successful
day." How do you qualify this one? Based on experience, a good successful
day trade would be:
Maximum profit
Minimum loss

High liquidity (which means you have sufficient assets for your cash flow)
Diversified portfolio to increase leverage and soften the negative impact
Good analysis of fundamental and technical data
Enough data to analyze the market to get yourself prepared once it opens
Day trading is not easy and straightforward, but it is understandable and, of
course, manageable, especially now that you know the basics of it.
 CHAPTER 2:

Similarity and Difference Between Swing Trading

And Day Trading.

A fundamental question to start with is this one - what are you

looking for like a day trader? The answer here is quite easy.
First, you must look for stocks that are following a predictable
trend. Then, you need to trade them in one single day. You don't need to keep
them longer than a day. If you purchase stocks of Amazon (AMZN) today,
you should not hold the stocks overnight and sell them tomorrow. It is no
longer day trading if you hold on to your position. That one is called swing
trading.
As a day trader, you need to understand the difference between day trading
and swing trading. The latter is a type of trading in which you hold the stocks
over a certain period of time, usually from one day to several weeks. This is a
different style of trading, and you must not use these tools and strategies that
are ideal for day trading if you want to follow the swing trading style.
Remember, day trading is a business (Rule 2). Swing trading is also a
business, albeit a totally different type of business. Imagine owning a meat
processing plant and a hamburger chain.
Both businesses involve food, but these are not similar. They operate with
different revenue models, market segments, regulations, and time frames.
You must not confuse day trading with other trading styles just because the
trades are performed in the stock market.
Professional day traders close their positions before the stock market closes.
Many traders perform both swing trading and day trading. They are aware
that they are running two different businesses, and they are trained to manage
the risks of these two types of trading.
One of the main differences between swing trading and day trading is the
style of choosing stocks. Many traders do not day trade and swing trade the
same stocks. Swing traders often look for stocks in established companies
that they know will not lose their value in a few weeks.

But for day trading, you can trade any stock you want, including companies
that are predicted to go bankrupt. Day traders don't care what happens to the
stocks after the market closes.
As a matter of fact, many of the companies that you day trade are quite risky
to hold overnight because they may lose much of their value in a short period
of time.
Before you begin to trade, you need to determine how active you want to be.
How much time do I have at hand, and what are my current responsibilities?
Your answers to these questions will help you to decide if you want to trade
daily or if you want to buy and hold for some days or weeks.

The active traders are divided into two groups: the day traders and the swing
traders. Both groups have a similar goal of making profits from short term or
long-term trades. However, there are major differences between the two that
you should understand and make your decision on your best choice
depending on your level of technical expertise, time frames, and your
preference.
Basically, day trading is a form of trading where your long or short position
is entered and exited on the same day- opens and closes within 24hours. Day
traders get into positions based on quantitative, fundamental, or technical
reasons. Day traders don’t grasp their positions overnight. Swing trading, on
the other hand, is a long-term investment where the trader buys or shorts
securities and holds them for some days, weeks, or months. Unlike day
traders, the swing traders do not intend to take trading as a full-time job.
Also, you do not need to have lots of capital to swing trade, while day trading
follows the 'pattern day trader rule.' This rule is what governs any trader that
makes more than four trades in the same security over five business days.
This trader is referred to as "pattern day trader" based on the premise that the
trades represent above 6% of the trader's total trading activity in that period.
A pattern day trader must also have a minimum of $25,000 equity in their
account on any trading day.
Day trading
Being a day trader can be very beneficial; however, it has its inherent risks. A
day trader needs to realize that there may be times where he may encounter a
100% loss.
Day trading, more than some other type of trading, requires quick and right
choices on positions and estimating the entry, exits, and stop-losses. The
trades are fast and must be amazingly precise. Day trading imperatively
requires being available and comprehending whatever occurs in the market at
every point in time. Even though it doesn't imply that one should trade every
day or consistently, the evaluations need to be done frequently. This type of
trading takes more time than swing trading. However, it can be satisfying all-
day work.
Day trading is better for people who have a passion for full-time trading and
possess discipline, decisiveness, and diligence. For one to be successful as a
day trader, he needs to have an in-depth understanding of charts and technical
trading. Day trading can be stressful and intense, and so, traders need to be
able to control their emotions and stay calm under fire.
Swing trading
A swing trader identifies swings in currencies, commodities, and stocks that
occur over days. Unlike day trading, a swing trade may take up to weeks to
work out. Swing traders have more persistence concerning their trade
opening. As the positions extend to the second day, there is potential for
enormous benefits on a single trade, yet there are fewer trading opens
generally. Anyone who has the investment capital and knowledge can give a
shot at swing trading.
Swing trading requires less technical investigative abilities and progressively
focus research and information on macroeconomics. The entry focus does not
need to be that exact, and the planning isn't so pivotal since the moves which
swing traders are expecting to get are bigger.
Swing trading doesn't require the trader to put in much time as frequent
technical evaluation and consistent sitting before the screen is not necessary.
It is usually a stress-free and low-effort job. The swing trader can have a
separate full-time job as he does not have to stay glued to his computer
screen all day.
Swing traders usually require time to work out. The more time a trade is open
for days or week, the more the chances of having higher profits than trading
multiple times daily on the same security. Margin requirements in a swing
trade are higher since positions are held overnight. Compared to day trading
whose maximum leverage is four times one's capital, swing trading is often
two times the trader's capital.
Day traders need to understand and utilize stop-losses and target levels to
their benefit. While there is the possibility that the stop order will execute at
an unfavorable price, it is still better than having to monitor all your open
positions constantly.
As is usual with all types of trading, a swing trader can also experience
losses, and because the traders hold the positions for a longer time, they may
experience more significant loss than the day traders.
Swing trading does not require the use of state-of-the-art technology. You
can swing trade with one computer, and any needed trading tools.
Because swing trading is usually not a full-time job, the traders have other
sources of income and have reduced chances of burnout caused by stress.
When should you go for day trading?
The points below have summarized the ideal situation for you to be a day
trader:
You are disciplined, diligent, and strong-willed.
You are willing to make small profits daily by making small
trades.
You have the minimum capital requirements stated by
FINRA rules for pattern day traders and SEC, if and when
they apply to you.
You are knowledgeable and have the expertise to make high
profits.
You are not easily stressed, and you can manage stress.
You are committed to studying current trends and can take
needed action at the speed of light.
You never have a dull day, and you are out for excitement
 every minute.
When should you go for swing trading?
The points below have summarized the ideal situation for you to be a swing
trader:
You lack extreme levels of technical understanding
You do not want to go full time into trading. That is, you
don't desire trading as your only source of income.
You do not like stress and will instead go for something that
is not as risky as day trading.
You do not fancy constant monitoring of market activities.
You are patient and can wait for weeks to months while
studying the movements of the market.
You have a full-time job and can't spare time for day trading
activities.
You do not have plenty of money to invest.
 CHAPTER 3:

Risk and Account Management

S ince the goal of every good trader is to make a profit, to be a good

and successful one, you have to learn how to manage risks related to
your trading and how to protect your profits. How well you manage
your risks determines how successful you will be as a trader.
Prepare your mind because you are about to learn straightforward but
powerful and practical techniques in risk management strategies and
techniques.
Planning Your Trade
A Chinese military general, Sun Tzu, once said: "Every battle is won before it
is fought," this implies that planning and strategy are essential in trading.
Planning is inevitable. It is just like the famous quote says, "Plan the trade
and trade the plan." This determines the success or failure of your trade; no
successful trader goes into the deal without carefully planning out the trade,
pointing out possible future losses, calculating risks, and listing out potential
future profits in your trade.
A plan should be written down clearly and concisely; your plan can change
with changes in the market; risk tolerance should also be incorporated. Here
are some steps you must follow for a successful trade plan:
Skill Assessment: here, you should be able to assess
yourself very well to determine how ready you are to trade.
You should ask yourself a very crucial question such as: are
 you prepared to trade? How much confidence do you have
in a particular market? Have you tested your system by
paper trading? (paper trading is a way of practicing buying
and selling without investing real money, it is usually done
using online trading platforms such as paperMoney and
Investopedia) How sure are you that your system will work
in a live trading environment? Can you spot and follow your
signals without delaying?
Mental preparation: As a good trader, you should be
emotionally and mentally prepared for the upcoming tasks,
you should be prepared for whatever situation that might
arise and whatever changes that may occur in your market.
Avoid distractions as much as possible in your trading area.
If you are emotionally incapable, try taking a day off, take
some rest, do some exercise. This keeps your brain ready
for the upcoming task because trading has a lot of thinking
associated with it.
Also, have a market mantra before the day begins; it is a kind of special quote
or phrase that gets you ready for trading.
Set Risk Level: this determines how much of your portfolio
you should risk on a trade. Your portfolio includes all
financial assets, such as bonds, stocks, and currencies, cash,
commodities, and cash equivalents. This depends on how
you choose to trade and the risks tolerance; It can vary, but
it should be within the range of 1% to 5% of your portfolio
on a given trading day. If you lose any of that amount of
money in a day, leave that market immediately and save
 your portfolio for a better market.
Consider The One-Percent Rule
Most successful traders make use of what is called the one-percent rule; it
merely states that you should never invest more than 1% of your capital or
portfolio into a single trade or market. This means that if you have $10,000 in
your trading account, the highest amount you would invest should not be
above $100 per single trade.
This technique is usually done by traders with accounts with less than
$100,000. Some other traders may decide to go as high as 2%. It all depends
on your position and the size of your account. The best thing to do is to keep
the rule at least below 2%.
Setting Stop-Loss And Profit Points
Just like the name implies, a stop-loss point occurs when a trader decides to
sell a stock and bear the loss, this situation usually happens when the market
doesn't turn out well enough for the trader. The stock's in the market goes
way below expected, hence before the stock's value could get any lower, the
trader decides to sell it out.

The take profit point is the price at which a trader will sell a stock and gain a
profit from the trade. Traders usually sell before a period of consolidation
takes place.
How To More Effectively Set Stop-Loss Points
Setting stop-loss points in order to have profit is usually made in technical
analysis, although fundamental analysis can help out.
A great way of setting stop-loss or take profit levels is by resistance trend
lines; this can be done by connecting and comparing past highs or lows.
Diversify And Hedge
To diversify and the hedge is just like the famous phrase, "never put all your
eggs in one basket." If you choose to put entirely your money in one stock,
you are taking a significant risk. So spread your investments across different
sectors. There may also be times when you need to hedge at a particular
position considering stock and the market.
The Bottom Line
As a good trader, you should be able to know when to enter or leave a trade.
By using the stop-loss, the trader can minimize losses. It is better to plan
ahead of time.
Calculating Expected Return
Calculating expected returns is very crucial in managing risks, it helps you
think through your trade, and it is a perfect way to compare trades in order to
choose the most profitable and less risky ones. Returns can be calculated
thus:
[(Probability of gain) × (take profit % gain)] + [(probability of loss) × (stop-
loss % loss)]

The end of this should give the expected returns.

Day trading risks
To become a successful trader, you need to aware of the various risks that
you are bound to face before getting into the trading world. There are three
major categories of risks:
Market risks
Understanding market changes in your trade is an essential aspect of your
business. Understanding when the markets rise and fall, coupled with the
possible risks associated with it, will help you to protect your profit more.
Types of market risks include:
Inflation risk: inflation occurs when there is uncertainty in
the future value of an investment you are making. While
deflation may mean more returns and profit for you. Rising
inflation often reduces the returns and profit you'd be
expecting from it. This also means that as prices of stocks
and commodities increases, the demand for it decreases.
Hence, you should prepare your plan for any market
changes at all.
Marketability risk: this tells how sellable your investment
is. If there is any form of resistance or delay in selling or
marketing your investment effectively, then your target
market won't mean anything. For example, if you choose to
invest in a small company whose stock isn't sold on one of
the major stock markets, then you risk losing your
investment for nothing.
Currency translation risk: this usually occurs when you are
trading with foreign countries when there are fluctuations
between the values of your local currency and the currency
of your international trading country. A piece of useful
knowledge about currency trading risk would be very
beneficial to traders because even if your stock or
investment rises in the price, you can still lose money
depending on the currency exchange rate between the two
countries. If the value of your local currency falls against
the other currency, your investment can be far smaller when
you convert it back.
Investment risks
This suggests how you invest your money and manage how you enter into or
leave trades. There are two major kinds of risks:
Opportunity risks: this kind of investment risk shuts or stops
you from investing in other more profitable trades due to the
fact that your money is already tied up in your current
business. This type of risk makes you lose golden
opportunities, all because your money is blocked by another
one.
Concentration risks: this happens when you focus all your
investment and capital in just one particular trade, perhaps
because you think that you have found your dream trade
that will make you a millionaire. Hence you invest all
you've got, leaving yourself very vulnerable to any potential
risks that might arise in that trade with the possibility of
losing it all.
Trading risks
Trading risks are common risks that swing traders usually encounter, and
every trader needs to know about them, just as the saying "knowledge is
power," you need to be knowledgeable about them, and this will give you
leverage in managing the future risks that may arise. Some common risks that
are associated with trading risks include:
Slippage risk: this risk gives attention to some hidden costs
that may be related to every transaction the trader makes.
Every time you enter or leave a trade, there is some very
minor and little subtraction of money from your account.
Also, every time you buy a stock at the asking price, which
is the lowest price available for the stock that you want and
sells it at the bid price which is the highest price someone is
willing to pay for your shares, you have to know that it is
always less than the asking price. At first, the amount for
each trade may seem small, but as your trading increases,
the amounts you also lose gains.
Poor execution risk: this risk occurs when your broker has a
difficult time filling out your order, perhaps due to fast
market conditions, inadequate availability of stock, and the
absence of other buyers and sellers. When this happens, you
risk having your stock trade going below than it should or
not getting your order filled at all.
Gap risk: this occurs when there are price gaps in your
transactions; sometimes, a stock opens at a significantly
high or lesser price and sometimes may trade using your
exit price. For example, a stock may close at $35 today and
begin at $30 tomorrow. If your planned price is $34, your
order is likely to be filled out at the opening price. Though
these kinds of risks are infrequent, they can cause problems
for most traders.
Other types of risks include:
BLACK SWAN EVENTS: these are the type of risks that comes up
unexpectedly. They are tough to predict. It is a type of significant risk that
has a substantial impact on the market.
UNDIVERSIFIED RISK: this is a type of risk that occurs when you 'put all
your eggs in one basket.' This type of risk is usually tough to avoid and
difficult to predict as markets can also influence this type of risk. This type is
one of the primary reasons why investors and traders usually decide to
diversify their stocks and money, avoiding the risk of losing everything at
once.
 CHAPTER 4:

Important Psychology of Trading

I f you want to become a successful trader who consistently earns a

passive income, time and again, you need to know how to navigate the
psychology of trading. Anywhere you look, you will discover that the
psychology of trading is as crucial to your success as virtually anything else
and that a truly magnificent trader enforces this proper psychology.
Through fostering the right mindset and preparing your psychology for
success, you can ensure that you are able to make the best trades possible,
allowing you to maximize your profits.
The biggest reason why your mindset is so important when it comes to
trading is that trading in and of itself can be incredibly stressful, and there is a
lot at stake with each trade that you make. Although options trading is
significantly less risky than other trading strategies, it is still dangerous and
should be treated like any other form of trading to protect yourself against the
risk.
When we become stressed during any life experience, our emotions have a
tendency to hijack the experience and prevent us from being able to make
logical, rational decisions. Naturally, this would not be productive to you,
making the best decisions with your trades, which means that this needs to be
avoided at all costs.
Fostering the right mindset allows you to remain objective and logical in
every trade decision that you make so that you are always making decisions
that lead to your profits, rather than mistakes that lead to your losses.
To learn how to foster this particular mindset will take time, especially with
the amount of stress that you might face with trading. Ideally, however, if
you practice at it every single day, you will find that it becomes a lot easier
for you to see your trades objectively. As a result, you will find that your
trades become more productive, and your passive income stream grows
exponentially.

While there are many things that you can do to help you manage your
mindset and your emotions and keep yourself primed for the psychology of
trading, there are five significant steps that you can take today to get started.
Enforcing these mindset strategies right away can help you begin your trades
with the best mindset possible so that you can experience more significant
levels of success right from the very beginning.
Never Take Anything Personally
In life, it can be challenging to separate yourself from your experiences,
especially when higher emotions such as stress and overwhelm come into
play. Early on, you might feel like every trade you make reflects you
personally, and like any bad trade, you make means that you are a bad trader
or that you are incapable of earning an income through trading. This type of
response is relatively natural, but it is also unhelpful when it comes to
learning how to trade to make a profit.
Experiencing losses and trade deals gone wrong is a natural part of trading,
and virtually everyone experiences it. While senior traders are not as likely to
experience as many losses as new traders, they do still experience losses that
cut into their bottom line. This is natural, especially when you are trading on
something as volatile as the stock market. With day trading, in particular, you
never know exactly how that day is going to go, nor do you know whether or
not sudden shifts in news and rumors could completely change the direction
of the stock. As such, you are certainly exposed to risks that can be entirely
beyond your control. While you can protect yourself against them as much as
possible, there is no real way to avoid risks completely, and so they are
always a possibility.
The alternative of feeling like a bad trader when you experience a loss is
feeling like a great trader when you experience a win. It is common amongst
new traders who are on a winning streak to develop a sense of
indestructibility that suggests that maybe they are incapable of experiencing
losses because they somehow have the system beat.
This arrogance can lead to new traders exposing themselves to massive risks
and losses because they stop taking their trades as seriously and reduce the
amount of research and risk management they conduct before every trade. As
a result, they may experience a massive setback due to this arrogance.
In either scenario, creating a personal attachment to what your trades "mean"
about who you are as a person is not healthy. Both can lead to self-doubt or
arrogance, which has the capacity to destroy your trade deals and reduce your
effectiveness as a trader.
Instead, you need to go into every single trade deal, knowing that your level
of results in the trades is not reflective of you as a person. You are neither
good nor bad for participating in trades that earn profits or losses. You are
just a trader, trading. Keeping your personal attachment out of the trades will
help you stay objective and continually practice logic and rational reasoning
in every single trade you make.
Always Stay Hungry for Knowledge
Trading is not a one and done skill that can be learned and then executed the
same way over and over again without ever requiring further education on
what you are doing. If you want to be a great trader and earn massive profits,
you need to stay hungry for knowledge so that you can continually improve
your trading skills over time.
Despite the fact that the general rules of trading have always remained the
same throughout history, there are several different factors that influence the
market and how trades are being made. Over time you will learn more about
technical indicators, how certain types of news tend to affect the market, and
where the best sources of information are for you to learn more about your
specific trades.
Chances are, you will take what you learn here in this book and apply them,
and over time you will find new information that helps you improve your
trades even further.
It is important to understand that you should always be hungry and on the
lookout for new information. Keeping your eyes and ears open ensures that
you are continually refining your practice and increasing your profitability in
the market, which will, in turn, maximize your passive income. Every single
person will have a different way of understanding the market, identifying
essential pieces of information, and preparing themselves for trades.
The best way to create your own method for doing all of this is to keep
practicing and applying new strategies that you learn about as you go and
seeing how they fit for you. When you find ones, you like and that work for
you, continue using them and refining them so that they work even better
over time.
Keep Up with Stress Management
Stress has a huge part in your ability to make strong trade deals. If you are
attempting to trade with an incredibly stressed out and overwhelmed mind,
you are going to find yourself making poor decisions that may ultimately cost
you a significant amount in the end.
One example that proves the impact of emotions on traders lies in a
phenomenon that happens every single time the market hits a recession.
When a recession strikes, many traders develop an intense fear at the rapidly
dropping prices of various stocks and jump out of their trade deals as fast as
they can, regardless of how much they are losing.

Their fear of experiencing a complete loss leaves them reacting instead of

responding to the situation at hand. As a result, many people inevitably lose
out on massive amounts of income, and some even find themselves amidst
devastating losses.
Alternatively, those who respond to the situation quickly recognize that a
recession is in the works, and, based on the history of what tends to happen
during recessions, they maintain their positions. In fact, they often leverage
their positions and invest in the plummeting stocks once they begin to hit all-
time lows because they know that historically, every single time the stock
market drops, it always corrects itself eventually.
These individuals end up coming out of recessions far wealthier than they
went into because they leveraged what was happening in the market, rather
than acting impulsively based on their stress levels.
Of course, the market is not always in a recession, and so you might not see
these massive, across-the-board plummets while you trade, but the same
general rule of thumb still applies. If you allow yourself to become
excessively stressed and act emotionally when your chosen stocks begin to
move out of favor, you are likely going to make big mistakes out of your
emotional judgments.
If instead, you were to slow down and follow the plan you had already set in
place, you would continue to see increases in the value of your stock, or at
the very least, you could minimize the number of losses that you experience.
Understand that when we talk about stress management, we are not talking
about eliminating stress entirely. Even the most senior traders in the industry
will tell you that they continue to experience massive amounts of pressure
around the stock market on a consistent basis.

The difference is, they do not let their stress alter or rule their decision-
making skills. Instead, they let their stress exist in the background, yet they
continue to behave according to the plans expertly they have already
designed at the beginning of every trade deal they have ever entered. As a
result, they maximize their profits, and their stress and emotions no longer
pose such a massive threat to their bottom line.
Improve Your Emotional Intelligence
In addition to managing your stress, it is helpful to learn how to improve your
emotional intelligence overall when it comes to trading. Emotional
intelligence will help you manage not only your stress but also handle all of
the emotions that contribute to stress, such as fear, anger, frustration, worry,
regret, disappointment, sadness, and uncertainty.
Improving your emotional intelligence as a trader will have a significant
impact on your ability to decrease your emotional involvement in trades and
trade with an objective approach in every single deal.
Aside from supporting you with the emotions, you have gained directly from
the market; emotional intelligence will also help you manage the feelings that
you experience from elsewhere in your life.
This means that you will have a significantly lower chance of bringing
outside troubles into your trading mindset, which will drastically reduce the
amount of stress you bring with you into trades. This way, if you have
anything bugging you in your day to day life, such as in your relationships or
career, you will be less likely to allow those things to influence your trade
deals.
Managing your emotions all around will have a significant impact on helping
you trade more rationally, intentionally, and effectively. Ensure that you are
practicing emotional intelligence in all areas of your life and continually
improving your emotional intelligence each day so that you are minimizing
the risk that your emotions may pose on your trade deals.
Maintain a Healthy Respect for the Market
This particular mindset, a strategy is incredibly important, and it can be one
of the most challenging ones to maintain. As a trader, you can easily become
complacent by losing focus, becoming arrogant about a winning streak, or
becoming doubtful from a losing streak. If you are not careful, you will
quickly find your respect for the market, shifting away from healthy respect,
and it could drastically impact your trade deals.
You must always remember that the market is volatile, that it is not
guaranteed, and that anything can happen at any given time. No matter how
much research you do, and no matter how much effort you put into
guarantees your success, you are never guaranteed anything in the stock
market.
 CHAPTER 5:

How to Find Stocks for Trade

Stocks in Play

W hen a stock is widely believed to be a takeover target, it is said

to be in play. Day traders widely trade stocks in play because
their volatility produces reasonable risks and trading
opportunities. When company stocks have less volatility, they move slowly,
and they only have a moderate price change only when the company shows
good or bad trading outcomes. This may occur only a few times in a year.
Such companies are ideal for investors looking for returns in the long-term.
Long term investors buy shares in these companies, which have good
prospects, with shares moving slowly in the right direction, and it matters less
to them if the share price doesn’t move much intraday. But day traders buy
and sell stocks during stock market opening hours and exit the trade before
the day ends. Sometimes they even trade for a few minutes or an hour and
exit the market. They, therefore, require more action than investors. They
need stocks that move and produce price swings so that their trade becomes
worthwhile. Such fluctuations in prices leave enough room for them to
realize profits, after paying the association fees charged by stockbrokers for
buying and selling shares.
Stocks in play also have a large volume. Day traders are after quick entries
and exits, and they want liquid stocks. That means they can buy and sell
shares in the capital on demand. A stock that doesn't have good liquidity and
my cost the broker time to strike a promising buying or selling deal. The
broker is unable to negotiate the deal that the trader wants to buy or sell at.
For day traders, this is a problem because it means the difference between a
profitable trade and a non-profitable one. Day traders are guided by trade
volumes of shares that are traded each day to arrive at what they consider
good liquidity for them. For most traders, one hundred thousand shares
traded per day would be their minimum, while some other traders may
require a million shares.
Stocks in play will change in one day. An ordinary stock will be put in play
by the company news, which is typically released early in the morning, and it
will vary depending on the nature of the news, whether it is good or bad.
Sometimes good news for traders may be bad news for investors. Some of the
big companies like Apple, Amazon, and Facebook have stocks that are
always in play, and day traders will have these stocks always in their watch
list. This is because they have large volumes of trades and traded shares. This
is where a day trader looks for excellent trading opportunities, and proper
levels to trade from.
Float and Market Cap
Market cap means market capitalization. It expresses the stock value of all
the company shares. To arrive at the market cap of an entity, multiply the
entities’ shares by the stock price. An Entity with $50 million in shares with
each share trading at $20, then $10 billion will be its market cap. Market cap
is necessary because it helps traders to understand and compare the size of
different companies. Market cap helps you to know the worth of different
companies in the open market. It also helps you to understand how the
market perceives a particular company and mirrors what investors and traders
are ready to pay for its stock.
Large-cap stocks: $10 billion and over is their stock market value. Typically,
these are reputable companies that produce quality goods and services. They
experience steady growth and have a history of consistency in dividend
payments to their shareholders. Their brand names are familiar to national
and even international consumer audience. They are dominant players in their
respective industries of the establishment. They are ideal for conservative
investors since they pose less risk as they have less growth potential.
Mid-cap stocks: Typically, these are businesses with a minimum market
value of $2billion and a maximum market value of 10$billion. In other
words, their market value is between $2billion and $10 billion. They are
medium-sized, established companies with growth potential. Such companies
are either experiencing rapid growth, or there is an expectation that they will
proliferate in the near future. They are in the stage of boosting their
competitive advantage and widening their share of the market. This is a
crucial stage since it determines their ability to attain maximum potential. In
terms of risk, they have less risk in comparison with new startups. When it
comes to potential, they offer more potential than blue-chip companies since
they are expected to continue to grow until they reach full potential.
Small caps: their market stock value ranges from $300 million to $2 billion.
They are growing businesses that are just emerging in the industry. They are
the riskiest and the most aggressive and rely on niche marketing to survive in
the industry. Due to limited resources, they are vulnerable to economic
shocks. They are susceptible to intense competition and market uncertainties.
Since they are new startups, they have high growth potential in the long-term,
and they are ideal for investors who can cope up with volatile stock price
swings in the short run.
Speaking of which, float is the number of shares, which are available for
trading by the general public. Unlike the market cap that calculates the total
stock value of all company shares, free-float does not include locked-in
shares. Locked-in shares are those that are held by company employees and
the government. Market cap can be affected by several factors. Market cap
can also be impacted when the number of issued shares changes. Market cap
can be diluted when warrants are exercised on the stock of the company
because the number of shares outstanding will increase. This is because such
an exercise is often carried out below the shares market price; hence it has the
potential to impact the market cap. On the other hand, issuing a dividend or a
stock split typically doesn’t alter the market cap.
To build a stable watch list, comprising large-cap, mid-cap, and small-cap
stocks, a trader will have to evaluate their time horizon, risk tolerance, and
financial goals. A balanced watch list comprising all the market caps may be
ideal in helping to reduce the investment risk.
Pre-Market Gappers
Pre-market trading refers to trading activities that take place between 8 am,
and 9:30 am EST every trading day. This is usually before the regular market
session begins. Traders and investors monitor the pre-market trading period
to judge the direction and the strength of the market while waiting for the
regular trading session. During the pre-market activity, there is limited
liquidity and volume. Wide bid-ask spreads are a common thing during the
pre-market period. The type of orders that can be used during this period is
limited by many retail brokers, even though they offer pre-market trading. As
early as 4 am, direct-access brokers begin to allow access to the pre-market
activity to start. It is crucial to bear in mind that there is a limited activity
during this pre-market period.
The most reliable types of stocks that are beneficial to trade during pre-
market activities are gapper or dumper. They are usually viable during the
seasons when earnings for various companies are reported. During such
season, these stocks gap with the volume either up or down. They are usually
triggered by a primary catalyst such as press releases, news, or earnings
reports. They can also be reacting to rumors or analyst upgrades or
downgrades. It is important to note that stocks tend to get more ‘credibility,’
follow-through, and consistent volume when they are gapped in reaction to
earnings reports and guidance. As you trade during pre-market activity, you
should always know that this period is characterized by fewer participants,
more extensive spread, and thin liquidity. It is not advisable to trade pre-
market unless there is a substantial volume gap that is being driven by a
catalyst. Waiting for the market to open is the most suitable option for most
traders.
Real-Time Intraday Scans
A stock scanner is a screening tool that uses user-selected criteria and trading
metrics to search the market and find stocks that meet the set standards. They
can be modified to find the most suitable candidates that match user-specific
filters using technology. They have helped to streamline the time-consuming
task of attempting to trace new trading opportunities. This makes it efficient
and convenient for traders to quickly find potential stocks. It is an essential
tool for traders and investors due to its speed and convenience.
Real-time intraday scans are essential for day traders, and they work to spot
stocks during market hours. They produce results that are highly sensitive to
time and require the trader to analyze them quickly on the fly to determine
whether a trade should be made. Intraday patterns require quick action as
they develop and fade within a short period. Real-time intraday scans help
day traders to maximize the limited time duration they have to make
decisions before the patterns shift. They are a great way to introduce a trader
to new stocks, especially when they search the whole market for candidates.
These new stocks can then be added to the watch list. These new stocks can
then be monitored to get acclimated to the liquidity, trade volume, spread,
and the pace of the price action. A trader can dramatically narrow his field by
modifying the filters to search only for stocks that meet his desired price
range and minimum volume requirements.
The ability of the scan to produce accurate results will be determined by the
tightness of your parameters. It is good to make sure that the settings have
been set correctly, to provide precise intraday alerts. Always make sure to
validate the accuracy of the scan results, whether you are scanning for pattern
ups or pre-set ones. By prudently leaning the necessary programming, you
can customize your scan to produce the results you need. Always remember
that scans are not intuitive, and they may miss the context that determines
how effective the pattern is.
Planning Trade Based on Scanners
When correctly used, scanners are helpful, enabling the trader to wave
through the market noise and concentrate on the most qualified stocks. But as
a trader, it is always important to keep in mind that the results produced by a
scanner only act as filters. You still need to carry out careful analysis to
determine their credibility. Make the necessary confirmation of the set-ups
before you consider a trade. The reliability and accuracy of scanners can be
doubtful, mainly if such results have been produced by pattern-based
scanners. Sometimes you can spread your trade too thin between candidates
when you use scanners in the wrong way. This may create opportunities for
you to lose money faster than you expect
Make sure that you understand the criteria better and test the screened results
to gauge how reliable the scanner is.
 CHAPTER 6:

Volatility And Volumes

T he first piece of terminology you have to grapple with is the concept

of the premium. Despite the fancy name, the premium is simply the
name given to the price of the contract. So why not call it the price?
Well, this is because of the way the price arrives. Black-Scholes complexity
aside, every option contract's premium has two components to it: the intrinsic
value and the time value.
There is a third volatility value as well, but let's ignore that for now. The
intrinsic value is simply the difference between the price at which the option
becomes valuable and the current price of the security. The time value is a
price associated with how much time is left on the contract.
So, at what price does the option become valuable? Well, this is called the
strike price. The strike price is the threshold beyond which you can exercise
the option. So, if you buy a call (the right to obtain) with a strike price of $10
and the current market price of the underlying is $5, your option has no
intrinsic value since the strike price is above the market price.
Every contract has an expiration date, with the most heavily traded ones
being the ones expiring within a month. The time left for the option to expire
is the crucial factor in determining how much time value the option has. If
your call still has two months to expire, then there is a greater possibility of
the market price exceeding the strike price, than if the option were expiring
tomorrow.
Therefore, the former option would have a higher time value than the latter.
Commonly speaking, the nearer you get to the expiration date, the lesser the
time value is. The third factor in pricing is the volatility value. Briefly, the
more volatile the underlying is, the greater this value.
Volatility refers to how far and how fast security moves. Volatile securities
usually move very quickly and are thought of as being unpredictable thanks
to their quick movements. Given this unpredictability, it is natural that the
person selling you the option should be compensated for the risk they're
undertaking.
The relation of the market price to the strike price has further terminology
associated with it.
The reasoning behind this terminology is this. A call is valuable only when
the market price increases beyond the strike price. Think about it. You're
buying the option to give you the right to purchase the underlying. If the
current market price is $5, the only calls that will make you a profit are those
with strike prices below $5.
In anticipation of a rising market, traders often buy higher strike price
options. So, if a trader buys a $10 strike price call, they're anticipating that
the market will increase beyond this price before the option expires. Using
this logic, can you figure out how the terminology works for a put? When is a
put in the money?
Well, a put gives you the right to sell the underlying. So, the only valuable
puts will be the ones with a strike price higher than the current market price.
Hence, with puts, when the strike price is greater than the market price, a put
is said to be in the money. When the put's strike price is lower than the
market price, it is out of the money. In other words, it is directly opposite to
the call's conditions.
So, what happens when you buy an option? Well, you pay the premium and
then wait to see if you want to exercise it or not or sell if for a higher
premium to someone else. You could also let it expire without doing
anything. In all cases, the maximum size of your loss is limited to the
premium you paid to buy the option.
I want to point out that irrespective of your trade moving into the money or
not, you will forfeit the option premium. So, when you enter an options trade,
you're placing yourself at a loss right from the start. The good news is that
this is your maximum loss. In a stock trade, your potential loss is the
difference between the market price and zero, since every stock can turn
worthless.
For example, if you buy AMZN at $246, your potential loss is -$246 per
share. However, if you buy a call option, your maximum loss is the price of
the option. If AMZN doesn't make it past the call's strike price, it doesn't
matter for you since you don't own the stock, and you don't have any
obligation to buy it.
When you short a stock, that is, sell first before seeking to repurchase it at a
lower price, your potential loss is unlimited. This is because a stock can rise
to infinite levels without stopping. If you shorted AMZN at $246, your
possible loss is unlimited per share. It could increase to $1000, or $2000 and
so on. Your maximum gain is $246 per share since it can only fall till zero.
However, if you buy a put option on AMZN, your maximum loss is capped at
the option's premium while your maximum gain is capped at your option's
price plus $246 since this is the maximum amount by which it could fall. The
$246 will be added to the intrinsic value portion of the premium.
Here we see the primary benefit of options, which is their ability to cap your
maximum risk. With stock trading, you can do this via a stop-loss order, but
markets are notorious for jumping stop-loss levels due to liquidity concerns.
Liquidity is a fundamental concept you need to understand to trade
successfully.
Many traders, while first starting think that every price in the market will be
honored and that transactions can occur at every level. This is not the case.
Think of it as going to an actual market of say, fruits. If you want to sell your
apples for $10, you will find a certain number of takers. If you're going to sell
it for $10,000, unless God blessed those apples personally, you're not going
to find any takers.
There's no liquidity for apples at the $10,000 price. Similar thing occurs in
the stock market all the time. When a stock moves violently, it often skips
multiple levels, and it is quite common for an illiquid stock to skip right past
the stop loss level. The broker can only execute your orders at the prevailing
market price, so if that price happens to be multiple points lower than your
stop loss, you have to eat the loss.
Volume
When it comes to the volume of instruments you trade, you need to make
sure that it is higher than the average so that you can make money from it.
When you find an average volume, usually, the stock won't do anything
interesting, and there are fewer opportunities to make money from. This will
also depend on your strategy, but this tends to be the case for swing and day
traders.
Volume refers to the total quantity of contracts or shares traded for a
particular security. This number can be measured for any type of security that
is sold during the day. The volume is a measure of futures contracts, options
contracts, bonds, stocks, and many other types of commodities.
The volume will show the total number of shares that were transacted
between the seller and buyer. When security is traded often, they will have a
higher trade volume. The securities that aren't traded as often will have a
lower trade volume.
Every market exchange will keep track of the trading volume of all securities,
and they will provide you the data. The volume numbers are regularly
updated every hour of the trading day. The reported hourly amounts are
basically estimating. The trade volume that you get at the end of the day will
be an estimate as well.
The actual final figures will be reported at the start of the next trading day.
While traders are waiting for the volume report, they can use the tick volume
or the number of changes a contract price has been through.
The volume will tell a trader about the market's liquidity and activity. When
security has a high trade volume, it means that it has higher liquidity, better
order execution, and an active market for sellers and buyers.
 CHAPTER 7:

Tools and Platforms

F or you to carry out day trading successfully, there are several tools
that you need. Some of these tools are freely available, while others
must be purchased. Modern trading is not like the traditional
version. This means that you need to get online to access day trading
opportunities.
Therefore, the number one tool you need is a laptop or computer with an
internet connection. The computer you use must have enough memory for it
to process your requests fast enough. If your computer keeps crashing or
stalling all the time, you will miss out on some lucrative opportunities. There
are trading platforms that need a lot of memory to work, and you must always
put this into consideration.
Your internet connection must also be fast enough. This will ensure that your
trading platform loads in real-time. Ensure that you get an internet speed that
processes data instantaneously to avoid experiencing any data lag. Due to
some outages that occur with most internet providers, you may also need to
invest in a backup internet device such as a smartphone hotspot or modem.
Other essential tools and services that you need include:
Brokerage
To succeed in day trading, you need the services of a brokerage firm. The
work of the firm is to conduct your trades. Some brokers are experienced in
day trading than others. You must ensure that you get the right day trading
broker who can help you make more profit from your transactions. Since day
trading entails several trades per day, you need a broker that offers lower
commission rates. You also need one that provides the best software for your
transactions. If you prefer using specific trading software for your deals, then
look for a broker that allows you to use this software.
Real-time Market Information
Market news and data are essential when it comes to day trading. They
provide you with the latest updates on current and anticipated price changes
on the market. This information allows you to customize your strategies
accordingly. Professional day traders always spend a lot of money seeking
this kind of information on news platforms, in online forums, or through any
other reliable channels.
Financial data is often generated from price movements of specific stocks and
commodities. Most brokers have this information. However, you will need to
specify the kind of data you need for your trades. The type of data to get
depends on the type of stocks you wish to trade.
Monitors
Most computers have a capability that enables them to connect to more than
one monitor. Due to the nature of the day trading business, you need to track
market trends, study indicators, follow financial news items, and monitor
price-performance at the same time. For this to be possible, you need to have
more than one processor so that the above tasks can run concurrently.
Classes
Although you can engage in day trading without attending any school, you
must get trained on some of the strategies you need to succeed in the
business. For instance, you may decide to enroll for an online course to
acquire the necessary knowledge in the business. You may have all the
essential tools in your possession, but if you do not have the right experience,
all your efforts may go to waste.
Day Trading Pricing Charts
Charts are used by traders to monitor price changes. These changes determine
when to enter or exit a trading position. There are several charts used in day
trading. Although these charts differ in terms of functionality and layout, they
typically offer the same information to day traders.
Some of the most common day trading charts include:
1. Line charts
2. Bar charts
3. Candlestick charts
For each of the above charts, you must understand how they work as well as
the advantages/ disadvantages involved.
Line Charts
These are very popular in all kinds of stock trading. They do not give the
opening price, just the closing price. You are expected to specify the trading
period for the chart to display the closing price for that period. The chart
creates a line that connects closing prices for different periods using a line.
Most day traders use this chart to establish how the price of a security has
performed over different periods. However, you cannot rely on this chart as
the only information provider when it comes to making some critical trading
decisions. This is because the chart only gives you the closing price. This can
mean that you will not be clever to establish other vital factors that have
contributed to the current changes in the price.
Bar Charts
These are lines used to indicate price ranges for a particular stock over time.
Bar charts comprise vertical and horizontal lines. The horizontal lines often
represent the opening and closing costs. When the opening price is lower than
the closing price, the horizontal line is always black. When the opening price
is higher, the line becomes red.
Bar charts offer more information than line charts. They indicate opening
prices, the highest and lowest prices as well as the closing prices. They are
always easy to read and interpret. Each bar represents rice information. The
vertical lines indicate the highest and lowest prices attained by a particular
stock. The opening price of a stock is always shown using a small horizontal
line on the left of each vertical line. The closing price is a small horizontal
line on the right.
Interpreting bar charts is not as easy as interpreting line charts. When the
vertical lines are long, it shows that there is a significant difference between
the highest price attained by security and the lowest price. Large vertical
lines, therefore, indicate that the commodity is highly volatile while small
lines indicate slight price changes. When the closing price is far much higher
than the opening price, it means that the buyers were more during the stated
period. This indicates the likelihood of more purchases in the future. If the
closing price is slightly higher than the purchase price, then very little
purchasing took place during the period. Bar chart information is always
differentiated using color codes. You must, therefore, understand what each
color means as this will help you to know whether the price is going up or
down.
Advantages of bar charts
They display a lot of data in a visual format
They summarize large amounts of data
They help you to estimate important price information in
 advance
They indicate each data category as a different color
Exhibit high accuracy
Easy to understand
Disadvantages
They need adequate interpretation
Wrong interpretation can lead to false information
Do not explain changes in the price patterns
Tick Charts
Tick charts are not common in day trading. However, some traders use these
charts for various purposes. Each bar on the chart represents numerous
transactions. For instance, a 415 chart generates a bar for a group of 415 trade
positions. One great advantage of tick charts is that they enable traders to
enter and exit multiple positions quickly. This is what makes the charts ideal
for day traders who transact volumes of stock each day.
These charts work by completing several trades before displaying a new bar.
Unlike other charts, these charts work depending on the activity of each
transaction, not on time. You can use them if you need to make faster
decisions in your trade. Another advantage of a tick chart is that you can
customize each chart to suit your trading needs. You can apply the chart to
diverse transaction sizes. The larger the size, the higher the potential of
making a profit from the trade.
When used in day trading, tick hart works alongside the following three
indicators:
RSI indicators – these are used when trading highly volatile
 securities. They help you establish when particular security
is oversold or overbought since these are the periods when
stock prices change significantly.
Momentum – day traders use this together with tick charts
to show how active the stock price is and whether the
activity is genuine or fake. If the price rises significantly,
yet the momentum is the same, this indicates a warning
sign. Stocks with positive momentum are ideal for long
trades. You should avoid these if you wish to close your
positions within a day.
Volume indicators – these are used to confirm the correct
entry and exit points for each trade. Significant trading
positions are often indicated using larger volume bars, while
low positions with little volatility are displayed using small
volume bars.
Candlestick Charts
Candlestick charts are used on almost every trading platform. These charts
carry a lot of information about the stock market and stock prices. They help
you to get information about the opening, closing, highest, and lowest stock
prices on the market. The opening price is always indicated as the first bar on
the left of the chart, and the closing price is on the far right of the chart.
Besides these prices, the candlestick chart also contains the body and wick.
These are the features that differentiate the candlestick for other day trading
charts.
One great advantage of candlestick charts entails the use of different visual
aspects when indicating the closing, opening, highest, and lowest stock
prices. These charts compute stock prices across different time frames. Each
chart consists of three segments:
The upper shadow
The body
The lower shadow
The body of the chart is often red or green in color. Each candlestick is an
illustration of time. The data in the candlestick represents the number of
trades completed within the specified time. For instance, a 10-minute
candlestick indicates 10 minutes of trading. Each candlestick has four points,
and each point represents a price. The high point represents the highest stock
price while low stands for the lowest price of a stock. Once the closing price
gets more moderate than the opening price, the body of the candlestick will
be red in color. When the closing price is higher, the body will be colored
green.
There are several types of candlesticks that you can use in day trading. One is
the Shekinah chart that helps you to filter any unwanted information from the
chart data, ending up with a more accurate indication of the market trend.
Novice day traders commonly use this chart because of how clear it displays
information.
The Renko chart only displays the changes in time. It does not give you any
volume or time information. When the price exceeds the highest or lowest
points reached before, the chart displays it as a new brick. The brick is white
when the price is going up and black when the rate is declining.
Lastly, the Kagi chart is used when you want to follow the direction of the
market quickly. When the price starts to decline, the line reduces in
thickness.
Each of the above charts works using a time frame, which is represented
using the X-axis. This time frame always indicates the volume of information
represented by the chart. Time frames can be in the form of standard time or
in the form of the number of trades completed within a specified period as
well as the price range.
 CHAPTER 8:

Day Trading Strategies Part 1

Strategy 1: Moving Averages

Y ou can also use moving averages as entry and exit points for your
day trading positions. Just to refresh your memory, moving
averages are average prices for the past X number of days that are
plotted together with a stock or security's price chart. The longer the moving
average, i.e., the more days included in the norm, the more accurate an
indicator it can be. The caveat to such accuracy, however, is more significant
lag, i.e., it takes much longer to confirm trend reversals. A shorter moving
average gives faster reversal signals, but it can be subject to more whiplashes,
i.e., false signals.
There are three general types of moving averages: simple, exponential, and
volume-weighted. A simple moving average is just the average price for X
number of days or periods, e.g., minute, hour, etc. Each period's price has
equal weight in computing the average.
In an exponential moving average (EMA), the most recent price has more
weight in the computation of the moving average price for a period. For
example, the last day's closing price may contribute 15% to a 9-day moving
average price while the oldest price only contributes 5%. Exponential moving
average prices are more influenced by the newer ones.
Strategy 2: Opening Range Breakouts
This day trading strategy involves identifying a specific price entry point, but
it doesn't determine a particular profit-taking price target. That would be up
to you based on your day trading objectives.
One of the common characteristics of legitimate SIPs is that upon market
opening, they burst out of the gates and exhibit wild price movements due to
the influx of heavy buying or selling orders.
Often times, these wild opening price movements are due to traders who are
taking profits or cutting losses from their past trading day's positions plus the
entry of new investors and traders. Primarily when the prices of SIPs shoot
up and form gaps from the past day's prices, many traders lock in on their
profits, hence the sell-off. At the same time, many traders and investors also
rush into taking positions when this happens, before prices shoot up even
further.
When a SIP's price plunges and creates a downward gap, traders and
investors try to cut their losses by selling their holdings, hence the selling
pressure. On the one hand, many traders may also look at downward gaps as
opportunities to pick up stocks on the cheap and make profitable day trades.
If you notice, prices of SIPs that burst right out of the market gates during
market opening can go either way regardless of the massive opening price
movements that are bullish or bearish. That's why seasoned day traders don't
just jump in and take positions along with the herd. They patiently wait for
opening price ranges to form and let all the other less experienced traders and
investors slug it out, i.e., buyers vs. sellers, until a clear winner appears.
An ideal time in which to wait for opening price ranges to develop is at least
15 to 30 minutes because it offers just enough time for price ranges to
develop clearly. Other day traders even go further with 1-hour price opening
ranges. Just bear in mind that there's a tradeoff between accuracy and timing
when it comes to choosing the duration of the opening price range: the longer
the duration, the more accurate the price range can be, but the risk of taking
late positions is also higher.
The opening range breakout day trading strategy is ideal for mid to large
capitalization SIPs because such stocks' prices aren't as volatile as smaller cap
and lower float ones. The perfect scenario for this day trading strategy is that
the stocks' prices trade within a narrower price range compared to its true
average range (ATR). To determine the upper and lower price ranges for this
strategy, you can use the high and low prices of intraday candlesticks, e.g.,
15, 30, or 60-minute candlestick charts.
Here's how to implement the opening range breakout strategy:
Closely monitor you are shortlisted of SIPs during the first 15 minutes of
trading. From your observations and using 15- minute candlesticks (or the
duration of your choice), establish the SIPs' opening price range, and observe
their price movements. Make SIPs with high relative trading volume and
number of transactions your priority because they're the most liquid ones to
trade.
Determine if the opening ranges are less than the SIPs' average true range
(ATR). If not, discard the stock for this strategy.
The SIPs may continue trading within the range for another 5 to 10 minutes.
But if the SIP breaks out of the range, start taking your position according to
the breakout's direction. If the SIP breaks out of the upper range, take long
positions, and if it breaks below the lower range, take short positions.
You can use the volume-weighted moving average as your basis for
establishing stop-loss triggers for these trades. For profit-taking levels, you
determine which is your ideal level, which can be based on EMAs, past day's
closing price, or essential support and resistance levels you've identified
before the market opened.
Strategy 3: Trading the Resistance and Support Levels
Resistance levels are price levels at which selling pressure tends to
overwhelm buying pressure during an uptrend, which can either interrupt or
completely reverse an existing bullish trend. Resistance levels are usually
drawn by a horizontal line that connects consecutive high prices, also called
peaks or tops.
Support levels are price levels at which the opposite happens: buying
pressure overwhelms selling pressure to the point that an ongoing downward
trend is either disrupted or reversed. Support levels are drawn by a horizontal
line beneath consecutive low prices, also called bottoms or troughs.
Significant support and resistance levels cause reversals of trends, while
minor support and resistance levels only interrupt ongoing trends.
Here’s how to use resistance and support levels for your day trades:
Identify your SIPs or stocks/securities in play.
Before markets open, check out the daily price charts of these SIPs and look
for significant or critical resistance and support price levels for your SIPs.
Always remember that support and resistance lines aren’t still that obvious,
and there’ll be times when you may not be able to find clear lines. In such
cases, don’t force anything that isn’t there. Just use other day trading
strategies or look at your other SIPs to see if they have identifiable resistance
and support lines.
When the market opens, observe your SIPs price movements using a 5-
minute chart. Look for indecision or Doji candlesticks as signs for taking
positions, whether long or short.
For long positions, buy at prices as close as possible to the support lines. For
short positions, sell as closely as possible to
the resistance lines.

You can start closing or covering your long or short positions, respectively,
when prices hit the next resistance or support levels. For optimal position
management, close or cover half or a more significant portion of your open
positions at the following levels. Then, close or cover the rest in the next
resistance or support levels.
For long positions, set your stop-loss triggers at the support line, i.e., close
your position and limit your losses when the price falls below the line. For
short positions, cover your positions as soon as the price starts to go above
the resistance line to minimize your trading loss.
If you’re not yet very familiar with how to draw support and resistance lines,
here are some tips to help you out:
You can identify support or resistance areas through the presence of
indecision candles. It’s because these candles indicate areas where buyers and
sellers wage battles on an almost even keel.
In many cases, whole and half-dollar prices tend to act as resistance or
support levels, especially for stocks priced at below $10 per share. Even if
you don’t see support or resistance lines on these price points, keep in mind
that these numbers may serve as very subtle or even invisible support or
resistance lines.
The best points for drawing these lines are the most recent
price points.
The more frequently support or resistance lines touch extreme price points,
the more accurate or reliable those lines are. Prioritize such lines.
The only relevant resistance and support lines are those within the stock or
security’s current price levels. For example, it’s useless to find such lines as
far back when a $7.50-stock was still trading at either $13.80 or $2.45 prices.
Given that you’re day trading and not taking medium to long-term positions,
the likelihood that the prices of your SIPs touching those levels are
practically zero.
Resistance and support lines are more of estimates or areas rather than exact
price points. If the support line runs through

$8.50, prices may start to bounce back within a few cents below or above this
price level.
Solid resistance and support lines are those where stock or security prices
have very clearly bounced back from. If you don’t clearly see prices bounce
back from such lines, the chances are that it’s not a legit resistance or support
line.
Particularly for day trading purposes, you’d be better off drawing these lines
across extreme daily prices or wicks and not across places in daily charts
where a significant number of price bars stopped. Why?
It’s because past extreme low and high prices, i.e., tails and wicks, are
influenced mostly by day traders while the price bars, i.e., the candlestick’s
bodies, represent daily open and closing prices that are influenced mainly by
longer-term traders or investors.
 CHAPTER 9:

Day Trading Strategies Part 2

Strategy 1: ABCD Pattern

T he ABCD trading pattern is a relative of the Elliot Waves in the

sense that it is based on the fact that the market moves in an
organized manner. In addition, it is one of the most profitable day
trading strategies that you can find out there. Since the pattern is based on
pure price action and follows market structure, it is a powerful leading
indicator.
Structure
The pattern uses impulse and corrective waves to predict the future of the
market. The points named A, B, C, and D represent significant highs and
lows in the market. When points A and B are joined, they form a wave
known as a “leg.”

As such, the pattern is made up of legs AB, BC, and CD, where AB and CD
are impulse waves, and BC is a corrective wave. AB and CD should be
parallel to each other. We predict the future of the market by placing trades at
the end of leg CD and in the direction of BC.
Leg AB is equal to Leg CD in the “classic ABCD” pattern.
Leg CD can extend by 127.2% or 161.8% in the “ABCD
extension” pattern (more of the percentages later).
The time it takes to form AB is the same it should take to
 form CD in the “Classic ABCD” pattern.
Leg BC is the corrective wave and gives the direction of
reversal after the completion of the leg CD.
Classic ABCD Pattern
The length of AB is equal to the length of the leg CD
The time it takes to form AB is the same it takes to form
CD
Point C should not go near point A. Similarly, point D
should not be near point C. In short, you should have clear
swing points indicating a good trend.
The leg BC should retrace to 127.2% or 161.8% of BC. To
plot this, since we have an uptrend, the Fibonacci would be
drawn from point B (swing high) up to point A (swing low).
Then as the market unfolded, it would bounce off C
(retracement level) and continue to create leg CD. Once the
trader is sure that the classic ABCD has completed, they can
enter a sell trade at point D (reversal into a downtrend).
Extended ABCD Pattern
An extended ABCD pattern is different from the classic ABCD pattern in that
the leg CD can be longer than leg AB by between 127.2% and 161.8%. Also,
the time that it takes to form CD can extend by the same percentages.
Trading with the ABCD Pattern
You can add some of the other tools like support & resistance to your ABCD
pattern trading style to improve the accuracy of the turning points. The
stronger a zone is, the more likely that your leg is accurate. Fibonacci levels
also work well when combined with support & resistance zones.
Confluence at turning points or entry points can be increased by utilizing the
knowledge of candlestick formations or a few indicators. Though, be cautious
not to have too numerous tools in your charts as this can lead to analysis
paralysis.
It is essential that you always keep in mind that no trading strategy is
foolproof. You might have the best analysis and find the most promising
trade signals, but still, the market might ignore and oppose you. Therefore, to
be safe from excess losses, make sure always to have a protective stop-loss
order immediately after you place a trade.
The ABCD pattern makes stop-loss placement very easy. You need to
identify a zone below or above point D and place it there. The First Take-
Profit Level can be set at the level of C. You can have a Second Take-Profit
Level at point A or where your Fibonacci extension level coincides with
strong support or resistance level.
Strategy 2: Bull Flag Momentum
A bull flag is a steady upward trend in the stock. However, after shooting
upward, the stock enters a phase of consolidation, when people slow down or
stop buying, but before a new rise may begin. The "flag pole" is a steep rise
in the price of the stock over a very short time period.
The "flag" is a time period when the price is high but stays about the same. A
bull flag is a symbol of a buying opportunity for a stock that has already
shown a significant increase.
You should set your desired profit, buy and then sell when it begins
increasing again up to the point where you have set to take your profit. You
should always include a stop-loss, a bull flag is no guarantee, and the price
might actually start dropping.
When there is a bull flag, it is bordered along the bottom by a level below
which the stock is not dropping, known as the support. On the top, there is a
level above which the stock is not rising. This is called resistance.
Eventually, the stock is going to break out of the resistance, so you want to
buy before this happens, as the stock may see a rapid rise again. A bull flag
may occur multiple times during the day as the stock trends upward.
Strategy 3: Reversal Trading
A reversal is a significant change in the direction of the price of the stock. So,
the trend completely shifts and moves in the opposite direction. In order to
look for reversals, look at the candlesticks on a stock market chart. The body
of the candlesticks and its size relative to the past (to the left) candlesticks is
what is essential.
First, let’s consider a signal for a reversal where a declining stock price is
going to be going up in the future. If the candlestick of the most recent time is
more significant and fully engulfs or covers the candlestick to the left, and
it’s the opposite color, i.e., a green candlestick following red candlesticks,
this indicates a reversal of a downtrend into an increasing stock price. This is
an excellent time to go long or buy calls.
On the other hand, let's now consider the case where the stock price is going
up, with multiple green candlesticks in a row. Then it is followed by an
engulfing red candlestick. This indicates a reversal, so we will expect the
stock price to begin going down. That is, this is a point where we should
short the stock, or if trading options invest inputs.
The larger the engulfing candlestick, the stronger the reversal signal is. That
indicates that the change in direction has a significant conviction behind the
reversal, which is the confidence of investors, larger volume, and the price
will change in more substantial amounts over short time periods. If the wicks
engulf the wicks of the past period, that is an even stronger signal that a
reversal is underway.
When using reversals as a trading strategy, you need a minimum of five
candlesticks in a five-minute chart. Then look at the relative strength index,
which helps you evaluate overbought or oversold stocks.
The RSI ranges from 0-100. At the top of an uptrend, if the RSI is above 90,
that indicates that the stock is overbought and is probably going to be heading
into a downturn.
However, if you are seeking at the bottom of a downturn, if the RSI is ten or
below, this indicates that the stock is oversold. That could be a signal that is
about to see a price increase.
An indecision candlestick indicates neither an upturn nor a downturn. That is,
if you see a decline followed by several indecision candlesticks, that could
mean that the stock is about to turn upward again.
Or vice versa – if an upturn is followed by several indecision candlesticks,
that can indicate a reversal resulting in a downward trending stock price.
Looking at the wicks can be important as well. When the lower wick of the
candlestick is longer, that may indicate that the price dropped over the period
of the candlestick, but the stock turned and was bought up.
On the other hand, if the candlestick has a long wick at the top, that may
indicate that the stock was bid up too much over the period. Traders lost
interest and began selling off the stock.
At any time, there appears to be a reversal, a trend of indecision candles or
stagnation represents a buying opportunity no matter which direction the
stock may be trending. That is, if you are in the midst of a downturn and the
stock is moving sideways, then it may be an excellent time to go long on it or
buy calls.
The opposite is true if the stock is at the top of a potential reversal. If it's
moving sideways, it may be a good time to invest inputs. Keep in mind that
this does not always work. The best indicator is whether or not a green (red)
candlestick following a red (green) candlestick, which engulfs the candlestick
to the left, is the best indicator of a coming reversal.
 CHAPTER 10:

Day Trading Strategies Part 3

S ince you have now good knowledge of how day trading works keep
in mind that expert day traders tend to focus on four ordinary day
trading strategies. Please understand that there are more than four
strategies. The more you do day trading, the more you will be able to connect
the dots and come up with your own personal strategy. The bottom line is that
if a particular method works for you, then stick to it. Accordingly, the only
limit to the day trading strategies you can use is your imagination; you still
need a starting point.
Being a beginner, it makes a lot of sense for you to explore the four ordinary
day trading strategies I am going to describe below and experiment with
them. After some time spent fine-tuning these strategies, you can come up
with a combination, variation, or just your own personal version of one or
more of the strategies described below. Again, these are not the only day
trading strategies available out there; however, they are the most common.
Use these as starting points in coming up with your own personal day trading
strategy.
Strategy 1: Scalping
Scalping involves selling stock as soon as it appreciates to the point where
you have covered all commission costs, interests, taxes, trading costs,
overhead, and a small profit margin you've established for yourself on a
particular day. Please understand that all these costs, including commissions,
interests, trading costs, taxes, and overhead, are calculated on a day to day
basis. Once you have identified the breakeven point, the small profit margin,
and the point where your position has covered your small profit margin, you
discipline yourself to sell off your position at that point.
It's easy to visualize this technique on the upside; however, take note that it
must be paired with an equally quick tendency to sell if your trade loss
parameters are triggered. It's easy to look at the price at which you will sell
when you make a profit. It takes discipline to also stick to the maximum price
decline or slippage that you would tolerate before you sell off your stock.
Now, please understand that this is easier said than done. While you can
easily intellectually accept this, when it comes to actual practice, it's
straightforward to hang on to a stock that looks like its red hot. It's not
uncommon even for veteran day traders to hang on for far too long to a stock
that seems like it’s on fire.
For example, if your target point is to sell Netflix at 107 after you've bought
it at 105, it's really tempting to hang on to your Netflix position if the stock
broke through the 107-price point and is headed to 112. It's very easy to think
that it can continue to rise. You need to be disciplined when scalping. Once
you hit the target point, sell. You should not care what happens after the
target point has been reached. It shouldn't matter one bit to you whether the
stock continues to rise, or not. Your primary focus should be whether it hit
your target selling point so you can then plot your next move.
The same applies when the stock is going in the opposite direction. Once it
sinks past your loss threshold, sell the stock. Don't hang on to it, hoping
against hope that it'll bounce back up. Maybe it will; perhaps it won't; it
doesn't really matter. What you should focus on is that you stick to your
target price point. Otherwise, it's going to be very, very hard for you to make
money with day trading. It really will be quite an ordeal for you because
you'll be struggling with second-guessing yourself. Scalping is not easy. It
seems pretty straightforward, but it requires quite a bit of discipline.
Strategy 2: Fading
The next ordinary day trading strategy you should know is fading. Keep in
mind that stocks tend to appreciate very fast, then they hit a wall. They hit
price resistance upward, and usually, the stock doesn't stay there; it starts
drifting downwards. In many cases, it drops like a rock.
Day traders know this; that's why they pay attention to two key factors when
they're trying to fade a stock. They look at how fast the stock price
appreciated, and they pay attention to the volume. What they would do is
they would log in a short sale order once the stock has reached the point
where its price appreciation has outpaced the volume of trade. This means
that the number of buyers has been pretty much used up, and it’s only a
matter of time until the stock experiences a pullback.
If you are to sell a stock short, you will make money if the stock drops. You
borrow shares from your broker platform, and you sell it at a high price. You
wait for the stock to drop, and you cover your position by buying back the
stock. The difference between the stock price when you sold it, and its price
when you bought it or covered it is your profit. This is a widespread
phenomenon.

Fading is actually more common than most people think. As more shorts
appear on the stock, and people who bought that stock long starts to adopt the
stock, there's tremendous pressure for the stock price to drop. Now, fading
can get quite tricky. You have to time it right. You have to understand that
once the stock starts dropping, there's going to be an upward price
momentum as short sellers start covering their trades. When they cover their
businesses, they repurchase their stock. So, this artificial demand created by
short-sellers covering their short trades puts an upward momentum on the
stock price.
You don't want to be the day trader that gets caught in the upswing of a
sinking stock. Not surprisingly, a lot of day traders who fade stocks choose
target prices that are a percentage point or two below the top price they
bought the stock at.
Strategy 3: Daily Pivots
After studying the stock's performance from the past day, day traders would
try to lock in on a low entry price. They will make an hypothesis as to where
the stock would settle for the day. This is supposed to be the low point of the
stock for the day.
They would use data points like the past day's support level, as well as
resistance levels; they would lock in on a low entry price, which is usually
the projected support level for the stock. They would then wait to ride the
stock up until it hits their target resistance level. They would then exit their
position and later try to short the stock at the resistance level and ride it down
and buy back the stock at the support level.
Beginning day traders probably would have a tough time doing daily pivots.
It's probably a good idea if you're just a beginner to ride stocks up instead of
trying to ride them down. Do understand that it's actually riskier to short
stocks, because if you're buying a stock length, and it crashes, the stock only
has so far to drop until it hits zero.
Theoretically speaking, the opposite isn't exact. If you're shorting a stock, the
sky's the limit as to how far the stock can appreciate in value. I hope you can
see the difference, and I hope you can see the risk in short selling stock. Still,
in the hands of capable and experienced day traders, daily pivots can become
quite lucrative.
Strategy 4: Momentum Trading
Momentum trading is mainly dependent on the quality of your charting and
real-time tracking tools. You buy a stock when it's increasing in price.
Matched with increasing stock trade volumes, you then sell the stock when it
starts reversing momentum. In other words, you are buying the stock not
because of its intrinsic value, or its industry position; you're buying it because
a lot of people are buying. You're buying it because there's a lot of market
interest in that stock. You then dump the stock once it reaches its peak market
interest.
This sounds pretty basic on paper, but it's actually very tricky. Traders must
be disciplined enough to close at the start of the trend reversal. Understand
that all stocks go through trends within the day, and oftentimes, they go
through several trends in one day.
You have to be disciplined enough to close your position out at the start of
the trend reversal. The moment the momentum stops or experiences a
resistance, you exit. You can then choose to ride the stock back down, or you
can wait until the momentum picks up again. Regardless, you need to exit.
What makes this tricky is you need to leave the stock, regardless of whether
you earned a profit or not.
 CHAPTER 11:

Reading and Using Candlesticks

T he history of the candlesticks is tied to the Japanese. In the 17th

century, they began using technical analysis to trade rice. The
Japanese version varied with the US version of technical analysis
that was initiated by Charles Dow in 1900. However, despite their
differences, they had some similarities. Some of the similarities in the
principles included market fluctuation. Also, the underlying value may not be
well-represented by the actual price, and the emotions and expectations of the
buyers and sellers can influence the market. Another similarity was that the
price action is more important than the earnings and news, and the price is a
reflection of the known information. Homma, a well-known rice trader from
the town of Sakata, is popularly linked to candlestick development. Over the
years, his ideas have been modified to create the present candlestick charting
that is currently being used.
Formation of Candlesticks
For you to come up with a candlestick, you need data, containing low, high,
close, and open values for the time period that you want to display. The body
refers to the filled portion of the candlestick, while the long thin lines below
and above the body show the low/high range, and they are referred to as
wicks and tails or shadows. The lower shadow shows the low, and the upper
shadow shows the high. A hollow candlestick is drawn if the stock closes
higher than the opening price. The top of the body shows the closing price,
and the opening price is at the bottom of the body. Alternatively, when the
opening price is higher than the stock while closing, we have a filled
candlestick at the top of the body. The top will represent the opening price, as
the closing price is represented by the bottom of the body.
Price Action Mass Psychology
In a speculating market, the price is not dependent on a particular entity. This
means that the price is not fixed, and hence, it keeps changing, depending on
the different factors that influence it. The price is mainly a consensus
between the sellers and the buyers. They keep changing, depending on the
circumstances surrounding the trade. The price action is agreed upon
depending on the agreement and mass psychology. As a trader, you do not
have control over the mass psychology. What you can do is use the market
psychology to make better decisions. Ideally, a good marketer is one that has
mastered the art of manipulation. You need to have a good understanding of
people’s reasoning and know what influences them in making decisions
while buying. As a trader, this art can be helpful while carrying out your
transactions. Get to study the mood of the situation as you come up with the
best strategies to use for you to make successful trades. If you see that the
price is continuously moving in one direction, you can decide to engage in
the trade if it will give you a better return.
Bullish Candlesticks
The candlesticks have descriptive names like dark cloud cover, three white
soldiers, morning star, abandoned baby, and hammer. They are mainly
grouped into descriptive names and recognizable patterns. The patterns are
created from one to four weeks. The pattern can be used in deciding the
future of the price action. In bullish candlesticks, the reversal patterns form in
a downward trend. At the same time, the patterns need bullish confirmation. I
can site five bullish candlestick patterns that offer the strongest reversal
signals.
1. The bullish engulfing
It is a two-candle reversal pattern where the second candle engulfs the first
candle.

2. The inverted hammer or the hammer

It shows an indication that a trend is close to the bottom in a downtrend
3. The piercing line
This is a two-candle bullish reversal pattern that occurs in downtrends. It is
closely similar to the engulfing pattern.

4. The morning star

The morning star offers a sign of hope and a new beginning. It is made of
three candlesticks, including one short-bodied, long white candle, and a long
black candle.

5. The three white soldiers

It is observed in price consolidation or after a period of a downtrend. It
involves three white candles that move higher with each trading day. The
candles demonstrate an advance in buying pressure.
Bearish Candlesticks
The bearish reversal patterns can form in more than one candlestick. Some of
the typical bearish candlesticks are the bearish abandoned baby, engulfing
bearish, evening star, shooting star, dark cloud cover, and Harami bearish.
The reversal shows that the selling pressure overwhelms the buying pressure
for a day or more. However, it remains unclear if the price will be affected by
the selling or lack of buyers. The bearish confirmation is expected within one
to three days since the candlestick patterns are short-term.
Indecision Candlesticks
In the price action trading system, we can use some powerful candlestick
signals, such as the indecision candlestick. One of the factors that we must
consider is that the close price of the candle is closer to the open price. In
other words, it should have a small body. Secondly, the body of the candle
ought to be centered within the high and low candle range. They also need
long wicks that project from each side of the body, around equal lengths. The
wicks show that the price either moved up or down during the trade.
Below is an illustration of an indecision candlestick.
Candlestick Patterns
Some candlestick patterns work well, while others do not. As their popularity
increases, their reliability has been lowered, especially by hedge funds. Most
hedge fund managers utilize software to look for traders looking for high
odds, bearish, or bullish outcomes. There are some consistent patterns that
keep appearing to give room for short and long-term profit opportunities.
Some of the top five candlestick patterns include the three-line strike, two
black gapping, three black crows, evening star, and abandoned baby. Mainly,
the candlesticks capture the attention of players.
 CHAPTER 12:

Price Action and Mass Psychology

A t every moment in the market, there are three types of traders: the
buyers, the sellers, and the undecided. Buyers of course want to
pay little, while sellers want to sell for the highest price possible.
This conflict manifests itself in bid-ask spreads. “Ask” or “offer” is what a
seller asks as a sale price for their stock. “Bid” is what a buyer is willing to
pay for that position. Actual prices of transactions are the result of the actions
of the traders at a particular point in time: buyers, sellers, and the undecided.
Buyers (bulls) and sellers (bears) are under pressure by undecided traders
waiting in the background, who could suddenly appear and make the deals
the others are considering. If buyers wait too long to decide on a transaction,
someone else could beat them to it and drive up the price. Sellers who wait
too long for a higher price might be thwarted by other traders who sell at
lower asks and drive down the price. The numbers of undecided traders puts
pressure on buyers and sellers to deal with each other.
Buyers are buying because they expect that prices will go up. When buyers
are “in control” when they buy in bulls, I call them “aggressive buyers.” The
result is that buyers are willing to pay higher and higher prices and to bid on
top of each other. They realize that they will end up paying higher prices if
they don’t act now. Undecided traders accelerate price increases by creating a
feeling of urgency among buyers, who then buy quickly and cause prices to
go higher.
Sellers are selling because they expect that prices will go down. Selling by
bears pushes the price down, or as I like to express it, “Sellers are in control.”
I call them “aggressive sellers.” The result is that sellers are willing to accept
lower and lower prices. They are afraid that they may not be able to sell any
higher and may have to end up selling at even lower prices if they miss-
selling now. Undecided traders make prices decrease faster by creating a
sense of urgency among the sellers. They rush to sell and push the prices
lower.
The goal of a successful day trader is to figure out if the sellers will end up in
control or if the buyers will end up in control, and then make a calculated bet,
at the appropriate time, quickly and tactically on the winning group. This is
the practical application of guerrilla warfare. Your job is to analyze the
balance of power between buyers and sellers and bet on the winning group.
Fortunately, candlestick charts reflect this fight and mass psychology in
action. A successful day trader is a social psychologist behind a computer and
charting software. Trading is the study of mass psychology.
Candlesticks will tell you a great deal about the general trend of a stock and
the power of buyers or sellers in the market. After a candle is born, the battle
begins. The bulls and the bears fight it out, and the candle displays who is
winning. If buyers are in control, you will see the candle move up and form a
bullish candle. If sellers are in control of the price, you will see the candle
move down and become a bearish candle. You may be thinking that this is all
very obvious, but many traders don’t see candles as a fight between buyers
and sellers. That little candle is an excellent indicator that tells you who is
currently winning the battle, the bulls (buyers), or the bears (sellers).
 CHAPTER 13:

Trading Plan

a side from carefully evaluated day trading plans and strategies, here
are other tips that can help optimize your day trading success.
Practice with a Trading Simulator First
These days, pilot trainees learn to fly airplanes on a simulator first before
flying a real one. Why? By practicing with a flight simulator first, the risk of
a pilot trainee crashing the plane becomes much lower. It’s because flight
simulators allow pilot trainees to experience how it is to fly a plane and how
planes respond to controls without having actually to leave the ground. In
case they commit major and potentially catastrophic mistakes during flight
training, there will be no serious consequences other than low grades.
Day trading with real money on real stock or securities exchanges without
first experiencing how it is today, trade is akin to learning how to fly a plane
in a real plane in the sky! The risks of losing money are simply too high for a
beginner to handle. By using your trading platform’s trading simulator before
day trading real money, you can afford to lose money as part of your learning
process without actually losing money!
Stick to Your Daily Limits
While knowing how much capital you’re willing to risk in day trading as a
whole, you’ll also need to have sub-limits, i.e., daily limits. If you don’t have
such restrictions, it can be much easier to wipe out your entire trading capital
in a day or two. A sensible guideline for your daily limit is to cut your losses
when your daily trading position registers a maximum loss of 10%.
Avoid Becoming Attached to Your Stocks
As a newbie trader, your chances of becoming emotionally attached to your
chosen SIPs are high. That’s why a big chunk of the trading strategies
enumerated earlier involves using numbers as triggers for entering and
exiting positions in SIPs. Numbers are objective, and if you stick to them,
you can prevent your emotions from hijacking your trades.
Feel the Mood of the Market
Technical analysis, via candlestick charts and technical indicators, is an
excellent way to gauge the market’s mood. However, they’re not perfect, and
you may need to validate their readings by interacting with actual traders.
Trade Patiently
Only fools rush in, as the saying goes. However, it can be straightforward to
rush into trades, especially for newbies, when a significant amount of time
has passed without any trades. It’s because it can seem that one is wasting
time by not trading.
The truth is, time will be wasted, as well as trading capital, by rushing into
trades for the sake of making them. Remember, the point of day trading is to
make money and not to trade simply. If no excellent opportunities are
available, there’s no need to force a day trade. Be patient and wait for trading
signals to appear before taking positions.
Befriend Your Losing Trades
Nobody’s perfect. That includes day traders. Even the very best still get into
losing day trades, albeit their total trading profits significantly exceed their
total trading losses.
Knowing that even the best of the best still has their share of losing trades
should make you feel much better about losing trades. Even better, why not
look at them from a different perspective, just like how Thomas Edison
looked at his “failed” experiments.
When asked about the first 1,000 failed experiments on the working light
bulb, Edison corrected his interviewer by saying those weren’t failed
experiments. They were successful experiments because each of those first
1,000 light bulb experiments showed him how not to make the light bulb and,
in so doing, brought him a step closer to making a working version of the
bulb.
Choose Your Broker Wisely
Many newbie day traders choose their brokers without really giving it much
thought. Probably it’s because they’re overwhelmed with so many new things
to learn that they fail to pay attention to the brokers they choose. Don’t make
the same mistake because remember, and you’ll be entrusting your precious
day trading capital, which in the United States is a minimum of $25,000. And
that’s a lot of money to entrust, which means choosing a trustworthy and
excellent day trading broker is a must.
With so many new online brokers popping up on the Internet these days, it
can be quite challenging to sift through the reputable and not-so-reputable
ones. Fortunately, there are many online resources and forums on which you
can glean information on online brokers’ reputations and quality of service.
Part of choosing the right broker is platform or order execution speed.
Remember, day trading success is very dependent on how fast you can
execute your orders in the market. So, choose a broker that’s not just
reputable but has a fast order-executing platform.
Don't Scrimp on Technology
I can’t stress enough the significance of speed when it comes to day trading,
where a mere few seconds can spell the difference between profitable and
losing trades. For this, you can’t afford to settle for the cheapest hardware
and software, which most likely be too slow for consistent day trading
success.
Now, I’m not saying you should get the most expensive, top-of-the-line
computers for your day trading activities. It’ll be like trying to kill a fly with
a shotgun. However, your primary consideration for buying a computer and
choosing an Internet service provider should be technical specifications. Price
should only be the second factor, and fortunately, you don’t need to buy an
iMac or a MacBook Pro just to day trade with sufficient speed.
Also, make sure that you have either a landline or a cellular phone line to
reach your broker in the event that your Internet connection acts up for one
reason or another. Better to err on the side of caution than on the side of
negligence, don’t you think?
Focus on Price Movements and News Triggers or Catalysts
Day trading relies on technical analysis and very little on fundamental
analysis, except for news catalysts or triggers. And by nature of its reliance
on technical analysis, it doesn’t bother itself with a company’s financial data
and the like.
Why am I reminding you of this? One way you can sabotage your day trading
success is by overanalyzing your stocks or securities. When you extend your
research and analysis on a company’s balance sheet and income statement
items, as well as industry and economic trends, you’ll spend too much time
on things that aren’t really important to day trading. Fundamental analysis is
crucial for swing trading and long-term investing, but with day trading, all
you need to focus on is price movement and significant news
announcements.
Stick to those two only so you can make the most out of your day trading
time and so that you can enter and exit positions on a timely basis.
 CHAPTER 14:

Why and Why Not Use A Trading Simulator

Education and Simulated Trading

S ince you have perused this book, you ought to be in a superior

situation to settle on a choice on whether day exchanging is directly
for you. Day exchanging requires a specific attitude, just as a control
and a lot of abilities that not every person has. Strangely, the vast majority of
the merchants I know are likewise poker players. They appreciate hypothesis
and the incitement that originates from it. Despite the fact that poker is a sort
of betting, day exchanging isn't. Day exchanging is a science, an ability, and
a profession, and has nothing to do with betting. It is the genuine business of
selling and purchasing stocks, on occasion surprisingly fast. You ought to
have the option to settle on choices quick, with no feeling or dithering. Doing
in any case brings about losing genuine cash.
After you've decided and concluded that you need to begin day exchanging,
the following stage is to get appropriate instruction. This book outfits you
with the fundamental information necessary for day exchanging, yet you
despite everything have far to go before you are a reliably beneficial
merchant. Would you be able to be a repairman by merely perusing a book?
Would you be able to perform medical procedure subsequent to perusing a
book or taking First Aid 101? No. This book builds up an establishment that
you can expand upon. This book acquaints direct exchanging arrangements
with mainly show what day exchanging resembles. It isn't implied using any
and all means to be an independent book. You are not a merchant yet, off by
a long shot.
I urge you to peruse more books and find on the web or in-person seminars
on day exchanging. New dealers frequently scan for the best merchants on
the Internet. They imagine that gaining from the most experienced merchants
is the most ideal approach to learn. Despite what might be expected, I figure
new brokers should search for the best "educator." There is a distinction. At
times the best dealer has no character, or destitute relationship building
abilities, while a reliably beneficial, yet not one of the main 10 merchants,
can rise as a head instructor, communicator, and coach. New dealers need to
locate the best instructor. You don't have to gain from the best dealers to turn
into a capable broker yourself. Consider who the absolute best elite athletics
mentors are. Regularly, they were not genius players. They knew the game;
however, their enthusiasm was for instructing and creating players. The
abilities expected to turn into an incredible merchant are unique in relation to
those required to be a compelling exchanging mentor. Being a star merchant
requires prevalent example acknowledgment and control. Then again,
successful exchanging mentors are regularly fixated on discovering better
approaches to educate, are tolerant, and convey obviously and viably in a
primary and straightforward language. They can clarify their procedure
lucidly. Regularly extraordinary brokers come up short on the money related
motivating force to make the best preparing program.
Exchanging a Simulator
You ought to never begin your day exchanging vocation with genuine cash.
Join with one of the dealers that gives you recreated accounts with genuine
market information. A few merchants provide you with access to postponed
showcase information, yet don't utilize those. You have to settle on choices
progressively. The more significant part of the reproduced information
programming is a paid assistance, so you have to set aside some cash for that
cost. Many exchanging rooms and exchanging teachers offer test system
accounts. DAS Trader offers the best-reenacted represents $150 every month
(at the hour of composing).
On the off chance that you use it for a half year and exchange just with
mimicked cash, it will cost you only $900. This is the expense of legitimate
instruction. On the off chance that you are genuinely considering day
exchanging as a vocation, it's a little consumption contrasted with the
expense of training for another calling. For instance, envision that you need
to go to class to get a MBA - it will effortlessly cost you over $50,000.
Moreover, numerous other recognitions or post-graduate projects cost
altogether more than the instruction required for day exchanging.
When you have a recreated account, you should build up your methodology.
There is no best methodology among them, much the same as there is no best
vehicle in the market. There may, be that as it may, be the best vehicle for
you. The VWAP, Support or Resistance, and the Opening Range Breakout
Strategies are the most effortless and my top picks. You have just to ace a
couple of them to consistently be gainful in the market. Keep your system
basic. At the point when you have a reliable system that you've aced, ensure
there is no feeling connected to it. Continue rehearsing it, and afterward begin
repeating a subsequent procedure, and figure out how to steadily include size
in those techniques.
Practice with the measures of cash that you will exchange reality. It is
anything but difficult to purchase a position worth $100,000 in a reenacted
record and watch it lose half of its incentive very quickly. Be that as it may,
might you be able to endure this misfortune in a genuine record? No. You
will most likely turn into an enthusiastic broker and settle on a choice rapidly,
as a rule bringing about a significant misfortune. Continuously exchange the
test system with the size and position that you will use in the genuine record.
Something else, there is no reason for exchanging a reenacted account. Move
to a genuine record simply after in any event three months of preparing with
a mimicked record and afterward, start little, with genuine cash. Exchange
little while you're learning or when you are feeling pushed.
 CHAPTER 15:

Choosing the Right Stock to Trade

N ew merchants frequently attempt to skip steps all the while, lose

their cash, and afterward allow up their day exchanging vocation
perpetually and disclose to themselves that it is difficult to bring
in cash by day exchanging.
You never know when the market will be in a dire shape or excellent shape.
To capitalize on different types of markets, you need to find a stock that is
reacting well to the market. If the market is in dire condition, you need to find
the stock that is sliding toward a potential breakdown. You can sell it short at
the right point and make big profits.
The stock market functions in a specific manner. Your stock can suddenly
shift its direction and compels you to make extraordinary decisions, which is
overall bad for your trading business. With so much electronic information at
our fingerprints, it is quite easy to succumb to poor analysis. If you are
applying too many of the chart tools to a particular stock index, you are
pushing yourself into a corner. Just keep it simple. If you get yourself
entangled in plenty of information, you should immediately stop. You need to
step back and take a look at the bigger picture. You should analyze what the
essentials are? Are there more buyers than sellers for a particular stock? Is the
stock going up? Are there more sellers than buyers? Is it likely to go down? If
you can answer all these questions, you can be a good day trader in the long
term.
Keep an Eye on the Volume
Volume, if you see in the charts, is usually displayed in the bar at the bottom
of each chart. The bars show the number of shares that are traded. Volume is
one of the top indicators of the momentum of a particular stock. It is one of
the predictive tools that have no link to the price of a specific stock. This is
really valuable information if you carefully view it and analyze it. Volume
has an independent existence in the charts and graphs. You can take it as a
second opinion on which direction a particular stock is about to take. The
more you delve deeper into the interpretation of the signals that volume
gives, the more knowledge you will have about the stock, and the more
confidence you will feel when you are about to invest in the market. Reading
the volume of a particular stock is a skill that you can only add to your
skillset over the course of time. You can grasp and use some essential signals
and concepts, but the only experience can teach you how to see through the
nuances of volume displays in the stock market.
The basic rule of reading volume of a particular stock is that when the
volume expands, the price either soars or dips. When the volume shrinks, the
price also goes down. When the volume of a particular stock tends to grow,
and the price does not, the situation is commonly referred to as price/volume
divergence. You can expect that the price that has not budged yet is likely to
shoot up in a short time on the back of volume expansion.
While you are day trading, you must master the skill of reading the volume of
a particular stock for leverage. The term volume represents a specific number
of units that are traded over a specific period. Traders usually consider it as a
critical metric because it allows them to know the level of liquidity of a
particular asset. The volume also tells you how easy it is to enter and get out
of a position. Volume analysis can help you choose the stocks in which you
are looking forward to trading by finding out the connection between volume
and prices. There are two primary elements that you need to take into
consideration as part of volume analysis—these areas under.
Buying Volume
When the volume is rising, you will have sufficient and easy time to buy and
sell a certain quantity of stock. This is because traders are opting to stay in
the market, and you can fulfill the second part of the trade, which is selling
the stock when the price rises above a particular position. You must
understand how the stock market moves. The stock market moves up and
down on the back of transactions. Each transaction in the stock market must
have a seller and a buyer. If you desire to buy a stock, you must be able to
find a seller who is willing to sell it to you. If you want to sell, you must have
a buyer there ready to buy it from you.
If you are hearing from stockbrokers that the buyers are in control of the
market, it means that price is being pushed higher by significant buying.
Buyer volume happens in the stock market when traders buy stocks at the
offer price. Simply put, if a trader offers inventory at a higher price than he
had purchased the stock, it shows that there are traders in the market who are
willing to buy the stock. Buyer volume happens at the offer price of a stock.
Selling Volume
Sellers wield more control over the market when the prices are being pushed
to the bottom. Seller volume happens at the bid price. The bid of a stock
represents the top marketed price that buyers will offer. If someone is
offering to sell a stock at the bid price, it means that the seller wants to get rid
of the stock. This demonstrates the seller volume. You can see this volume at
the bottom of the stock price chart. Charts usually depict trading volume in
the form of vertical bars, with each bar displaying the number of shares that
were traded in a particular window of time. If the volume bars on your chart
are red, it means that the price has dropped during the trading window. If the
volume is in the green bar, it means that the price rose, and the market was
driven by a hefty buyer volume.
Day traders love to gravitate toward a stock that has a high amount of trading
volume or toward the stocks that have an extraordinarily higher volume on a
particular day. If the volume floats lower than usual, it alludes to a
diminishing interest in a specific stock on a specific day. It means that there
will be lower price movements in the stock and that as a trader, it will hard
for you to get in and out of a position on that stock. Therefore, you should
watch the flow of volume. Higher volume flow allows you to get in a position
and move out of it as the price moves up.
High Volume
You need to pay attention to the days that start with higher-than-average
volume. These days offer high volatility and a higher chance that prices will
move either to the upside or to the downside. You can tell whether it will go
down or up by analyzing if the volume is happening at the offer price or the
bid price. A rise in volume shows that something is happening to the stock.
There should be a trigger behind the growth, such as a news release or a
bunch of active traders who have panicked. Monitoring the trading volume of
a stock can help you in carefully analyzing the price movements of the stock.
If the volume is rising, and so is the price, it hints on the eagerness of the
buyers to buy a particular stock.
Pullbacks
Volume should be higher when the price moves upward, and it should be
lower when the price slides against the trend, also known as pullbacks. This
shows a powerful trajectory in the direction of the trend and weakness in
pullbacks, making the trend likely to carry on. High volume with sharp
movements in the price means that the trend is weakening or has been set to
reversal. If you are witnessing a sudden spike in the volume of a stock, it may
signal toward the end of a trend. A sudden spike in the volume can be five to
ten times greater than the average volume for a stock. These are known as
exhaustion moves, and they happen when a sufficient number of shares have
changed hands, and there is no one to push the price further in the direction
of the trend. From this point, the price can quickly reverse to where it had
started. So, it is riskier to enter a position at this point. Better stay out of the
market and wait for the correction.
The volume offers plenty of information about a stock when you are day
trading. You can use it to pick stocks that you need for day trading. Your day
trading stocks must have more than average volume if you want to enter a
position. This is how you can control risk as you can cut down on losses. You
also can bag more profit as there is a handsome number of traders who will
be willing to buy your stock. It should be kept in mind that just volume
analysis is not the best way to consider buying a stock. It only offers
supplemental information, and it must be used in combination with other
factors.
Analyze Your Position
Stocks, just like everything else in the financial world, should be well-
tailored to your goals and your financial situation. There is no singular
approach while you trade in stocks. You ought to analyze first how much
wealth you have that you can invest in the stock market. Write down
somewhere the total capital you have and the amount that you can put on the
risk. The next step is to carry out a discount search in the market. The best
way to do that is by studying the market and analyzing which sectors reflect
your personal needs, values, and personality. Do it each day. Also, time
yourself and make a head start right when the trading day opens.
As you are about to open your position, keep a check on your emotions. It is
not a good habit to get emotionally attached to a particular stock. You have to
analyze the patterns each day to find out what is the right time to enter the
market and what is the right time to exit it after bagging profit or cutting
down on losses.
The best method to choose a stock for day trading is by keeping touch with
the latest news about the market. By staying in touch with the story, I don’t
mean that you glue yourself to the television. Instead, it means that you
should know when the earnings season of a stock gets close according to the
economic calendar. This is how you can enter positions for the stocks that are
likely to post profits in a couple of days. The best method to stay up to date is
to keep a calendar in your home and tick mark the dates on which different
companies are likely to post profits.
Financial Services
Usually, financial services stocks offer excellent stocks for day trading. Take
the example of the Bank of America, which is one of the top traded stocks as
per shares traded in a single session. It also is a prime candidate that traders
may choose for day trading because there is a systemic speculative activity in
the financial institution industry.
 CHAPTER 16:

Understanding Trading Orders

W henever you turn on the TV, read a newspaper or scroll down

the newsfeed of social media or any other news website, you
will always see the information or news about the stock
markets. But do you know precisely about stock markets? What are they?
What is their importance in our lives, or our country’s economy?
The answers to these questions are not the same every time. They may vary
according to the situation. You must be thinking that a person who owns
some stocks has a right to be the boss of the company. He does not need
permission to hire or fire the employees or make critical decisions for the
company. Yes, that is true, but there could be some other responsibilities also
for that person.
In this guide, you will get to know the answers to all of the questions
mentioned above about stock markets. Even you will not know what the
stock owners can do, but you will learn that how anybody can be a stock
owner by making a small effort.
Terms for Stocks
Before going further and learn further about stock markets, let us discuss the
two main terms of this market, i.e., investing and speculation and investing
means that you finance your money into some business, factory, or any
research project. But you spend this money based on its expansion. You
believe that in the future this business is going to expand and the worth of
your money is also going to increase. Investing is the decision you make for a
better future; the factory or business will grow and give you more profit than
the money you expanded on it before.
Whereas the speculation is similar to gaming or gambling. People purchase
something with confidence that they will sell it in the future when its rates are
higher in the market. Even though they are not sure about it whether the value
will increase or not, they take a risk for that. The primary difference between
investors and speculators is that the investors play for an extended period,
and they make money with the slow process while speculators are always in a
hurry, and they want to gain profit within a short time.
Basics of Stocks
Now that you have understood the basics about stocks, let dig it more in-
depth. Stocks are some of the ownership of the business you finance with the
companies. You have a right to have the earnings of the company in which
you hold the shares. The higher the shares, the more ownership you have in
the business.
A person who has its stocks in some organization does not own the whole
firm. But he has some of the shares of the company. He has no right on the
offices the corporation has or the properties or other assets the company
owns. The laws for the company and the shareholders are separate. For
instance, if the company goes bankrupt, the shareholders are not supposed to
sell their shares. However, the worth of the shares will markedly go down.
The same goes for the corporation; if the shareholders are bankrupt, they are
not allowed to sell the assets of the company to pay off his creditors.
Owning some of the stocks does not mean that you own a company. By
having the shares mean you have the right to claim for the profit, the
company is gaining. You will get more advantage if you own more extensive
stocks. You can either buy the shares from the company itself, it is the
primary market, or you can buy it from other shareholders, known as the
secondary market.
Types of Stocks in Detail
When the company is established, there is usually a small number of
investors and founders. For instance, a company started, and it has one
investor and two founders, so three of them have probably equal values of the
shares. But as the company expands, it needs more capital for its growth. So,
the company sells its shares to other shareholders, resulting in a lower
percentage of shares for the past shareholders.
As the company grows further, it needs more investment, so the past
investors choose to sell their shares to make their profits legal. As the
company needs a high amount of investment that a private investor cannot
afford, the firm decides to transform the company from private into a public
corporation. There are mainly two types of stocks, common stocks and
preferred stocks.
Common Stock
A significant part of the stocks is issued as common stocks. The shareholders
of the common shares have a right to claim for the company’s profit and have
a right to look into the decisions made by the administration. Even though the
common shareholders gain a higher amount of profit, but they are also at a
higher risk of losing the stocks. If the company goes in a considerable loss or
is closed down for any reason, the shareholders will not get their money until
the preferred shareholders, bondholders, or the creditors are paid.
Preferred Stock
In preferred stocks, the shareholders have no right to vote. The company
gives the fixed dividends to the shareholders. The significant advantage of
having a preferred stock is that, when the company goes bankrupt, the
preferred shareholders are paid first, then the common shareholders. The
corporation can even repurchase the shares from the preferred shareholders
for any reason at any time.
How Are Stocks Traded?
Usually, the stock market is the place where a seller of the shares and a buyer
meets to exchange the stocks for a specific price. As these stock markets are
physical, now in this modern high-tech world, the market is growing
digitally, means through the computer and internet. In other words, the stock
market is becoming an electronic stock market.
The most common way of setting the price of the share in the auction. In this
process, the sellers and buyers place certain offers and bids to sell or buy the
shares. A proposal is a price in which a person wants to sell the stock,
whereas the bid is the price in which a person wants to buy it. When both the
prices meet at the same point, a trade takes place. There are also the
professional traders who make sure to continue the process of bidding and
offering of the shares when the buyers and sellers do not meet.
Trading Stocks and Types of Order
You will get to know about the practical process of selling and buying the
stocks of shares. Usually, people sell or buy the stocks from the licensed and
professional brokers who make their trading legal. Earlier, the brokers were
only hired by the Rich individuals or families, but now they are employed by
many people at different price ranges.
The brokers are responsible for giving advice, opinion or they research the
market for the individuals that will help them in gaining profit in selling and
buying of the stocks. The clients who are more budget-conscious, there are
some brokers available at discounted prices. As the stock market has
transformed into an electronic exchange, the brokers are present online, and
they perform the same functions of giving professional advice and opinions
and make the trades at lower prices as possible.
Relevant info is present on the stock quote on which the offer and the current
is bid is written. The offer is the least amount the seller wants to sell the
stock, and the bid is the highest price in which the buyer wants to buy the
shares. When both the prices meet, the trade is made.
Market order and Limit order
Market orders give out information about the best price and time when to sell
or buy the stocks. It is not guaranteed in the market order that you will get the
actual amount you wish for, but you will get the number of shares of your
choice. However, in limit orders, you will not buy the shares until you are not
getting the number of shares you want.
Stop order
It is a type of order on which you set a particular price to stop the trade until
the price reaches that specific point. Even your broker can also arrange that
limit for you so you can get the profit of your choice. In stop orders, there are
fewer chances of losses and more for gaining benefits. For instance, you own
a stock of $30 per share, and the stock is now trading at $40 per share. If you
place a stop order at $35, you will soon get a guaranteed profit of $5 per
share.
Other Orders
There are also different kinds of orders regarding the stock market. The IOC
Immediate or Cancel is a type of law in which the order can be canceled if it
is not finished right away. It usually works with the combination of a limit
order. And when the IOC works with AON, it is called as FOK Fill or Kill.
Typically, a day order remains active for the whole day of trading, and stop
order cancels it when the day ends. But GT Good till Cancelled is a type of
order which cannot be withdrawn until the instructions are given, and it can
remain active for many days.
Bulls, Bears and Market Sentiments
Each investor has a different opinion about the whole economy or the stock
markets. The buyers and sellers have different expectations about trading in
the stock market. When there is optimism about trading and the prices
increase, it is called the bull market, and when the prices increase due to lack
of optimists, the market is said to be bear market.
The bull market is a kind of market in which there is less unemployment;
more people get jobs, the economy of the country increases, and the stock
prices also rise. It is easy to trade in a bull market because the prices are
getting high. A bull is a person who his optimistic about the stocks and
believes that the costs of the shares will increase. However, the bull market is
temporary send cannot last forever as it is because there will be a time when
this market will also go down.
On the other hand, the bear market is the opposite of the bull market. A bear
market is said to be the market when unemployment increases in the country
or the economy falls. It makes the in esters to think for a long time whether
they should invest in the market or not. They usually wait until they see that
the bear market is almost to its end, and the bull market is rising soon.
 CHAPTER 17:

Using Risk-Reward Ratio

D ay trading is done for financial rewards, and the good thing is,
you can always calculate how much risk you take on every trade
and how much compensation you can expect. The risk-reward
ratio represents the expected reward, and planned risk traders can earn on the
investment of every dollar.
The risk-reward ratio can excellently indicate your potential profits and
potential loss, which can help you in managing your investment capital. For
example, a trade with the risk-reward ratio of 1:4 shows that at the risk of $1,
the trade has the potential of returning $4. Professional traders advise not to
take any trade, which has a risk-reward ratio lower than 1:3. This indicates,
the trader can expect the investment to be $1, and the potential profit $3.
Expert traders use this method for planning, which trade will be more
profitable and take only those trades. Technical charting is an excellent
technique to decide the risk-reward ratio of any trade by plotting the price
moment from support to resistance levels. For example, if a stock has a
support level at $20, it will probably rise from that level because many
traders are likely to buy it at support levels. After finding out a potential
support level, traders try to spot the nearby resistance level where the rising
price is expected to pause. Suppose a technical level is appearing at $60. So,
the trader can buy at $20 and exit when the price reaches $60. If everything
goes right, he can risk $20 to reap the reward of $60. In this trade, the risk-
reward ratio will be 1:3.
By calculating the risk-reward ratio, traders can plan how much money they
will need to invest and how much reward they can expect to gain from any
trade. This makes them cautious about money management and risk
management. Some traders have a flexible risk-reward ratio for trading, while
others prefer to take trades only with a fixed risk-reward ratio. Keeping stop-
loss in all trades also helps in managing the risk-reward ratio. Traders can
calculate their trade entry point to stop-loss as the risk, and trade entry to
profit as the reward. This way, they can find out if any trade has a more
significant risk than the potential reward or a bigger reward than the potential
risk. Choosing trades with more substantial profits and smaller risks can
increase the amount of profit over a period. Let me explain the risk/reward
ratio in a real trade that I took. Molina Healthcare, Inc. (ticker: MOH) was on
my watchlist on February 16, 2017. At the Open (at 9:30 a.m.) it was strong
and it then went higher. I was watching it. Suddenly, at around 9:45 a.m.,
MOH started to sell off slowly below its Volume Weighted Average Price. I
decided to sell short MOH below VWAP at approximately $50. My profit
target was the next daily support of $48.80. That was a $1.20 reward per
share. My stop loss naturally should have been when the price of MOH went
above VWAP, which in this case was $50.40. I could risk $0.40 per share in
the hope of rewarding myself $1.20 per share. That is a 1:3 risk/reward. I
indeed took this trade.
 CHAPTER 18:

How to Profit from a

Stock That is Going Nowhere

Did you know that there is a way to profit from a stock that is going
nowhere?

L et's take stock XYZ, which has been trading between 45 and 50 for
the last year. Let's say that the stock is currently at 47.48. Now let's
say that we don't expect the stock to rally from here, but we also
don't expect it to crash. We believe that the stock will continue to bumble
along between 45 and 50 for the next four months. It's currently the middle of
April.
So, we buy 100 shares of the stock at 47.48, and immediately sell one August
48.00 call option for 1.30. One hundred shares of the stock cost us $4,748. By
selling an August 48.00 call option, we are giving someone the right to buy
our 100 shares of XYZ stock from us at 48.00 any time before the option
expires in mid-August. In exchange, we get to pocket $130.
We sold the call option for 1.30, and each call option is based on 100 shares
of stock, so we multiply 1.30 by 100 to get $130. We get to keep this $130 no
matter what happens to the stock. We are also entitled to any dividends that
the stock pays while we're holding it.
If the stock is above 48 (the strike price of our call option) near expiration,
the stock will be taken away from us at 48.00, and $4,800 will be deposited
into our account (100 shares times 48.00). We paid only $4,748 for the stock,
so that gives us a profit of $52 on our stock ($4,800 minus $4,748). Add that
to the $130 that we pocketed from the call option, and you'll see we'll end up
making $182.
You'll notice that in this example, we sold something (a call option) that we
didn't already own. Don't worry about this for now.
If you decide to make a trade like this, just make sure that you use a "sell to
open" order when selling the call option. If you decide to exit this position,
you'll need to use a "buy to close" order to get rid of the call option. After this
order is executed, you are free to sell your stock as you normally would. Just
never sell your inventory before you have exited the call position, or you'll
risk getting yourself in trouble.
By now, you've probably realized that this type of trade is called a "covered
call." You are short a call, but you are "covered" against a significant loss by
simultaneously owning the stock. For every call that you want to sell, you'll
need to buy 100 shares of the underlying stock to make this work.
When entering a covered call position, always buy the stock first, then sell
the calls at a strike price that is just above where you bought the stock. I
usually like to go 3 to 4 months out when picking the expiration for my call
option.
Covered calls are much easier than they sound. This is another one of those
cases where you can learn more by actually doing it than you can by just
reading about it. As we mentioned before, covered calls work best when a
stock is trapped in a trading range (i.e., trading sideways).
If you think that a stock is going to go up a lot, you don't want to sell calls
against it, because that will cap your upside. If you think that a stock is going
to go down a lot, you don't want to own it at all. You'll make money on the
short call option, but lose a lot more if the underlying stock goes down a lot.
 CHAPTER 19:

Reading Charts

T o be an informal investor, you'll need a lot of integral assets to

enable you to decide when to enter and leave the market. The most
widely recognized device is the stock diagram.
At the point when you see a stock graph, you're taking a gander at history:
you'll see stock costs moving higher or lower after some time. The graph can
assist you with scanning for factual pieces of information that may give you
an edge over different brokers. Utilizing a stock graph implies you aren't
depending carefully on your feelings to settle on exchanging choices.
Merchants state that words generally can't do a picture justice, and you'll see
why when you investigate outlines. By examining them, you can identify
whether purchasers or venders are in charge of the market, which can assist
you with discovering stocks that are moving, the sort of stocks that can
transform into productive exchanges.
Stock diagrams depend on a general language called specialized
investigation, which is a strategy for assessing protections dependent on
value developments and volume. About anybody can comprehend this
language after some examination. Specialized examination encourages you
make factual suspicions about a stock, which can expand your odds of a
fruitful exchange.
When you get the chance to glance on stock diagram, you're essentially
taking a gander at cost and volume. An elective technique for investigating
stocks is a crucial examination or the investigation of the necessary
information that influences a company. For instance, key experts take a
gander at profit, resources and liabilities, dangerous organizations, and the
activities of organization insiders. A few dealers utilize a blend of primary
and specialized examination, using principal investigation to discover great
organizations and dedicated study to decide when to enter or exit.
As an informal investor, you'll quite often utilize specialized examination. At
the point when you pull up a stock graph on a screen, you have a decision of
time spans running from minutes, hours, days, or months. Informal investors
will utilize exceptionally brief timeframe outlines: 5-minute, 15-minute, 30-
moment, and hour long graphs. Once in a while they show an every day
diagram for longer-term exchanges, and maybe a week by week graph to
distinguish a more drawn out term pattern.
Graph Basics
Graphs are shown on your PC screen when you sign in to your money market
fund. They are continually refreshed and have numerous highlights, which
can all be altered. We should investigate a portion of the terms you'll over
and again peruse and catch wind of when utilizing specialized examination.
Getting backing and obstruction
Backing and obstruction are critical ideas in specialized examination, and it's
fundamental that you see how they work. Mostly, as the stock value goes up
or down on an outline, it may out of nowhere delayed down or accelerate
when it arrives at help or obstruction levels. Getting backing and obstruction
helps let you realize when to enter or leave a position (stock or some other
security).
The idea of help and obstruction is quite straightforward: when a stock
contacts support, which is like a story, it may be a decent an ideal opportunity
to purchase (on the grounds that the cost is probably going to increment).
What's more, when a stock hits opposition, which is like a roof, it may be a
decent an ideal opportunity to sell (in light of the fact that the cost is probably
going to diminish). Consider backing and opposition as an exchanging zone
as opposed to correct value levels.
Obstruction, then again, is where selling pressure is sufficiently able to keep
a stock from rising further. Gracefully surpasses request, and purchasing
pressure has halted. More merchants will enter the market and prevent the
stock from going higher.
Frequently, the cost of a stock will opposite and skip off of a help or
obstruction level. Numerous informal investors make a move when a stock
gets through help or obstruction.
At whatever point you take a gander at a graph; you generally need to
recognize these levels. The critical point is deciding how the stock, or market,
will respond when it ways to deal with help or opposition. Will its discovery,
or will it switch? To address this significant inquiry, you will likely go
through hours examining graphs. It's anything but an aptitude that can be
adapted rapidly.
Significant note: when obstruction is broken, that level regularly transforms
into help. On the other hand, when backing is broken, it oftentimes turns into
the new opposition level.
Figure 2.1 is a case of help and obstruction (dark bolts):

FIG 2.1: Support and Resistance

Volume rules
Related to value, the volume has consistently been one of the most significant
markers to watch. Volume is essentially the quantity of offers exchanged
over a given period.
Volume is normally shown at the base of a diagram. Experts who study
volume watch a fantastic measure of data. For instance, they'll hope to check
whether a stock, or market, has a sequential day by day volume than in past
days. How is this helpful? At the point when you consolidate capacity with
value, you will get critical intimations concerning whether the stock (or
market) will keep rising or falling, or in the event that it may invert course.
Like anything identified with the financial exchange, you need to set aside
effort to consider these pieces of information.
Substantially, the volume is arranged by a PC that gathers the entirety of the
tick (value development) information and draws the volume bars. As the
volume goes higher, and force builds, the volume bars rise. Alternately, as
volume diminishes, and energy diminishes, the volume bars drop.
To affirm a bullish breakout, experts need to check whether a stock moves
higher on higher volume and if the move is joined by wide based purchasing
action. This is a positive sign for the bulls. Then again, a stock falling on
higher volume could flag the beginning of a transient remedy. It is a hint that
new purchasers are hesitant to step in to purchase.
What causes a stock to go up or down? Purchasers push the stock up, and
venders push the stock down. An issue with considering volume, in any case,
is that you don't have the foggiest idea who is liable for the expanded
volume: purchasers or dealers. Accordingly, it's critical to utilize volume to
affirm what you see on the graph and not make any exchange dependent on
volume information.
Also, the expanded prominence of high-recurrence exchanges has slanted a
portion of the volume insights. For instance, a stock may have all the
earmarks of being drawing in purchasing interest, however it's just from fast
PCs scalping for pennies. It's like a vehicle stuck in nonpartisan firing up its
motor: it's making a great deal of clamor however going no place. Once
more, it's fundamental you study volume related to the cost.
Note: you'll likewise hear individuals talk about liquidity, which is the
manner by which simple it is for brokers to get into or unavailable at a
solitary cost. Fluid stocks are filled rapidly, and you can purchase or sell
them right away. Illiquid stocks are significantly more hard to sell at a serious
cost. As you can figure, informal investors need fluid stocks so as to get in
and out quickly.
Recognizing the pattern
The whole motivation behind taking a gander at a diagram is to help figure
out which bearing the stock is going: up, down, or sideways. Diagrams assist
merchants with recognizing the pattern. By recognizing the pattern,
merchants conclude whether to follow the pattern, hang tight for a pullback
(when the stock value falls over from its pinnacle), or just remain uninvolved.
One look at a diagram can help figure out which bearing the stock is as of
now headed. The test, obviously, is making sense of when the pattern may
end.
How about we investigate the three kinds of patterns: upturn, downtrend, and
sideways.
Bringing in Money on an Uptrend
The mainstream "follow the pattern" system has been profoundly fruitful for
brokers throughout the years. Truth be told, you may have heard the adage,
"The pattern is your companion." Nothing is better than purchasing toward
the start of a pattern and riding it until it closes.
At the point when a stock trips ever more elevated, it's on an upturn. For
some, dealers, following an upswing is the least demanding and most gainful
system. In some cases, stocks go up so quick that they "breakout" over the
current obstruction level and move significantly higher. It's entirely beneficial
for merchants to possess a stock that breaks out.
To be exact, an upturn happens when the stock cost is making a progression
of higher highs and higher lows, which you can see on an outline.
For instance, when you take a gander at the value design on a graph, if the
present intraday high (the stock cost) is higher than yesterday's intraday high,
that is a higher high. A higher low is the point at which the present intraday
low is higher than yesterday's intraday low. Numerous higher highs and
higher lows make an upswing.

Lamentably, not all business sectors or stocks coordinate. In spite of the fact
that the perfect condition for practically all merchants and financial
specialists is an upswing, numerous business sectors are rough and
unpredictable. Informal investors, be that as it may, can discover an upturn on
any graph, from moment to day by day diagrams. As an informal investor,
you'll basically utilize intraday graphs, for example, the hour long, 15-
moment, and 5-moment to enter and leave exchanges.
Figure 2.2 is a case of an upswing:

FIG 2.2: Uptrend

Enduring a Downtrend
Something contrary to an upswing is a downtrend when a stock moves lower
and lower. Now and then stocks will move so low they separate underneath
the current help level, and move significantly more moderate. It's a cash
losing circumstance in case you're long (you purchased the stock accepting
the cost would go up) when in a downtrend. To be progressively exact, a
downtrend happens when the stock cost is making a progression of lower
highs and lower lows. You can see those on the graph.
For instance, when you take a gander at the value design, if the present
intraday low (the stock cost) is lower than yesterday's intraday low, that is a
lower low. A lower high is the point at which the present intraday high is
more economical than yesterday's intraday high. Different lower lows and
lower highs make a downtrend.
Long, distressingly moderate downtrends, which I describe as death by a
thousand cuts, can be baffling for speculators and brokers. Out of nowhere, in
the center of a downtrend, the market may have a snappy, dread powered
selling free for all, finding everybody napping. Therefore, stock costs will
plunge.
Figure 2.3 is a case of a downtrend:

FIG 2.3:
 CHAPTER 20:

Technical Analysis Of Day Trading

Technical Analysis: A Primer

T he technical investigation is the investigation of past market

information to conjecture the heading of future value developments.
The system is viewed as a subset of security investigation nearby
essential examination. Here we see how to utilize technical investigation in
day trading.
It frequently diverges from the principal investigator, which can be applied
both on a microeconomic and macroeconomic level. Miniaturized scale level
major investigation incorporates the investigation of incomes, costs, profit,
resources and liabilities, capital structure, and "delicate" components (nature
of management group, dangerous position).
Large scale level basic investigation involves the examination or anticipating
of financial development, swelling, credit cycles, loan cost patterns, capital
streams between nations, work and asset usage and their cyclicality, segment
patterns, a national bank and political approaches and conduct, geopolitical
issues, buyer and business patterns, and "delicate" information (e.g., notion or
certainty studies).
A few traders may have some expertise in either, while some will utilize the
two strategies to educate their trading and investing choices.
Most huge banks and financiers have groups that spend significant time in
both principal and technical investigation. By and large, the higher the quality
data one takes in to improve the chances of being correct, the better one's
trading results are probably going to be.
FXTM is driving forex and CFD dealers. Offering an immense scope of
markets and five record types, they take into account all degrees of trader.
Technical experts are frequently called chartists, which mirrors the utilization
of graphs showing cost and volume information to distinguish patterns and
examples to break down protections. Value examples can incorporate help,
opposition, trendlines, candle designs (e.g., head and shoulders, inversions),
moving averages, and technical indicators.
Presumptions in Technical Analysis
While a few traders and investors utilize both major and technical
investigation, generally will in general fall into some camp or possibly
depend on one unquestionably more intensely in settling on trading choices.
Technical experts depend on the procedure because of two fundamental
convictions – (1) value history will, in general, be repetitive, and (2) costs,
volume, and volatility will increase in general run in particular patterns.
We should experience each separately:

Market Cyclicality
Human instinct being what it is, with regularly shared conduct qualities,
market history tends to rehash itself. The succession of occasions isn't able to
repeat itself superbly, yet the examples are commonly comparable. These can
appear as long haul or transient value conduct.
Business cycles are characteristically inclined to rehash themselves, as driven
by credit blasts where obligation transcends salary for a period and in the
long-run outcomes in money related torment when insufficient cash is
accessible to support these obligations. This will, in general result in
moderate dynamic gains in stocks and other "hazard on" exchanges (e.g.,
convey trading) during an extension and a sharp fall upon a downturn.
Professionals verifiably accept that market members are slanted to rehash the
conduct of the past due to its group, designed nature. On the off chance that
manner is for sure repeatable, this infers it tends to be perceived by taking a
gander at past cost and volume information and used to foresee future value
designs. On the off chance that traders can find openings where conduct is
probably going to be rehashed, they can distinguish exchanges where the
hazard/reward runs in support of them.
Along these lines, there is the inbuilt supposition in a technical investigation
that a market's value limits all data impacting a specific market. While
essential occasions sway budgetary markets, for example, news and monetary
information, if this data is as of now or promptly reflected in resource costs
upon discharge, the technical examination will instead concentrate on
distinguishing value patterns and the degree to which market members
esteem specific data.
For instance, in the event that US CPI swelling information arrives in a tenth
of a rate higher than what was being evaluated into the market before the
news discharge, we can pull out how touchy the market is to that data by
observing how resource costs respond promptly following.
In the event that US stock prospects descend X%, the US dollar record builds
Y%, and the 10-year US Treasury yield increment Z%, we can discover how
such financial sources of info sway specific markets. Realizing these
sensitivities can be necessary for stress testing purposes as a type of hazard
management. For instance, if swelling were to out of the blue climb by 1%,
we can utilize the information that focuses on respect to shock expansion
readings to decide how the portfolio may be influenced.
 CHAPTER 21:

Developing Trading Models

T rading strategies can be broken down into a set of components.

These components are always part of a trading strategy, or at least
they should be. Failure to pay attention to all of them is likely to
result in a flawed and non-performing model.
Too often, people pay far too much attention to just one of these components
and glossing over the rest. The one that seems to get the most attention is the
entry method. How to decide when to open a position.
The fact of the matter is that the importance of entry method varies greatly.
For some types of trading strategies, the entry method is critical. For other
methods, it does not matter all that much. For a long-term trend following
model, for instance, the exact entry method and timing is not very important.
For a short term mean reversal model, the entry approach is critical.
Model Purpose
Yes, your model needs to have a purpose. And no, that purpose is not “to
make money.” Any trading model worth its salt is designed for a specific use,
trading a particular phenomenon of market to achieve a specific goal. If you
don’t know what your model purpose is, the odds are that all you have got is
a bunch of indicators thrown together and varied until a simulation showed
some positive returns—a set of over-optimized rules, which are very likely to
fail in reality. A solid model trades a real market phenomenon, aiming for a
specific type of return profile.
What you really want to avoid is what I would refer to as accidental models.
From what I have seen, a large part of models developed by non-
professionals is, in fact, accidental models.
An accidental model is what happens when you set out without a plan. When
your purpose is simply to come up with something which makes money,
throw some indicator together, tweak settings, run optimizers, switch around
indicators, values, and instruments until, presto, you have got yourself a back
test that shows strong returns.
It’s not all that difficult to build a back test that shows excellent returns. The
trick is to find predictive value going forward. If you just experimented with
settings until the results looked good, all you have done is fitted the algorithm
to the known data. That has no predictive value and is highly unlikely to
continue to yield attractive returns on real-life data, going forward.
A proper trading model needs to start off with a theory about market
behavior. It needs to have a clearly stated purpose in what market
phenomenon it’s trading—a raison d’etre.
I have to confess that when I was first told about this idea, I thought it was
hogwash. Whether I read it or was told, I do remember that it was sometime
in the mid-’90s. The question was put to me on what I believe about the
market. It sounded like total nonsense. After all, all I believed about the
market was that I could get rich quickly if I just figured out the right
combination of indicators and settings for a trading system. The idea that I
would somehow have a theory about exploitable market behavior seemed
more than a little far-fetched at the time.
No need to worry if your initial reaction is the same. You will figure it out.

There are two common ways of looking at model purpose. One method may
seem surprising for those who have not yet worked in the financial industry.
The first way is relatively straight forward to what you might expect. You
start off with a theory of some sort. Perhaps something you have observed in
the market, or something you read about. Now you want to test if it really
works, and you formulate mathematical rules to test that hypothesis. This is
how most successful trading models start out.
The second and perhaps surprising way is based on a perceived need or
business opportunity. Someone working full time with developing trading
algorithms may not have the luxury of dreaming up anything he or she wants.
You may have a specific brief, based on what the firm needs or what it thinks
the market may need.
That brief may, for example, be to construct a long-only equities model,
where holding periods are long enough to qualify for long term capital gains
tax while having reasonably low correlation to existing equity strategies and
have a downside protection mechanism. Or perhaps the brief is to study a
type of strategy where competing asset management firms seem to be
expanding and see if we can join in the competition for those allocations.
Often the return potential of a trading model may be of relatively low
importance. The purpose may simply be to achieve a near-zero or negative
correlation to a currently used approach, while being able to scale to
hundreds of millions, and preferably showing a modest positive expected
return of a couple of percent per year. A model like that can significantly
improve diversification for a large firm, and thereby enhance the overall
long-term performance of the firm’s asset.
In particular, at larger quant trading firms, model briefs are likely to start out
with a business need. It’s not a matter of finding a way to generate maximum
return, as that rarely makes business sense.
The concept of starting from scratch with no specific requirements and just
coming up with a model that makes the most amount of money is something
scarce. This is a business like most others. In the auto industry, it wouldn’t
make sense for everyone to attempt to make a faster car than Bugatti. There is
higher demand for the Hyundai style of vehicles.
Either way, you need to start out with a plan, before you start thinking about
trading rules or data.
Handling Data
The process for how to use data for developing trading strategies, testing
strategies, and evaluating them is a controversial subject. It’s also a subject
which deserves books all by itself, and this book does not aim to go into any
real depth on the subject.
A few things are essential to understand in this context. Most important is to
realize that the more you test strategies on a set of time-series data, the more
biased your test will be. Whether conscious or not, you will fit your model to
past data.
A simple example of this would be the handling of 2008. If you are
developing extended equity models, you will quickly realize that what
seemed to work great up until 2007 will suddenly show a massive drawdown
in 2008. That was a pretty eventful year, and if there are readers here who are
too young to be aware of it, all I can say is lucky you.
So now you probably just slap a filter of some sort on there to avoid this
horrible year. That filter may have reduced profitability in earlier years, but in
the long run, it paid off.
This would be a great example of Brownian motion. No, not that sort. As in
Doc Emmet Brown. As in time travel. No, I’m not going to apologize for that
gag, no matter how bad it may be.
Adding a specific rule to deal with 2008 makes your back tests look great, but
it may constitute over-fitting. The simulated ‘track record,’ if you can call it
that, will indicate that you would have performed amazingly during this
exceptionally difficult year. But would you really?
Had the model been developed before that year, you would likely not have
accounted for the possibility of a near implosion of the global financial
system.
While there are various methods of alleviating risks of these sorts of
mistakes, the easiest is to use part of the data series for fitting and part of it
for testing. That is, you only use a part of your time-series data for
developing your rules, and when you are done, you test it on the unused part.
This is a subject which I recommend that you dig into deeper, but also a
subject which would take up too much of this book if I go into too many
details. Besides, Robert Carver (Carver, Systematic Trading, 2015) has
already written a great book that covers this subject better than I could
anyhow.
Asset Class
There are different perspectives you can take when classifying asset classes.
It would be perfectly valid, for instance, to say that the main asset classes are
stocks, bonds, currencies, and commodities. For most market participants,
that way of looking at asset classes makes the most sense.
But for systematic, quantitative traders, another definition may be more
practical. When looking at the various markets we have available to us, and
we can group them in different ways. One way to group asset classes would
be to look at the type of instruments used to trade them. The type of
instrument is, for a systematic trader, often more important than the
properties of the underlying market.
This becomes particularly clear with futures, as we will soon see, where you
can trade just about anything in a uniform manner. Futures behave quite
differently than stocks, from a mechanical point of view, and that’s important
when building trading models.
 CHAPTER 22:

How Much Do Day Traders Make?

Day trading can sound exciting, and it certainly is. And if you have larger
amounts of capital to invest, and you’re very good at it, then day trading can
help you make large amounts of money over short time periods. But if you
are just getting started, how much can you really earn day trading? Let’s try
looking at some realistic scenarios before having visions of millions of
dollars.
The first thing to consider when you are trying to gauge the potential for
success in any endeavor is the Pareto principle. Basically, this principle tells
us that 20% of the people get 80% of the spoils. It doesn't matter what you're
talking about, and you could be talking about farmers. In that case, 20% of
the farmers will be responsible for 80% of the output. In the case of the stock
market, 20% of the investors will take 80% of the returns, and this most
certainly applies to day trading. Most day, traders are going to have to keep
their day job, and many may end up losing their initial capital investment.
This isn't too out and out discouraging anyone from taking up day trading.
There are many factors that will decide success or failure. For example, many
people start off with high levels of excitement when taking on something new
like day trading, but then they fizzle out very quickly. In short, they simply
fail to put in the work required to excel. There could be a million reasons for
it. Some people might wilt at the first sign of a challenge. Others may
become bored with it. Some people are downright lazy – day trading actually
takes work, and they were hoping for a get rich quick scheme.
Just like only a small percentage of basketball players are ever going to be
NBA stars, only a tiny percentage of day traders are going to rise to become
the cream of the crop and make millions of dollars. That said, you can take
action to tip the odds in your favor seriously. After all, many people practice
basketball with an all-out effort and become top-level players, even if they
aren't Kobe Bryant or Lebron James, they still may be very successful. The
same principle applies to day trading. You may be a budding star or not – but
if you dive in 100% to study the markets and finance and trading – you will
up your odds significantly, and even if you don't become a star, if you are a
smart trader who hedges risk well then you may be able to make a solidly
upper-middle-class income from it even if you don't become a top-level
trader.
One rule is that disciplined traders, at least in the long run, are going to make
more money than people who are flying by the seat of their pants kinds of
people. The more capital you start with, the more money that you're going to
make. But let's have a look at the minimum. Suppose that you start out with
the recommended minimum amount of capital, which is $30,000.
Using leverage at 4:1, that means you can potentially control $120,000 worth
of stock. Remember that there is a 1% rule on risk per trade, and starting with
$30,000, that means you’ll be trading $300 at a time. Assuming you’re a
disciplined trader, you will have a good stop-loss strategy. Standard values
are a win rate of 50% (that is half your trades are profitable), and your
winners are around 1.5 times bigger than your losers. Now let's use these
assumptions together with a guess that you make, on average, five trades per
day or about 100 per month. With a 50% success rate, you'll have 50
profitable trades per month. A reasonable stop loss is $0.10, so with a 1.5
times ratio of the winner to the loser, you're making $0.15 per share in
profits. You can control 3,000 shares per trade. So that gives you a monthly
profit of $22,500. Your losses come from the stop loss figure of ten cents a
share, so you're going to lose $15,000 per month.
Your gross income will then be the difference, or $7,500 a month. However,
remember that you’ll need to pay lots of commissions. Brokers don’t let you
trade stock for free. In the end, your actual profit will probably be about
$5,000 a month.
Now, this isn't bad to get started. So, you're able to work from home, doing
something fun and exciting that is even a little bit risky, and make an OK
middle-class income from it. But it's probably not the kind of income you
were hoping to see.
That isn't to say that you can't grow your business over time and make huge
amounts of money. You absolutely can do that. However, what we're really
trying to show here is that day trading really isn't a get rich quick scheme. It's
not really different from any other kind of business that takes time, work, and
energy to grow.
Of course, you might be better than average. If you are really good, maybe
65% of your trades turn out profitable, and you're banking $8,000-$9,000 per
month depending on the size of commissions you have to pay. That's not an
unrealistic possibility; however, remember that not everyone is as talented as
anyone else. Some people are going to do worse than the 50% success rate
that we initially started with, and in those cases, they will make less money,
maybe a couple thousand a month or less. Still, more won't make anything,
and some are going to end up with losses.
The point of this discussion isn’t to discourage people, and it’s to get you
going into this with your eyes wide open and having realistic expectations.
There is no doubt a few people reading this who will master day trading and
end up millionaires. We sincerely hope that you are that one person!
 CHAPTER 23:

Common Obstacles and How to Avoid Them

1. Taking on Too Much Risk in One Trade

Depending on who you ask, you’ll hear that no single trade should take up
more than 1%, 2%, 5%, or 10% of your total assets. Which of these is true for
you will depend on your risk tolerance? Spoiler: it’s probably not 10% unless
you are working with a very large amount of money. In almost every case, it
is advisable to set your limit low and stick to it. This is going to limit the
trades you’re able to enter into because your risk/reward ratio won’t be met
for most trades that come across your desk when you have to stick to these
percentages. That’s okay! It’s actually for the best. Knowing which trades to
pick is a key skill, of course, but it’s just as important to know which trades
not to pick. Being okay with missing an opportunity that might be good for
someone but just doesn’t suit your needs is a skill that you should begin
developing from day one.
2. Pride and the Risk of Doubling Up
One mistake that novices make time and time again is throwing good money
after bad. Your emotions might be screaming that a turnaround is right
around the corner, but the fact is that when a stock starts dropping, it usually
continues to. If security punches through the support level you calculated, it
will most likely keep dropping. There is a natural temptation to buy more
stock as the price continues to drop while thinking, “If this was a good deal
when I bought it at $2 per share, it’s an even better deal at $1.” While this
might be true if you had the time to hold on and wait for a rebound, you’re a
day trader, and you don’t have that option. This impulse isn’t based on fact or
logic; it’s based on pride. As hard as it is to admit, you’re feeling this need to
double down to protect your ability to think of yourself as having been right.
The mantra you need for this situation is: The stock market doesn’t feel
anything about me, I need not to feel anything about it. Your feelings are
simply irrelevant. This is why we do the homework, the math, the planning.
All of these protect us from relying on emotion.
3. Carrying Overnight
It can be tempting to let a stock run when you feel like it’s on a streak, or to
give another one time to rebound when you suspect it’s going to turn around
the next day. Again, this is an emotional decision, not one based on the
realities of the market. By this point, you will have seen gaps open between
closing one day and opening the next; you know well how volatile the market
can be even when no active trading is occurring. Do not open yourself up to
the risk this entails. In day trading, you need to be able to monitor the
movement of the market on a minute-by-minute basis, and you’re just not
able to stick to your plans and take action when you need to if the market is
closed.
4. Skipping Stops
Stop losses serve two purposes: they automate the exit process and prevent
you from losing more money than you would without them when things go
south, and equally importantly, they remove the temptation to let a bad pick
dig you into a hole. One thing you will never see an experienced day trader
do is to skip setting up a stop loss and saying, “I’ll just figure it out when I
get there.” They know that cutting losses quickly and moving on to the next
trade is the only way to be successful in the long run. If this book teaches you
one thing, it should be that this is a numbers game. You don’t have to make a
mint on every bet. Instead, you just need the totals to add up in your favor
over time.
5. Ignoring Risk/Reward Ratios
This is a problem that is very common when traders begin to feel like they
are on a “streak.” When this happens, beginners may be overwhelmed by that
feeling and find their thinking clouded. This leads them to invest in bad deals
that look attractive at first glance but haven’t been properly vetted. Your
investing plan should definitely include a risk/reward ratio, and times will
come when you’ll have to remind yourself what it’s there for. It’s there to
prevent you from making bad decisions in the heat of the moment.
6. Over-leveraging or Over-investing
In any investment firm, anywhere in the world, you will hear the following
phrase many times throughout the day: Leverage is a double-edged sword.
It’s a cliché for a reason. Leverage provides hugely increased buying power,
but it also gives you the ability to wipe your entire account out in the blink of
an eye. Keeping your investments within the percentage of your assets that
you determined will help here, but it’s also important to keep track of how
much leverage you’re carrying at any given time. It sounds like a lot of
numbers that you’re going to have to keep in your head, but there are many
software options that will help with this.
Over-investing occurs when beginning traders think that the more, they trade,
the more they’ll earn. Most days are not going to be days you’ll turn any kind
of exciting profit. By definition, most days will be fairly average. If you’re
making dozens of trades a day, chances are it’s because you haven’t defined
the parameters of trades that you’ll engage in tightly enough. In fact, once
you’ve been trading for a while, it probably still won’t be a good idea to
increase your number of daily trades right away. It’s often smarter to increase
the size of your individual trades instead. After all, what works on 200 shares
will work just as well on 400, and it comes with the added benefit of keeping
your trading fees the same. If you took that same money and bought two
different stocks, you’d be doubling your fees.
7. Lack of Focus
Think of this as the dark side of diversification. If you’re investing in stocks,
foreign markets, options, and futures, you may be thinking that doing this
protects you from risk. In reality, though, it’s very difficult to gather the
expertise it takes to be proficient in all these markets. It’s much better to pick
a market and a type of security and really get to work studying that asset
type. It may happen that as your career progresses, you find a different type
of investment that catches your interest, but in the beginning, stick to one and
become a real expert in it.
8. Slacking on Homework
This is another all-too-common and completely avoidable mistake. Usually,
what happens is that a trader starts out with the best of intentions, doing their
homework, and making detailed plans every day. This sets them up for
success, and they do well, but instead of chalking that up to their hard work,
they let their pride get in the way. They assume that the reason for their
success is their innate ability and not the hours of preparation they’ve done.
They slack off on the homework and then are shocked when they don’t do as
well. Pride is once again the enemy of the successful trader. Don’t let this
happen to you! You should have a plan laid out with your overall goals, both
long and short term. You should do your homework on every single trade you
make. Yes, you will miss out on some trades that end up making someone
money, but that’s fine. You’ll also keep yourself out of trades that don’t work
out and could potentially cost you everything. Meticulous research and
planning are the only way to be successful in the long term.
If you’ve made it this far, you are well on your way to entering the market
and becoming a successful day trader. Keep in mind that this is only the
beginning, and there is much more to learn as your career progresses. As you
find different types of assets to invest in, you’ll specialize and build skills in
those particular areas. This is what will set you apart from other day traders
and give you an edge as you move forward in those markets. Make sure you
keep learning, keep a cool head, and keep meticulous records, and you’ll be
well on your way to a lucrative and exciting day trading career.
 CHAPTER 24:

How Can You Handle Mistakes?

T he fundamental approach to preventing errors is to have a trading

strategy, which will incorporate the machine itself, how and when
to enter and exit the current market, currency management, how
much are you going to risk on each transaction, and any extra detail relative
to the transaction itself. Then an essential element is to have the ability to
employ a rigorous discipline and adhere to the outlined trading program.
Another important problem is that your trading strategy ought to be in accord
with your personality and beliefs. If some of those components of this
program disrupt your belief system or the pattern and customs of your own
actions, it is going to be a lot more difficult to create sufficient discipline to
follow its own guidelines.
At the moment you made the program, you weren't trading, so there weren’t
any psychological barriers to creating the strategy after an exhaustive analysis
of all probable circumstances. This manner, you may be assured that in case
you follow your strategy to the letter, then you'll be creating the best choice,
and this can allow you to find the best outcomes. The machine eliminates
most concerns and worries since you merely need to adhere to the program
point by point with confidence and steadiness.
There are four measures that I find helpful in successfully handling the idea
of "making mistakes" when investing:
1. Change your beliefs.
 2. Learn what the error was.
3. Study the consequences of the error.
4. Employ an action, so the mistake does not happen again.
Change Your Beliefs
Your beliefs will influence, to a certain extent, your mental fitness. Your
beliefs reflect your attitude in life toward whatever surrounds you. They also
form your own emotions. You agree or disagree with a specific point of view
individual of this wrong or right of it. You trust your own view. However, are
these beliefs actually assisting you in finding the actual picture? To alter your
beliefs, then you may need to test what lies in the origin of your belief
system, search for signs that sustains another perspective, and explore further.
Start to observe every error as a learning experience, and each losing trade for
a lesson, and you will need to accept and comprehend fully rather than
feeling disappointment and frustration. Learn exactly what happened and
why. This manner, you'll have the ability to alter the beliefs which are
currently restricting your success.
Learn What the Mistake Was
Reexamine the situation that resulted in a reduction, also identify the mistake.
Learn its character, why it occurred, what the terms were, and what you did
or did not do. Are you currently after this machine? Can you violate any rules
of your strategy? What were you feeling at the moment? You have to look as
deep as possible to locate the actual reasons that led to the mistake.
Additionally, you will have to discover mistakes that had a favorable
outcome; this is a bit harder since you will be inclined to overlook the details
of prosperous commerce. Examine every transaction you make under the
very same parameters. Maintain a comprehensive record of all of the
circumstances involved so you can readily find if taking that specific
transaction was an error or not.
Study the Consequences of this Mistake
Create a list of all of the consequences of a specific error, good and bad.
Also, make a list of all of the probable lessons which you could learn from
what occurred. For instance, among the losses may be that not after the
system allows you to eliminate confidence in it and be from winning
transactions when you ought to be in or in losing transactions when you
ought to be outside.
Employ an Action, So the Mistake Does Not Happen Again
You want to modify your behavior so that the mistake does not happen again.
Every error can be transformed into a trading achievement if it's thoroughly
assimilated on mind and actions. This manner, you are able to perpetrate
different errors, but not that one. In case the error comes out of the system,
reevaluate and redefine the plan in order to don't experience additional
difficulties in following its principles and signs later on. Taking action
correctly will cause you to a successful trading career, in which you never
quit learning. The procedure will be slow and likely insistent, but your
mindset when dealing with errors and your continuous work at discovering
and adjusting the situation slowly will form your future for a trader and, most
significant, as an individual being.
A Trader's Capital Sins
You will find just seven capital sins: pride, avarice, jealousy, anger, lust,
gluttony, and sloth. A trader's capital sins will amount eight because you need
to add fear to the mortal record.
Pride. Overconfidence is among the greatest causes of insolvency in FOREX
trading. You feel that you understand all of it, you hazard a bit too much, you
triumph, excessive of assurance is fortified, and suddenly you lose-guard in
an unexpected market response due to the muddy vapors of glory originating
out of the self. You'll have always to criticize your plan with perspicacity,
continue analyzing the marketplace as it always changes, and always figure
out the reason behind the result of your trading.
Avarice. Excessive and unrealistic ambition is, in reality, brought on by a
subconscious panic. It's not possible to become wealthy in a week without
needing an attempt to learn and investing in your time, hard-earned cash, and
commitment. There's not any free lunch, and you'll need to be persistent in
obtaining the essential skills if you would like to be successful.
Envy. Some traders are constantly comparing themselves with other
seemingly more successful traders, attempting to copy their approaches,
lugging around to receive their trading requirements or signs, and asking for
instructions. Always doubt that anybody has really discovered that elusive
Holy Grail. Assess on your own, use your common sense, and create and
construct your own system. It will save a great deal of cash in the long run.
Wrath. Anger and revenge will cloud your decision. You Feel that the sector
is against you, cost constantly moves in the opposite course of your
commerce, and your agent is following you and needs you to shed, searches
your stop losses, and also protects you from your money and possible gains.
Watch nearer: If cost is obviously going from the commerce, most likely, you
made a mistake. Assume your losses, wait for another chance, fortify your
subject, and, most importantly, don't attempt and get even or revenge-trade.
Lust. The best technological gadgets won't enable you to progress a
millimeter on your trading career. Worse, a surplus in almost any area could
be counterproductive. Too many displays and an excessive amount of time
viewing the graphs lead to anxiety and stress, eye pressure, and a condition
much like hypnosis and delusion. You will start seeing nonexistent signs, or
you'll be paralyzed and intrigued by display movement when it's the second
to act. Stay healthy. If your health deteriorates, you won't be able to employ
your strategy also, and the chances will begin piling contrary to your own
success. Your ability to handle your monitor time and total daily life program
effectively will determine your success or failure.
Gluttony. Respect your own stops. Take profits with Prudence and intellect.
You won't ever be able to grab a comprehensive rally. Not all transactions
will be winners. One pip more could eventually become 50 pips less. Sloth.
Nothing happens by chance. Betting isn't trading. You have to design a
strategy and trade after its own rules. Barely using obscure hunches or
intuition or other people's arbitrary calls will be just like throwing a coin--
heads or tails, either bulls or bears. The sole way to success is through a
systematic approach.
Stress. Fear is paralyzing. However, you can use it to your own advantage!
Employ the panic emotions that will assist you in getting from transactions
considerably earlier. You risk not having the ability to exchange another day!
Control the anxiety, and allow it to work for the advantage.
A Trader's Ten Commandments
1. You cannot forecast the future. Long-term technical
evaluation is futile in the brief term. It's not meant to
forecast, but instead to clarify past behaviors of this
marketplace. It may be used to have a likely idea about the
potential future behavior and opportunities the past will
repeat itself.
2. Do not be prejudiced. You constantly have to examine each
side of this picture. Possessing a bullish or bearish bias may
cloud the apparent signs your system will exhibit. Plan
accordingly so you could be ready for either side in almost
any eventuality. Do not attempt to discover signs where
they should not warrant your specific and subjective
perspective. The marketplace does not have any feelings.
3. Be flexible. Practice a logical and ordered thought pattern
rather than pure intuition and intuition. This can enable you
to limit reductions over time according to a strategy. Don't
cling to your own positions; presume the reductions, and
proceed.
4. Trade with the principal trend. Although you can exchange
against the tendency if you're conscious of the probabilities
and ratios of pullbacks and adjustments, it's far better to
exchange with the significant trend unless you're only
searching for a couple of pips. Don't pursue the market. Let
it come to you.
5. Trust your investigation. In case you have carefully planned
 your trading session, that's all you need in order to build
confidence and function based on your rules. Layout your
own body, test your plans and compute your cash
management concerning your available balance. When
everything is ready, and you are feeling right with
everything you've designed, work together with discipline
and confidence.
6. Have a strategy. Never confront the marketplace with no
program. It needs to be predicated on a working
methodology you will be growing daily, which comprises
what your working requirements are for this particular
trading day. If you do not have a strategy, you place
probabilities against you.
7. Know "How much," and "When." Constantly keep tabs on
and readjust your money-management principles as needed.
You shouldn't alter the percent or amount of funds that you
can afford to risk a lot of ("Just how much") in every
transaction. You have to research attentively "When" to
increment that threat to obtain more advantages, using
leverage on your favor.
8. Keep it easy. Believing that the more complex a system is,
the better result you'll get is an erroneous belief. Simple is
always better. In the beginning, it may appear to you that
something's lacking in the event that you use just a couple
of indicators; you are going to have the urge to bring yet
another, and yet another, and may get a graph where the
cost is no more visible under a lot of signs and lines. In any
case, following too many indexes can result in trading
paralysis since most will contradict one another, and it's
going to be more challenging to get them into a consensus,
therefore no transaction and no gains.
 CHAPTER 25:

5 Money Mistake to Avoid

N ow we’ll turn our attention to giving some tips, tricks, and advice
on errors to avoid in order to ensure as much as possible that you
have a successful time trading.
Avoid the Get Rich Quick Mentality
Any time that people get involved with trading or investing, the hope is
always there that there’s a possibility of the big winning trade. It does happen
now and then. But quite frankly, it’s a rare event. On many occasions, even
experienced traders are guessing wrong and taking losses. It’s important to
approach Forex for what it really is. It’s a business. It is not a gambling
casino even though a lot of people treated that way, so you need to come to
your Forex business–and it is a business no matter if you do it part-time, or
quit your job and devote your entire life to it–with the utmost seriousness.
You wouldn’t open a restaurant and recklessly buy 1 thousand pounds of
lobster without seeing if customers were coming first. So, why would you
approach Forex as if you were playing slots at the casino? Take it seriously
and act as if it’s a business because it really is. Again, it doesn’t matter if you
officially create a corporation to make your trades or not; it’s still a business
no matter what. That means you should approach things with care and avoid
the get rich quick mentality. The fact is the get rich quick mentality never
works anywhere. Unfortunately, I guess I could say I’ve been too strong in
my assertion. It does work on rare occasions. It works well enough that it
keeps the myth alive. But if we took 100 Forex traders who have to get rich
quick mentality, my bet is within 90 days, 95% of them would be completely
broke.
Trade Small
You should always trade small and set small achievable goals for your
trading. The first benefit of trading small is that this approach will help you
avoid a margin call. Second, it will also help you set profit goals that are
small and achievable. That will help you stay in business longer.
Simply put, you will start gaining confidence and learning how to trade
effectively if you get some trades that make $50 profits, rather than shooting
for a couple of trades that would make thousands of dollars in one shot, but
and up making you completely broke. Again, treat your trading like a real
business. If you were opening a business, chances are you would start
looking for slow and steady improvements, and you certainly would not hope
to get rich quick.
Let’s get specific. Trading small means never trading standard lots. Even if
you have enough cash to open an account such that you could trade standard
lots, I highly recommend that you stay away from them. A large amount of
capital involved and margin that would be used could just get you into a lot
of financial trouble. For beginners, no matter how much money you are able
to devote to your trading, I recommend that you start with micro-lots. Take
some time and learn how to trade with the small lots and start building your
business earnings small profits at a time. Trading only with micro lots will
help in force discipline and help you avoid getting into trouble. Make a
commitment only to use micros for the first 60 days. After that, if you have
been having decent success, consider trading a mini lot. You should be
extremely cautious for the first 90 days in general.
Be Careful with Leverage
Obviously, it’s extremely beneficial. It allows you to enter and trades that
would otherwise not be possible. On the other hand, the temptation is there to
use all your leverage in the hopes of making it big on one or two trades. You
need to avoid using up all your leverage. Remember that you can have a
margin call and get yourself into big trouble if your trades go bad. And it’s
important to remember there’s a high probability that some of your trades are
going to go bad no matter how carefully you do all your analysis.
Not Using A Demo Account
A big mistake the beginners make is jumping in too quickly. There is a
reason that most broker-dealers provide demos or simulated accounts. If you
don’t have a clue what that reason is, let’s go ahead and stated here. Brokers
provide demo accounts because Forex is a high-risk trading activity. It can
definitely be something that provides a lot of rewards, and it does for large
numbers of traders. But there is a substantial risk of losing your capital. Many
beginners are impatient, hoping to make money right away. That’s certainly
understandable, but you don’t want to fall into that trap. Take 30 days to
practice with a demo account. This will provide several advantages. Trading
on Forex is different than trading on the stock market. Using the demo
account, you can become familiar with all the nuances of Forex trading. This
includes everything from studying the charts, to placing your orders and,
most importantly, understanding both pips and margin. The fact that there is
so much leverage available means you need to learn how to use it
responsibly. You need to know how to experience going through the process
and reading the available margin and so forth on your trading platform while
you are actually trying to execute trades. A demo account lets you do this
without risking real capital. It is true that it’s not a perfect simulation. The
biggest argument against demo accounts is that they don’t incorporate the
emotion that comes with trading and real money. As we all know, it’s those
emotions, including panic, fear, and greed, that lead to bad decisions.
However, in my opinion, that is a weak argument against using demo
accounts. The proper way to approach it is to use a demo account for 30 days
and then spend 60 to 90 days doing nothing but trading micro-lots. Don’t
worry; as your micro trading lots, you can increase the number of your trades
and earn profits. While I know you’re anxious to get started, keeping yourself
from losing all your money is a good reason to practice for 30 days before
doing it for real.
Failing to Check Multiple Indicators
There is also a temptation to get into trades quickly just on a gut level hunch.
You need to avoid this approach at all costs. Some beginners will start
learning about candlesticks, and then when they first start trading, they will
recognize a pattern on a chart. Then in the midst of the excitement, they will
enter a large trade based on what they saw. And then they will end up on the
losing end of a trade. Some people are even worse, and they don’t even look
at the candlesticks. Instead, they just look at the trend and think they better
get in on it, and they got all anxious about doing so. That means first
checking the candlesticks and then confirming at least with the moving
average before entering or exiting a position. You should also have the RSI
handy, and you may or may not want to use Bollinger bands.
 CHAPTER 26:

Money Management

H ave you ever found yourself tempted to trade more money than
you have just because you believe your winning streak is going to
last? Have you ever believed that you could offset your losses
from the day before with a quick buck that you can make today? Have you
ever made the decision to ditch your tactics and ignore all of you stops just
because there is a stock that looks so good?
Chances are you have at least thought about some of these things. Most
traders have. Whether you are seasoned, or a new trader, your skills for
money management are just as important to the success and your mindset and
trading strategy. That's why I am going to give some of the most important
money management tips out there so that you can keep and grow your trading
account.
1. Stay within your means
What I mean here is that you should keep your trading account safe by trying
to become a good trader instead of trying to look like you are. Buy stocks that
you are able to afford and don’t jump into an extravagant lifestyle unless you
do have the extra money to be able to keep it up. It’s perfectly okay to dream
about owning the Maserati that you saw the other day. You could, and you
will own it. But, before you get there, you have to hone your strategy so that
you have the chance to become a successful trader. And that may not be that
far off if you stay disciplined enough to manage the money you have now.
Keep your sights set on all of the extravagant things that you want to own, or
the things that you want to do. Actually, take the time to write all of these
things down, but you have to earn them and not borrow to buy them. It will
feel great. Create multi-tiered goals, and your first goal should be to grow
your trading profits and allow all of your goals to be your drive.
2. Trade money that you are able to afford to lose
Even though it may sound like advice for a poker player, it is still sound
advice for anybody. Nobody walks into day trading, believing that they are
going to lose, but all successful traders have lost. There's not a successful
trader out there that hasn't lost. You need to be ready to lose money, and
that's why it's important only to trade that which you can afford to lose. Don't
use your rent money or food money. Don't use a cash advance from a credit
card to try to restore a loss, and don't borrow money to trade with.
You have to be prepared for losses; they will happen. But if you allow
yourself to perfect your trading and you learn from your losses, you will be
able to come out ahead. Once you have figured out the amount of money that
you can afford to lose, without having to use your rent money, you will feel
comfortable because you know you can get by even if you lose a trade. This
is going to boost your financial security and get rid of any negative emotions,
like anxiety or fear, which comes along with trading with critical funds.
3. Keep to your stop loss
This will make sure that your money in your account doesn't just disappear
with a large trade gone wrong. If your limit is $1,000, don't wait around to
see what happens after you hit it, exit the trade before you hit the number. It's
not an imaginary number that has been pulled from the sky, it is protection
for you, and so you don’t wipe your whole account with some irrational
trade. Stick to it and don’t allow yourself to become arrogant and greedy.
 4. Take your profits
You have to set goals. But those goals are only good if you stick to them. An
important goal would be to create a fixed withdrawal after you have reached
your milestones. This is something like your trader’s salary. This goal could
be a fixed amount after your account passes a certain dollar amount or a
percentage of the winnings you’ve made on a monthly or bi-monthly basis.
5. Adjust your position during losing streaks
An important part of a losing streak isn’t how fast you can get your losses
back, but the degree that you are able to limit the losses. Here is an example
of how you can limit your drawdowns during a losing streak:
If you notice that your account drops by 10%, you then need to trade like
your account has lost 20%. This means that if you had a $100,000 account
and lost $10,000, you should trade as if your account only has $80,000 left.
This would mean that even if you have $90,000 in your account and the 2%
would $1,800, you should only have a max risk of $1,600, just like you only
have $80,000. This type of strategy will reduce your losses when a trader
enters into a losing streak, and it can get rid of many emotional pressures.
Management Wins Over Time
The big difference between a losing trader and a successful trader has very
little to do with the ability of the successful one to pick winners. Every trader
will face losses from time to time; it's just part of the business.
Winners, though, embrace the fact that a large part of any trade they make is
the randomness of it. This means that with any given trade, there is going to
be some level of a gamble. It's inevitable that you will lose a trade, and the
successful ones take this inevitability into account. There are a lot of
longtime successful managers that have been about to do this with a winning
percentage of slightly about 50%, and the best traders are only right around
60% of the time.
You don’t need to achieve this type of success rate to make money in the
long-term. You don’t even need to be right 50% of the time. The scenario we
will look at assumes a 40%-win rate. This means that you have eight winning
trades out of 20. The important part of making a 40%-win rate profitable is to
make sure it’s structured in a way so that your wins will make at least twice
as much as what your losers lose. Also, your initial stake has to be able to
withstand the inevitable losses.
Let’s look at a scenario. Hypothetically your winning trades give you a profit
of $2,000, and your losing trades will cost half of that amount. The most
important part is that even though 60% of your trades have been losses, after
a total of 20 trades, your balance is now a positive $4,000. But, at a different
point, your balances, was instead, negative $4,000. The order in which you
win and lose has a major impact on the way that your account will change.
Why do losers always lose? The issue with this should be fairly obvious.
You’re unable to predict trade order, and you have to be prepared for the
worst. Let’s assume that you begin with $8,000 and that you have to use at
least $2,000 for each of the trades you make. If you experience eight losses in
a row, then you will be breaking. Actually, if you take fees into account, then
you are breaking after only six losses. You won’t be able to last throughout
all 20 trades. Instead of making $4,000, you wind up shut down with big
losses once your account hits below $2,000.
A worst thing that can happen is that you lose 12 trades in a row and then hit
your eight winners. This means that in order for you to make $4,000, you will
have to start your account out at over $14,000 before you start trading. The
chances of hitting that kind of loose string are slim, but there is a possibility.
This is the main reason why many traders will end up losing. They don't take
into consideration the possibility of that kind of losing string. While this
worst-case scenario may be very unlikely, the truth is something close to it
has a high chance of happening. After a while, it's pretty much certain that all
traders will experience this type of loss.
However, it isn’t difficult for something to come up with a trading strategy
that gives them a 40%-win rate. It’s also not hard to structure your trades so
that they produce two to one win/loss ratio. This means that the only thing
that prevents a trader from succeeding is not beginning with a large enough
amount in the account, and they end up overtrading.
In the first example, they need to have $4,000 more than the required margin
to be able to make their trades. In the second, $3,000 was needed. In our
worst-case scenario, which had 12 straight losses, they would need to start
with $12,000 more.
Look at it this way; think about an approach that has been designed to
achieve your minimum performance metrics: two-to-one-win ratio and 40%
wins. This test will cover the dollar index futures from January 19 through
June 3 of 2011. Here are the rules: Starting January 19, you would sell or buy
the close based solely on a coin flip. Heads mean you buy; tails mean that
you will sell. In the test, the coin came up head, so that means you buy.
Looking at the win/loss ratio, if the price were to move in your direction by
just two deviations, you will take the profits and start an opposite trade. If the
market were to move against you in a single deviation, you would take a loss
and start and opposite trade. The strategy is designed to make sure your
profits and losses are managed well enough to achieve your goal. The first
coin flip just puts you into the market objectively.
The goal is that if you win, you will make two deviations, and if you lose,
you only make one. This type of approach is only for demonstration
purposes. Your selling and buying are done this way that it is as close to a
two to one win/loss ratio as possible. You don't have to assume a trade will
work because the only logic is the volatility that is designed to help with your
profit and loss points.
Your margin on the dollar was around $2,000, and your first trade ended up
costing you $840, so that means you would have needed around $2,840 to
make your first trade. In the real world, you would want to start with a bigger
account just for security, so let’s say $3,500,
 CHAPTER 27:

Money Management and

How it Affects Your Psychology

C ontrol of capital is very critical at Day-Trading. The golden rule of

Warren Buffet was to protect your resources, and this must be
practiced in Day-Trading.
In Day-Trading, the use of a stop-loss is normally used to protect your
trading capital or trading bank.
It’s important that you also have a profit target. That means you have a pre-
determined maximum loss as well as a preset level of profit.
Dave, a Skilled E minis Day-Trader thinks it's important to have a loss ratio
of at least two to one income. That is, at least twice what your stop loss is, is
your profit goal.
This is crucial because if your profit goal and stop-loss are the same, it means
at least 70 percent of the time, you need to get it right to make some money.
However, if you have a ratio of two to one, even if you only get it right 50
percent of the time, you still make a lot of money.
More importantly, it makes it very hard to lose money by having this two to
one ratio. More than 70 percent of the time, you need to get it wrong to start
losing money.
Another important part of money management is getting Day-Trading started
with a small amount of money. You are likely to make mistakes when first
learning, so it is better to make a mistake with a little bit of money rather than
a lot. If you make a mistake with a small amount of money, you are likely to
continue, but typically if you make a mistake with a large amount of money,
you will feel a lot of pain and thus stop trading, never learn from your
mistake.
I used a strategy named credit put spreads when I first started trading. For
about a year, right up to Hurricane Katrina, I was doing really well. I lost
$80,000 in the two days after Hurricane Katrina, which was all I had earned
the past year, and then some!
It took me over a year after this experience before I could place another trade
again.
If I had learned the same lesson by losing just a few thousand dollars, I would
have been able to return much quicker to trading.
Because would the end of the world lose a few thousand dollars? Most would
say no. Is the World's End Losing $80,000? Some people would say yes, and
some people would say no, I can tell you this isn't the end of the world, but
from there you can see it!
Also, when you first learn to do Day-Trade or some trading, starting with a
small amount of money, it removes the trading pressure. The most significant
part of trading is psychology or mindset.
If you start with a large sum of money, a sum that if you lose will cause you a
lot of pain, this will greatly affect how you trade. In this case, the placing of
trade causes great emotion. You may not even be able to place the trade as
you are overwhelmed by your emotions.
You can also start worrying about the consequences of losing and focusing
on the negative by using a large amount of money, which causes pressure on
your emotions. In fact, this will create that reality to come about.
If you focus or worry about the consequences of losing, if you have a few
losses, which is inevitable when trading, then you will start to guess yourself
and your system in second place. This will then mean you 're going to make
mistakes, not taking trades you're also supposed to be taking or cutting short
winning trades, and fulfilling what you're focusing on.
The same can happen in the opposite direction. If you start using a large
amount of money and you have some winning trades, you can get over cocky
and start trades in places that aren't really there, "close enough," and hence
mess up your signals and trading system.
This allows you to start with a very small amount of money by Day-Trading
using E mini Futures. At your account, you can start with as little as $2,000.
At this level, you start with just one contract in which you risk only $50 to
make $100 for each trade. This is a level that most people can afford to start,
and it can be handled by their psychology.
After that, you will build up your trading account slowly, and the sum you
risk. It is possible to make more than $10,000 per month within a year.
 CHAPTER 28:

Time Management

P eople who trade part-time have it rough. While people may like to
think about electronic markets trading all the time as a great
advantage, it can come along with some hindrances. A market may
be open, but that doesn’t mean that during the time you are able to trade is the
best time for that market. Neither does it mean that a person has enough time
during the day to completely analyze the market in the way that they need to
be able to, and make the best decisions based on all of the information that
they have learned.
This window of opportunity for a part-time trader is a very small window,
and only a few people can adapt their trading philosophy around the window
while also figuring a way to make things work.
Correctly managing your time can become a huge roadblock for a lot of
traders, especially ones that have not fixed themselves to the routine. Also,
not to mention learning curves, experimentation, and trial and error can also
get in your way to consistency. We're going to look at some of the best ways
to manage your time.
Time is directly tied to risk and is an issue that has to be related to a person's
personality. Basically, if you are a person that looks for fast thrills and you
have very little patience, then part-time trading is going to be even harder for
you to accomplish.
Locating the best short-term opportunities each day is fairly easy when you
use most of your day to analyze stocks. Even when you have all day, finding
high-probability trades that are based on your investment strategies is
sometimes even scarce during your session. So, when you’re trying to pack in
a complete day where you end in one or three hours along with distractions is
going to prove a lot harder to perfect and focus on the things you need to.
A bad trader is typically full of holes. But those holes wind up being nothing
more than deficiencies with long-term and current knowledge. Without
enough available time, important information will often get skipped, placing
this trader at a major disadvantage.
The following are some fast tips that will help to steer your time management
skills in the right direction to make sure you are the most efficient trader you
can be:
1. Sync your personality with your trading philosophy and the
times when you are available
There are a lot of traders out there that try to trade a certain program that goes
completely against their personality, and they struggle. Factors end up
interfering with the way they think on a certain matter, and time is definitely
one of the things that interfere.
Do you have a good patience? Do you tend to find it hard to sit still, and you
feel antsy? If you find that you are antsier, and you want to be a part-time
trader, then you probably only have a single option: come up with a short-
term strategy that you are able to handle comfortably in the timeframe that
you have and make sure that you don't overdo things. Basically, make short-
term trades, but make sure that you never overexert yourself in a number of
pairs you are trading at one time. Having proper analysis will take some time,
and if spread yourself thin regarding being able actually to absorb
information in a single session, you are probably overdoing it.
If you tend to be systematic and patient, then you will probably be better
long-term goals. You could probably use limit orders for your execution or
just drift towards longer-term fundamental or technical plays. Take profits
and stops are big, and the risk is a lot lower. People that don't have much time
to commit to trading will prefer a longer-term strategy as they don't have the
ability to be there at every second, nor do they have an interest in being there.
Traders that are full-time and use long-term strategies will typically invest
themselves across several different currencies, giving themselves more
diversity, as well as keeping them busy.
It will all depend on if your personality leans towards longer, medium, or
short-term trading strategies. Regardless of where you fall, this should be
your first step to the second, focusing on getting that philosophy would go
into your timeframe.
2. Do not sacrifice a good analysis
If there were only one area of trading that you should skimp on, it would be a
good analysis. Traders that decide to omit important parts of information are
doing nothing but blindly viewing a chart and making a blind guess as to
what the stock could do next. Use the little bit of time that has for your
trading and allow yourself to become absorbed in the analysis. If you can't
take the time to study the pair's entire context that is available, then you
shouldn't plan on trading those stocks. Have great analysis is important.
Chances are if you look back at any bad moments, they probably occurred
because you missed a small piece of information right before the execution.
Make sure your time is used wisely, and you only make an execution when
your confidence is high.
3. Dig deep down and do things fast, stay away from
distractions
Telephone ringing off the wall, television screaming in the living room,
reading through news sites, or watching YouTube videos are horrible things
when it comes to trading. Just like with any other job, these things pose the
possibility of being a big distraction and are a sure-fire way of being deterred
from getting the important information that is going to end up helping you
achieve your best executions. Take the very little time that you have to trade
and get rid of all the distractions that can cause a problem for you while
trying to receive clean and concise analysis. Close your door, and get rid of
the noise so that you can focus.
4. Get used to a systematic way to take in all of your
information
You need to have a major organization when it comes to analysis. Traders
that don’t have an organization system or just click through different topics
will end up feeling confused and scattered.
Begin by looking at the most reputable news sites. These sites are the ones
that give you the big picture of everything that is currently happening. You
should have this at the beginning of your bookmarks. It’s also important that
your bookmarks are organized so that you don’t click on a “fun” site when
you are doing business.
If you are looking for specifics, then look at the intraday news feed. Start
looking at the correlations and other types of markets to create a well-
developed knowledge of what is currently happening. After you are satisfied
with the information you have gleaned, then you need to start looking at
charts. The way you do analysis is up to you, but you should check across
several time frames and break info down into small components.
While your analysis plan doesn't have to be rigid, it should be structured. It
helps to begin with the macro picture and try to break down the bigger
picture into easier to handle components. The traditional top-down analysis
can have some problems, such as if you choose to make determinations based
on the bigger picture alone, and this view ends up being wrong, everything
that will follow is going to be a wash can cause a major disaster for you. You
should keep a global approach and remember that timing in the market is just
as important as all the other components.
5. Don’t try to make a window of time
The first rule of risk management: don’t do anything. Is this simple? In a
word, yes. Is this done very often? No.
If you like to keep a short timeframe window when it comes to average trade
lengths, then you have to make sure you know the ramification that can
accompany it. There will be days when you can never be comfortable with a
trade, regardless of the amount of time you spent on your analysis. Analysts
are just publishers and will try to force an activity down their reader's throats
whenever they can get a chance. The bottom line, though, is if you are unable
to make money with the information you know, you shouldn't make the trade.
You need to make sure you enjoy trading all the parts of it, so there is no
need to force yourself into doing something that doesn't feel right.

There are lots of different trading strategies that will use many different time
frame windows, but as a trader, you shouldn't pick a strategy based on the
time factor alone. Having free time is very precious to everybody, but make
sure to use it wisely, and keeping a positive P&L is one of the only things
that will make sure that you have more free time. This is a business where
timing is everything, so you need to manage your workflow because it is vital
for your trade executions.
 CHAPTER 29:

Journaling

I f you are looking at a routine that is easy to implement, and that can
change the way you trade, then think about keeping a journal. The
journal is a little black book that details what you do each day.
The aim of keeping a journal is to help improve your setups so that you use
your experiences to analyze and help refine your trading while you improve
the whole experience.
Here, we look at all you need to come up with a journal and maintain it.
What Is A Journal?
A trading journal is a way to keep track of what you are doing on a daily
basis as a day trader. You jot down notes of what you do each day, especially
the different trades (or lack of) and the results of any action you take.
The trading journal needs to be tailored to your trading styles and
preferences. You can keep the journal in a physical notebook or a detailed
digital document on your computer. Regardless of the format, when
maintained with due diligence, the trading journal can be the best way to
make you a better day trader.
How Does the Trading Journal Help You Achieve Better
Trades?
There are a number of ways in which a trading journal will help you become
better at what you do.
Many traders attribute their success in creating and maintaining a trading
journal. By noting down the different trades, you are able to check the
progress over time. This allows you to find out what is working or not and
change or modify them to succeed.
Helps You develop discipline in trading
Having a trading journal helps you develop discipline as you trade. How does
it do so? Well, it forces you to follow the guidelines that you have set down.
The sense of accountability that you get when you have a trading journal
makes sure you are responsible for research and trading. If you know what
you need to keep a log each day, you do it without fail. Making sure you log
your trades and whatever happens, requires a lot of discipline. Good habits
such as these require you to go straight when executing trades.
Helps You Master Your Emotions
One of the top suggestions to help you run trades the right way is to trade like
you are not human. Machines do not have emotions and approach all the
processes in a scientific way.
However, this is easier said than done. When you get in a position to lose
money, usually, you find it tough getting emotion out of the way.
Keeping a journal can help you keep the emotions out of the way. With a
journal in place, you get to keep track of how you feel emotionally in various
trading stages. This is just to keep the emotions in check.
With time, you realize that there is a pattern that is emerging; for instance,
you might find yourself getting calmer and taking orders the right way each
time.
Improves Your Risk Management Practices
Day trading comes with a high level of risk. This is something that you
cannot change at all because it is the nature of the market for things to run
this way. However, there are various ways in which you can mitigate these
risks. For one, you need to invest a large amount of research and study in
giving you the knowledge that you need to choose the least risky trades
possible.
With a journal, you can learn things about risk tolerance. For instance, you
might find that you have consistently been able to hold positions for longer,
and you have been losing profits as a result. You might also find that you
have issues getting out of trades because you have been taking positions that
are too big for your stage.
By looking at the risks that you have been taking and how they affect the
results you return, you get to make adjustments.
For instance, you might exit trades sooner, or you might end up taking
smaller positions based on the results you return. This way, you help reduce
risks and improve risk management.
Creating the Perfect Trading Diary
Now that you know how effective the trading journal is, you need to know
how to come up with the best one. Here are a few tips for success when
coming up with a journal:
Be consistent
Trading needs you to have a routine. You will probably get the most out of
the journal if you have a routine that you follow religiously.
You also need to follow the routine of the latter. This means that you are
consistent with what you do day in day out. For instance, you need to wake
up early each day to prepare for trading. This allows you to get errands and
tasks out of the way early and gives you to do research so that you are ready
to roll when the market starts.
This is a directive, though, because since many traders are doing other
responsibilities, you need to come up with the right schedule that works for
you. Choose the routine that will work for you and that you can stick to
easily.
Analyze the Market
The more the trades that you track, the more data you have to deal with, and
the more you get to learn, and the faster you do it.
By recording the trades, overall thoughts, market observations, and more, you
aren't just learning from the mistakes that you are doing, but you are also
gaining a sense of how to perform the right market analysis.
For instance, with the right trading data, you get to notice gains and losses in
a particular industry or sector. This can give you clues on the trends in the
market that you might have missed out on.
Once you see what is working and what isn't, you get to have a targeted
market analysis.
Analyze and Come Up with Your Own Setups
A trading journal allows you to come up with the right setups. Here is how
this works out:
Find the setups that trigger trade entry
When do you enter the market? The trading journal helps you figure
everything out. You need to go into each trade with a plan. However, if you
realize that you are entering trades too soon or too late based on the journal,
you can then decide to try something different.
With the perfect trading journal, you have the capacity to determine the
setups that trigger the entries.
Gain Insight into the Market
When you record your own setups, you have the ability to gain insight into
the market that you are trading in. You get to notice market trends and how
they might end up affecting the setups.
As a trader, understanding the way the market runs are ideal because it helps
you to keep up to date. The market is dynamic, and the setups that work in
one market condition might not work for other conditions. When you
understand the market, you get to navigate around and acclimatize to new
markets.
Know the Appropriate Lot Size
In any market, the lot size means the number of shares that you buy in any
transaction. The theory of size allows you to regulate price quotes. It is
basically the size of the trade that you place in the financial market.
With price regulation being a part of every market, you need always to be
aware of the number of units that you purchase on contract, and determine
the price you pay per unit.
Make sure you keep track of the lot sizes that you deal with in any trade, as it
helps you to decide the types of approaches that you take in the future.
Determine the Style of Trading
Many traders choose to be one type of trader or another. Many of them do it
by force, which is a fact that isn't the best. As a trader, you need to naturally
gravitate towards a specific trading style, and not force it.
Rather than chasing after what is trendy or what you have seen other traders
do, it is advisable to focus on a style of trading that gives you profit, whether
you go after long or short positions.
A trading journal can help you determine the type of trade that is best suited
for you by giving you a summary of the trades that gave you money.
Understand Profit Placement
Trading is a probability game, with so many moving pieces that make it
work. With so many parts that are needed to make everything work, you need
to make sure you get everything right the first time. This isn't easy at all.
Here are a few specifics that you need to master:
Cut losses fast: you need to learn to cut losses quickly,
which means you pull out of a position earlier than later,
even if it means missing out on a few profits. It is always
good to be safe than sorry. Having a trading journal helps
you determine when to get out of a trade. If you notice that
you are constantly losing, then journaling can help you learn
how to cut losses fast. Additionally, if you notice that you
are getting out of trades too early, then you can start staying
gin the game a little bit longer.
Stop losses: you need to learn how to come up with the best
stop loss order. The order can help you release the order
when you reach a particular price. With the right stop-loss
order, you can buy the security rather than selling it when
you reach a certain price. Make sure you record the different
entry and exit positions, how much you have risked, and the
results of everything. As the information collects over time,
you can determine what your best setups are so that you can
focus on replicating the profits you gained in the past to
eliminate losses.
 CHAPTER 30:

Common Mistakes to Avoid

I t is necessary to be using the right strategies in order to have success,

but it also necessary to know what not to do and what mistakes and
traps you should avoid. Below you can read about common mistakes
that many traders have committed before so that you can learn from them and
avoid them. You should attempt to incorporate all of these mistakes into your
strategies somehow so that you can avoid them.
Never buy assets without having a plan beforehand, don't just hope that the
price of an asset will go up after you buy it since this is rarely the case, and
you can't rely on the luck long term since it tends to catch up to people.
Enough beginners have already fallen for this mistake, and they will get
emotional when the reality slaps them in the face, and the price of an asset
starts going down. They get emotional, and they start hoping that the price
will continue to go up for which there is no guarantee. It can be hard to admit
the loss and to sell that asset and cut the losses and move on to the next thing.
This is an example of a sunk cost fallacy where it's hard to walk away from
something that a person is invested in, monetarily or emotionally.
Another variant of this mistake is when the price of an asset is actually going
up, and the trader doesn't want to sell since he or she wants to hold out for
more, and that happens to come back to haunt them when the price inevitably
starts to go down. This can be easily avoided by having a plan since then, and
a trader can know when to get out. The plan will make it at which price it is
necessary to get out of a trade and how much risk tolerance is allowed. The
plan will essentially provide a trader with clear points of entering and exiting
a trade, and a trader has no business going into a trade without a plan.
Another unfortunate mistake is not knowing when to cut costs, and this is a
mistake that probably costs traders the most money out of any other mistake,
and that is generally a universal human problem since it takes a lot of
humility to admit when someone is not right. In order to be a successful
trader, you can't be making decisions based on emotions, and it is necessary
to follow a plan and to know when to get out. You won't be on point with all
your trades, and that is fine, and that is just how it goes; you just need to be
right more often than not.
It is necessary to recognize when you are not right and to get out of a bad
trade pretty damn quickly. You should have a plan and a course of action for
exiting a trade, and you also need to be aware of an acceptable amount of risk
to be taken. You should know if the potential reward is worth the risk, and
once you are a certain trade, it is necessary to stick to a plan.
It may take some time to get used to the fact that you will have to determine
how much loss is too much, even if a trade looks perfectly fine on paper. It
may be a bit unintuitive; it can protect you from a lot of pain and losses
further down the road.
You don't want to commit a mistake of buying stocks that don't provide you
with information about their volume since this is one of the key pieces of
information along with the price to which you should be paying attention.
Don't just look at the price; you don't want to be one-dimensional with
decisions such as these. Don't pay attention to stocks that aren't backed by a
lot of volumes and you will have to pay close attention to identify stocks that
actually have volume since this isn't something that you can determine by
simply glancing at a price since it is possible for the price to rise up nicely
even without the volume being present. The price can't really rise all that
significantly if there is no volume to support that increase, and for that
reason, you never want to be too quick to jump on a certain stock.
You should be keeping some form of a trading log, and this is what will set
you apart in terms of your results, and you should be keeping a journal when
it comes to every single trade, no matter how good or how bad the trade may
have been.

What you should be noting down in your log are your strategies and your
approach for each trade, and you should also capture what you were thinking
when entering a trade and what were your reasons for entering and exiting a
trade. You should also include details about the timing of entering and exiting
trades. As Peter Drucker said: "What gets measured gets accomplished. "This
will essentially give you an opportunity to learn from your experience, and
this is how you will get better.
You should always be aware of how large a certain position is since you want
to avoid dealing with trades that are too large since this is risking a too big
portion of your capital on a single trade that may go nowhere at all. This
mistake is even more crucial to avoid for those that aren't starting out with a
very sizeable amount of capital. This is an impatient mistake, and you should
be thinking about the long term and doing things that will ensure that you
achieve long term success. No matter how attractive a certain trade may look,
you don't want to forget about a plan and the rules of the plan. Stick to the
plan and your risk management strategy and think before you leap. Don't put
all your eggs in one basket.
If there are certain things that you want to test out, always do it with a small
sample and never in a trade that is a real deal, that is a rookie move. Once
you start getting more success, and you know how to replicate that success,
then you can slowly start increasing the size of the position.
Another mistake is placing way too much trust in intermediaries.
Intermediaries such as stock promoters have their agenda, and they want for
the trade to go through so that they could get their commissions even if the
particular trade may not be the best choice for you personally.
Another mistake is trying to reinvent the wheel and trying to trade based on
the patterns which aren't even on the chart, but for which you are convinced
are there. The things on those charts, which will be a basis for your decision,
should be clear and unambiguous. This is what will, without any doubt, show
you what is actually going on in the market, and it is not necessary to
reinvent the wheel here. It is necessary to take a step back and just to realize
what is there and if you should go forth with a certain course on action based
on what you are seeing.
The next mistake you should avoid is not paying attention to all the
indicators, and you should be paying attention to them since you will be able
to gain much insight about a certain asset if you can read between the lines. If
you know how to read indicators, then you can recognize when a certain
uptrend is coming to a close, and that should be a signal for you, as a trader,
to pull out and take your profits with you. Listen to the indicators in order to
know when to get out and also when to stay away from a certain asset.
The next mistake is getting emotional and making decisions on the basis of
that. You should be able to keep a tight enough leash on your greed and your
fear so that you wouldn't be committing all sorts of mistakes that could have
been avoided by simply slowing down and observing how things really are.
Emotions don't have to be a bad thing necessarily; you can use them in a
productive manner if you can control them. Greed is something that isn’t bad
if you can use it to inspire you to succeed and to get better at trading since
you are not doing trading just as a hobby, and there is obviously a reason why
you want the money. Fear can also be used in a more constructive manner
since fear actually does exist in order to keep us away from harm and fear can
actually be your friend when you want to avoid getting into bad trades that
won't go anywhere. Fear can make you smarter and more cautious to a certain
extent, and it can save you a lot of money. You want to maintain your
composure and always know should you be bullish or bearish in a certain
situation. Always try to take a moment and a step back before making
important decisions.
Another mistake is playing by the ear and trading based on your gut, and you
definitely shouldn't be entering a trade just because it feels right. You should
be making your decisions on the basis of cold hard facts. You should know
which things on charts are worth paying attention to when looking at the
charts and in this way, you will be regularly buying assets that are going up
and selling those that are on their way down. You should also be keeping a
mistake journal in which you will be noting down all your mistakes and
lessons gained from them. You need discipline in order to stick to your plan,
and that is how you succeed. You should also be sure that you are ready and
that nothing is left to chance prior to entering a trade. Know which criteria
are essential and focus on those before entering the trade while ignoring the
unimportant stuff.
When you set a stop order, you should take it seriously and stick to it. This is
how you will save a lot of money down the road during your day trading
journey. It is necessary to know when to stop when you are doing good, as
well, so that you could take with you as much profit as you can. Stop rules
are what you need in order to stay focused on the current trade and not to get
distracted all the other shiny and fresh opportunities. When the price starts to
fall, it can fall really quickly, and that is why getting out at the right time is so
important since you risk losing your profits pretty quickly. Your orders for
stopping a trade should be active and ready for implementation as soon as
possible. You should also be aware of how risky the trade is and how much
risk you are actually ready to undertake.
 CHAPTER 31:

Profit Secret Tips

W hy do you have to realize these uncovered trading privileged

insights consistently the business sectors offer a large number
of chances to create benefits? However, just a little minority
reliably figure out how to do as such. What is this 'crowd of cool cats' doing
that the remainder of the market isn't? Maybe they are using the best, yet
regularly not all that critical strategies and assets. Luckily, these trading
mysteries underneath may uncover a portion of those precious traps.
1. Become Automated
When you have a reliably compelling methodology, mechanization can be
used to improve your profits. This is because you can just make a specific
number of exchanges physically every day. At the same time, a calculation
can execute many transfers when pre-decided criteria have been met.
In the robotization world, Algo Trader is a standout amongst other kept
privileged insights. It was structured by industry specialists and gave you the
most excellent control of fast, reality-based mechanized plans.
The plan is rapid, preparing up to 500,000 occasions for each second. The
open-source engineering likewise takes into account free customization.
Outsider libraries can be coordinated, and the inherent highlights help
diminish costs, expanding your net revenue.
The implicit highlights incorporate, however, are not restricted to:
Execution calculations
Option evaluating motor
Recorded information download
Back testing reports based on Excel.
Mechanized parameter streamlining
The dependability, backing, and broad scope of highlights separate it from a
significant part of the contributions right now accessible. This all implies if
we had 15-day trading mysteries to progress, Algo Trader would be towards
the top.
2. Keep a Trading Diary
Such a large number of brokers are worried about the amount and neglect to
plunk down and look at the nature of their exchanges. Disregarding the need
to make sense of where and why they are turning out badly. This is the reason
for my privileged insights of day trading stocks or some other instrument,
keeping a diary with Trade Bench toward the top.
Trade Bench is a thoroughly free online exchange diary. You can plan
exchanges, position sizes, and it accompanies risk the executives
programming. Above all, however, it keeps a point by point record of past
exchanges, including:
Exit and entry points
Trade data
Time of open and close
Position size
Benefit/loss
This enables you to look back and recognize blemishes in your methodology
effortlessly. While others will keep on committing similar errors, you can
consistently improve.
3. Practice
Benefitting from daily price variances requires more than information. It
likewise involves training. An excessive number of individuals lose their
well-deserved capital from early errors that would have been best made in a
demo account. In this way, these training records are the ideal spot to get
acquainted with economic situations and sharpening techniques.
Indeed, among top day trading, achievement insider facts are to run
forthcoming techniques through a test system account first. Supported with
virtual money, you can distinguish defects and improve your system until it
creates predictable benefits. Then you can apply it to a live record.
However, demo accounts alone aren't a standout amongst other insider day
trading privileged insights. One of the mysteries is using the Oanda practice
account.
4. Financial Schedule
Another mystery of our trading privileged insights to be uncovered is a
device frequently neglected by dealers, a commercial schedule. They track
the event of market-moving occasions. However, when used effectively, they
can likewise assist you with anticipating and compose an arrangement around
a future event.
They will separate essential powerful occasions, including:
Loan fee options
Non-farm finance numbers
Gross domestic product declarations
Buyer Price Index also is known as Customer
Price Index (CPI)
Buying Managers' Index known as Buying
Managers' Index (PMI)
A financial schedule will likewise ingrain control and coordination. Two
critical intrinsic informal investors ought to create.

In any case, using a financial schedule, when all is said in done, isn't a low-
down secret. Instead, it's using the tools Price Alerts, that is. Their simple-to-
use tools enable merchants to pursue all worldwide monetary events
progressively using their Economic Calendar.
You can create customized ready frameworks. The schedule is ingrained with
nation and significance channels. Also, you aren't required to sign in or hand
over any close to home data. Also, it's thoroughly free.
5. Enhanced Analysis
It is often said that you are just in the same class as your specialized
examination. That is the reason guaranteeing you have amazing graphs and
tools available to you is imperative. A tool for this I recommends is the
signal.
While the standard diagrams you get from your agent will manage for some
time, the signal is the spot to go when you are prepared to redesign.
You can draw and compose custom equations. When custom contents have
been introduced, they would then be able to be used as pointers for inversions
and building support/opposition lines. Signal additionally runs efficiently,
empowering you to load diagrams on various screens with no slack.
Also, the financial media and social reconciliation highlights enable you to in
a flash interact with data and experienced dealers. Bobbing thoughts off
different brokers can demonstrate a powerful method to sharpen a day's
trading technique, for instance.
If you're searching for an inside track, Ninja Trader diagramming
programming is one more of the generally obscure trading mysteries. Ninja
Trader gives everything from request passage to execution. However, what
isolates it from the rest is the customizability. Also, the outsider library
reconciliation makes more than 300 extra items suitable.
The main drawback is that as opposed to a large number of the insider facts
above, Ninja Trader isn't free. Notwithstanding, it remains a reasonable
decision in any case.
6. Get Knowledge
With moment correspondence, an occasion on the opposite side of the world
can rapidly influence your market. Thus, accessing stable news sources could
easily offset that. In any case, a few assets go well beyond announcing
breaking news. They additionally offer inside and out knowledge and
critique. All of which may improve your capacity to foresee future value
development.
Along these lines, extraordinary compared to other kept insider facts of day
trading is Financial Juice. When you have registered for a free client account,
live news will be immediately disbursed as it breaks, which makes up-to-date
with intelligence that may affect your market, direct and easy. This all makes
it outstanding amongst other trading insider facts to be uncovered.
7. Remaining Neutral
It's scarcely noon, and you've have lost $500 on an exchange. Presently
you're questioning your deliberately defined arrangement. On the other side,
when you're fundamentally up, clutching that triumphant position feels like
the proper activity, paying little respect to your procedure.
However, as active merchant Victor Spreader accurately stated, "Emotional
control is the key to trading success''. Assuming that knowledge was the key,
there would be significantly more individuals profiting." Instead, the mystery
realizes how to build up that emotional control.
To do that, you have to adopt a balanced strategy and pursue the majority of
the means beneath:
10 Steps to Mental Success
Stops: You should regard your stops. They urge you to pause for
a moment and spotlight on where and why you turned out badly.
Way of life: You should discover an arrangement that fits your
way of life. Seeing 50 diagrams when you just possess energy
for 5 is an ensured approach to sit around idly and stressed.
Instead, focus on a couple of generally excellent chances.
Clamor decrease: It's effortless to get hindered in enormous
volumes of microdata. Relax for a moment and spotlight your
vitality on the general picture.
Cutting losses: Going on autopilot and getting out is fundamental
when compromised with enormous losses. Along these lines, get
ready rationally and imagine that crisis exit. As Bruce Kavner
featured, "if you personalize losses, trading is impossible for
you."
Confide in yourself: while chat rooms and gatherings can be
helpful, don't enable yourself to be excessively affected. Invest a
lot of energy in them, and you will rapidly question your
technique when your capital is hanging in the balance.
By and large picture – Fix your negative behavior patterns and
work on a structure that self-discipline in all parts of life. You
will then find remaining unbiased when your exchange is far
simpler.
Gain from the best – Pick up books on creating discipline.
Reasonable objectives – This is extraordinary compared to other
trading privileged insights. Unreasonable benefit targets will
rapidly prompt rash basic leadership. Along these lines, set
yourself short and sensible objectives, especially to begin with.
Consistency – You should layout your technique toward the start
and stick to it throughout. Trust in your exploration and
information.
Begin little – Focus on enormous successes, and you overlook
the significance of following the example. As time goes on,
taking littler positions will give you more noteworthy control.
Then you can bite by bit increment your position size as your
certainty develops.
8. Enter a Winning Trade
You realize that for each option trade, there are different sides. Buyers can't
buy without dealers. If the options you buy aren't profiting, you can be sure
that the dealers are PROFITING CONSISTENTLY from your losses. An
ideal thing to do is to reverse the situation. When you move to the opposite
side of the exchange, you put those chances decisively back to support you.
That is the way the master's trade, taking as much time as necessary, you buy
a call or a put. However, by turning into an options dealer, as well, you will
understand why the professionals favor their procedure. First of all, you'll
most likely rapidly get dependent on gathering COLD, HARD money
forthright on each exchange.
Also, the "mystery" to selling options is that you get into a trade that has a
99% possibility of winning. They're GIVING MONEY AWAY on the trades.
It's actual – the market gives you money for your trade.
9. Be Flexible
Try not to confine yourself to your option trading methodologies. Be
adaptable. There is something else entirely to spread trading asides bull puts
or bull calls; there are a few effective option trading procedures out there.
Think about options as instruments that can be shifted and mound to fit
whatever the financial exchange chooses to toss at you. Assuming you are
centered around attempting to anticipate where the market is going to move
accurately, you will probably wind up with a great deal of dissatisfaction over
why you can't clarify how NFLX continues moving higher, and your long
puts are getting slaughtered.
10. Welcome the Unexpected
Even though you have good intentions with your market timing aptitudes and
your authority of setting trade systems, expect the unforeseen. Continuously,
get ready for changes per your trades advance to maintain a strategic distance
from reality checks in the option dealing market.
At last, the securities exchange couldn't care less if you think you get it or
not. You are wrong or right. The extraordinary thing about learning options
trading is that assuming I am off-base, I can modify and change trade, which
frees me from losing rest over one thing during the evening.
 CHAPTER 32:

Easy Day Trading Tips

W hen you are ready to get started with day trading, it is

important that you are prepared. This is not an investment
option that has a lot of room for mistakes along the way. You
have to make your purchases and your sales all in one day, and that means a
lot of quick thinking along the way. When you are ready to get started as a
day trader, here are some tips and tricks that you can follow to be successful
with as many trades as possible with day trading.
Pick the right stocks
Remember that while it is important to manage your risks and pick out a
good strategy, you also need to make sure that you are picking out the right
stocks. Thousands of stocks are available on the market for you to choose
from, but not all of them will work for day trading. And just because you did
well with one stock on one day does not mean it will be successful on a
succeeding day or later on.
There are a few things that you can do to pick out the stock that will be the
best for you. The first thing that you need to do is pick out the strategy that
you would like to use; this will often help you to pick out a good stock. You
can then use a scanner to help you find stocks that match your requirements.
You should take a look at each stock before making the purchase, no matter
how much it matches up with the scanner, so ensure that it will match the
type of stock that you are looking for.
It does not matter how good of a strategy you pick or how much you work to
manage your risk if you do not take the time to pick out a good stock, you
will fail with day trading. Always do your research to make sure that you get
the perfect stocks to increase your profits.
Stick with your strategy
As a day trader, there are a lot of great strategies that you can choose from to
see success. We talked about quite a few of them in this guidebook, and you
can even combine a few to help come up with your own strategy. As long as
you learn which stocks to do with which strategies and you really learn how
to make each of the strategies work properly, you will find that any of them
has a good chance of success.
The biggest issue that comes with this is that you end up changing your
strategy in the middle of a trade. Each strategy is different, and combining
them right in the middle of your trade will lead to trouble and will most likely
make it so that you lose money along the way.
It is fine to switch strategies in between trades, but when you are in the
middle of a trade, you need to stick with the trade that you originally picked.
It does not matter if that trade is not working out the way that you would like
or if you are losing money. Stick with that strategy until the trade is done and
then learn from your mistakes if things do not go the way that you would
like.
Keep the emotions out
An important part that you can do when you get into day trading is to make
sure that your emotions will stay out of the game. As soon as you let those
emotions into the game, they will take over, and you are sure to lose out on
any profits along the way.
When you allow your emotions to start coming into play, you are basically
losing all of your control to make smart decisions. No one can make good
decisions when the emotions are involved, and with all the stress and issues
that can come with day trading, those emotions will hit some extremes pretty
quickly. This is why it is so important to go through and pick out a winning
strategy and to stick with it. This will keep the emotions at bay, and you can
make the decisions ahead of time, before the emotions of being in the market
come into play.
If you are in a trade and find that your emotions are starting to get in your
way, it is time to make some changes. In some cases, you will be able to stick
with your stop points and be safe for the rest of the trade. But if you have
already gone through and left the stop points behind, it is time to leave the
trade, no matter where it is going, and restart. You may even need to take a
little time off from day trading, especially after a trade that did not do that
well, so that you can regroup and get back to critical thinking.
Come up with the right stop points
The stop points that you work with will make a big difference in how well
your strategy will work. You need to have a stopping point for your profits
and for your losses, and you need to decide these stop points before you even
enter the market. This helps to keep the emotion out of the game and ensures
that you will be able to make smart decisions rather than getting caught up in
all of the heat of the moment.
The first stop point that you should consider is the loss stop point. This will
be the low point of the exchange, the point where you will just cut your
losses and walk out of the market. It does not matter where the market goes
after this point, and you need to get out of the market as soon as the stock
reaches this point and just take the losses. When deciding on this point, you
need to pick a point that is no lower than the lowest point for the stock in
recent times. You also need to pick a low stop point that will only make you
lose an amount that you are comfortable with, or you are adding in more risk
than you need.
A thing that needs to be considered by you is the profit stop point. This is the
amount of money that you will take in profit before getting out of the market.
It does not matter if the market keeps going up after you get out of the
market. You will still need to make sure that you get out of the market and
just take your profits. You can always join the market later on and try again,
but making a decision on how much profit you will make before getting into
the market will keep the emotions out of the game.
Consider working with a broker
If you have never worked in the market or looked at stocks before, it is
probably a good idea to work with a broker. The process of day trading can
be difficult to work with, and you have to make a lot of decisions quickly
since you are making the whole trade-in one day. Your broker will be able to
offer advice to you, help you to complete the trades that you want, and so
much more.
Of course, you need to make sure that you pick out a good broker. There are
a lot of different types of brokers, and some of them will be amazing and will
offer you advice that helps you to make money, and others will be cheap and
ineffective. Do your research and look around, and you are sure to find the
results that you would like.
Take a break when needed
Losing out on some money can be really hard. Many beginners have some
issues with this because they had high hopes of being able to make a lot of
money in the process. They may even have spent hours doing research and
learning the right strategy to be successful. And then something happened in
the market, and things went south, causing them to lose money.
The first thing to remember is that everyone has a bad trade. There are people
who have been in the day trading market for years who end up making bad
trades. This is just a part of the business. The market does not always behave
in the manner that you are hoping, no matter what, and there will be times
when you run into a bad trade.

Depending on how the trade went, you may want to consider taking a break
before entering again. It is hard to lose money, and if you jump back in too
quickly, you could end up making some bad decisions, one that will result in
you losing more money. There are no rules or how many times you have to
trade during the day to be a day trader. If you have a bad trade right in the
morning and that was the only trade that you did, it is still fine to take a break
and start up fresh the next day. It is better to miss out on a few hours of day
trading rather than risk it because your emotions are in the way and lose more
money in the process.
Write down tips after your trades
It is a best practice to write down information and tips when you are done
with your trades. As a day trader, you will make a lot of trades. As you
progress through this type of investment, you may do many trades all on the
same day, depending on how much money you have available and how much
you would like to earn in the process. Through all of these trades, you are
sure to learn a lot of things and even make a lot of mistakes.
Even as a more experienced day trader, there will be times when you have
questions about what you should do. Rather than just guessing, why not take
a look at some of the notes that you have taken in the past? Especially in the
beginning, you should take some time to write down some notes about your
trades. While you may not have time to write down the information after each
trade, consider writing down a few notes at the end of the day. Writing about
your mistakes and some of the things that you can do to make things better
the next time will prove really helpful in the long run.
Day trading is a very lucrative investment, as long as you know what to
expect, and you can pick out the right options. By following these steps, you
will be able to make smart decisions that can make working in day trading
very successful.
 Conclusion

A s you can tell, after reading this book, there are many things to
consider before you start trading more explicitly understanding
the basics before moving on to more advanced techniques.
This book should have put you in a high position in terms of seeing results
and achieving your goals. Keep in mind that for you to see amazing results,
you will have to act on the information provided to you in this book since it
will help you see results rather than daydreaming about it. The truth is that
you can be making some serious cash flow within months if done correctly.
Also, you need to make sure that whatever it is that you are doing is done
with perfect calculations and at your own risk.
We can't stress enough how calculated you have to be with your investments,
as it will only lead you to make more money. Finally, make sure that you not
only take care of the investments by keeping track of it but also that you ease
into every investment that you earn as it will only lead you to do make some
smart decisions in the long run. Overall, I hope you learned a lot from this
book. Most importantly, I hope you take a lot away from this book.
For those who want to take an active role in their investment activities,
trading is one option to consider. It’s not the same as traditional investing.
Trading is aimed at earning profits over the short term. Therefore, it’s more
like a business than investing. Depending on the level of commitment you
can give to trading, the amount of money you can risk, and your own
personal tolerance for risk, you can choose a trading style that is the best fit
for your situation.
Remember that trading is risky. You should never risk more capital in trading
than you can afford to lose. By taking some reasonable steps, however, you
can protect yourself and your capital from catastrophic losses.
Don’t get fooled by early losses. Beginning traders can expect to have some
losses and make mistakes along the way. That’s inevitable when taking up
any new occupation. As long as you are not risking huge amounts of money
on one single trade, you should be able to dust yourself off and get up and try
again. Some people will find it to be too much to deal with, but my hope is
that you will learn from your failures and do better next time, and build
yourself into a successful trader with time.
Remember that the most important thing for your success is the combination
of your win rate and the average win rate. Too many traders focus only on the
win rate and not on the latter, thus resulting in a very warped view of what
trading is all about. Always keep your risk per trade at a manageable level
with the risk of ruin zero.
If possible, fix your risk per trade a few levels below the threshold in order to
account for miscellaneous mistakes you might make.
 DAY TRADING OPTIONS

The Beginners Guide To Expert Practical Strategies. Simple

Information On Investing, Swing Trading, Stock Market, Trade
Psychology And Options.

DOUGLAS ALLEN
 Table Of Contents

Introduction
Chapter 1: How Does Day Trading Work?
Chapter 2: High Frequency Trading And Penny Stocks
Chapter 3: Day Trading Myths
Chapter 4: Day Trading Vs Swing Trading
Chapter 5: Risk Management
Chapter 6: Account Management
Chapter 7: Technical And Fundamental Analysis Of A Stock
Chapter 8: Finding Stocks For Trades
Chapter 9: Thing To Consider Before Your First Trade
Chapter 10: Guidelines To Better Trading
Chapter 11: Step By Step Instructions On How To Make Your First Trade
Chapter 12: Volatility In The Markets
Chapter 13: Tools And Platforms
Chapter 14: Day Trading Strategies
Chapter 15: Creating Your Own Day Trading Strategy
Chapter 16: Trade Management And Price Action For Day Trading
Chapter 17: Candlesticks
Chapter 18: Momentum Trading
Chapter 19: Building A Trading Plan
Chapter 20: The Entry And The Exit
Chapter 21: Money Management For Success
Chapter 22: Money Mistake To Avoid
Chapter 23: Important Psychology Of Trading
Chapter 24: What Strategies Do Not Follow If You Are Expert Trader
Chapter 25: Power Principles To Ensure A Strong Entry Into Day Trading Options
Conclusion
 Introduction

G etting started in day trading is a big decision and one that can
change your life. Your day trading efforts can grow into a small
business where you are the chief executive officer and the
company’s profits flow directly into your pockets.

As with any business, success can take some time and effort. Success
requires a road map and the discipline to follow the instructions, even when
the map seems to be leading in the wrong direction.
There are also necessary steps in the early stages of the process in
determining how much money to start trading with, finding the right broker,
and answering the one simple question, Why trade?
Day trading is all about managing risk while attempting to make short-term
profits. In that sense, money is simply a tool that allows one to buy and sell.
What does money mean to me? is an important question to ask before you
open an account and begin taking risks as a day trader. If money is a source
of pride or something you absolutely cannot put at risk, day trading might not
be the right pursuit.
At some point, you will open an account with a brokerage firm to begin day
trading.
There is no one-size-fits-all when it comes to brokerage firms. The process is
like buying a car: sure, your two-seater Porsche is excellent for driving to
work, but Stanley down the street with six kids needs something more
significant.
Yet, while picking the right broker is a matter of personal preference, all day
traders need to find a firm with three essential features: low commissions,
reliable data feeds, and advanced charting platforms. Low commissions are
now typical throughout the industry, and day traders should not be paying
more than a couple of dollars per trade.
Your data feed is your lifeline and one of the most essential tools for success.
You need accurate, real-time data.
To use charts like these you need a data feed that is not available through
every broker. Be sure that the broker you choose offers tick and range bar
style charts. That being said, third-party charting platforms and data feeds are
available if you look around.
It is also essential to understand that not every broker offers every type of
investment product. For example, one firm might provide traditional stock
brokerage services, but not futures or forex. Another might give only forex.
Some firms cater to options traders and have tools for advanced strategies.
It is essential to look at the pros and cons of a few good brokerage options to
choose the solution that’s right for you. We will use examples from Trade
Station, which is a brokerage firm that I really like for my day trading. Ninja
Trader is another popular charting platform that I frequently use. Ninja
Trader interfaces with various other brokers and gives you more choices and
better flexibility.
While the answer “to make money” might seem obvious—a no-brainer—
most losing traders actually trade for other reasons (remember Harvey the
engineer?). They may think they are trading to make money, but their actions
indicate that different motivations are driving their decisions. Remember, the
most important indicator is you.
If you are genuinely trading to make money, then the next logical question to
ask is How? How does a trader achieve that objective?
The answer is by trading within the context and rules of a proven trade plan.
A proven trade plan grows equity in your account, despite the random
distribution of wins and losses. It includes rules to follow that you can prove
to yourself.
Taking random trades that are not within the context of a proven trade plan is
not trading to make money. It is something else. Why? Because we are
traders. It is what we do. We take trades. If you win on a random trade, now
what? There is still another trade to take, right? Making money comes from
the edge that your proven trade plan gives you over time. Random trades are
not going to reveal whether or not you have an advantage—they’re arbitrary
—until after the fact, when you will most likely learn that the answer is no,
you did not have an edge. And then it will be too late. This is how accounts
get blown up.
If you are truly trading to make money, then your actions should reflect that.
If they do not, then you are most likely trading for other reasons that you
don’t quite understand. You will need to address that if you genuinely want
to internalize the correct reason to trade—to make money.
 CHAPTER 1:

How Does Day Trading Work?

A lways keep the primary rule of day trading in mind: never hold on
to a position overnight, even if it means taking a loss on trades.

But why do you have to stick to this rule even if it means

suffering trading losses? After all, isn’t making money the point of day
trading?
Yes, making money is the point of day trading. But given that the ideal
securities to day trade are volatile ones, holding on to them overnight can put
you at high risk for more significant losses the next day. It’s ok to take small
losses on day trades than large ones when you try to hold on to day trading
securities overnight in the hopes that prices will recover significantly the next
day.
By closing your position at the end of the day, even at a loss, you get to
minimize day trading losses. And if you close positions at a profit, awesome!
Don’t feel like you could earn more by waiting until tomorrow. Remember, a
bird in the hand’s better than three in the bush.
You’ll also need to remember that trading is a lot different than regular
investing. While trading is a form of investing, regular investing usually
refers to a more passive, buying-and- holding strategy that waits for months
and years before taking profits. Trading has a much shorter time frame,
which is only several hours for day trading and a couple of months at most
for swing trading.
Buying Long and Selling Short
When you buy a financial security, you take a long position on that security.
When you hear a trader say that he or she’s long 100 shares Intel stocks, it
means that trader bought and is currently holding a hundred shares of Intel’s
stocks.
The point of taking a long position on a financial security is selling them later
on at higher prices. To close a long position, you sell the securities you’re
holding.
When you sell securities that you don’t own yet, you take a short position on
that security. When you hear a trader say he or she shorted or sold short 100
shares of Intel stocks, it means that trader sold 100 shares of Intel stocks,
hoping that its price will continue dropping so he or she can repurchase it at a
much lower price. It’s the same principle as buying low and selling high,
except that the “selling high” part comes before the “buying low” part.
How can you sell something you don’t have and more importantly, why
would you even do that?
First, let’s answer why you should do that? And the answer is: to make
money when prices of securities are dropping. As mentioned earlier, it’s just
a reversal of the general trading strategy of buying securities at low prices
and selling them at higher ones. By selling securities while their prices are
high and buying them later on at lower prices, you can trade profitably even
during market downturns.
Now, how can you do it? Depending on your broker and whether you’re
qualified, you can borrow the securities from your broker, sell them,
repurchase them when prices drop, and return the securities you acquired
from your broker. In the process, you profit from the short sell.
Keep in mind, however, that just like taking long positions, short selling also
has its risks, which include that prices may actually go up instead of
continuing to go down. In that case, you may also suffer trading losses.
You may be wondering, why would brokers or exchanges lend securities to
their clients for short selling instead of selling the securities themselves?
That’s an excellent question. And the answer is: brokers usually want to take
long term positions on securities. Why?

Why take risks with short-term trades on a downward trending market when
they can make money with much lower risks by merely lending it to
customers who want to short sell for a fee. This way, everybody wins. The
long-term investors get to keep their securities and profit, even during bear
markets, while those who don’t own securities can have opportunities to
make profitable trades via short-selling.
Retail Vs Institutional Traders
Retail traders are individuals who can be either part-time or full traders but
don’t work for a firm, and are not managing funds from other people. These
traders hold a small percentage of the volume in the trade market.
On the other hand, institutional traders are composed of hedge funds, mutual
funds, and investment banks who are often armed with advanced software,
and are usually engaged in high-frequency trading.
Nowadays, human involvement is quite minimal in the operations of
investment firms. Backed up by professional analysts and huge investments,
institutional investors can be quite aggressive.
So, at this point, you might be wondering how a beginner like you can
compete against the big players?
Our advantage is the freedom and flexibility we enjoy. Institutional traders
have the legal obligation to trade. Meanwhile, individual traders are free to
trade or to take a break from trading if the market is currently unstable.
Institutional traders should be active in the market and trade huge volumes of
stocks regardless of the stock price. Individual traders are free to sit out and
trade if there are possible opportunities in the market.
But sadly, most retail traders do not possess the know-how in identifying the
right time to be active and the best time to wait. If you want to be profitable
in day trading, you need to eliminate greed and develop patience.
The biggest problem of losers in day trading is not the size of their accounts
or the lack of access to technology, but their sheer lack of discipline. Many
are prone to bad money management and over-trading.
Some retail traders are successful by following the guerilla strategy, which
refers to the unconventional approach to trading derived from guerilla
warfare. Guerilla combatants are skilled in using hit-and-run tactics like raids,
sabotage, and ambushes to manipulate a more prominent and less-mobile
conventional opponent.
Remember, your mission is not to defeat institutional traders. Instead, you
should focus on waiting for the right opportunity to earn your target
income.

As a retail trader, you can make profits from market volatility. It can be
impossible to make money if the markets are flat. Only institutional traders
have the tools, expertise, and money to gamble in such circumstances.
You must learn how to choose stocks that can help you make fast decisions to
the downside or upside in a predictable approach. On the other hand,
institutional traders follow high frequency trading, which allows them to
profit from minimal price movements.
But for a brief overview, Alpha Predators are what retail traders are hunting
for. These stocks usually tank when the markets are running, and they run
when the markets are tanking.
It is generally okay if the market is running, and the stocks are running as
well. Just be sure that you are trading stocks that are moving because they
have a valid reason to move, and are not just moving with the general market
conditions.
Probably, you are wondering what the necessary catalyst for stocks is to
make them ideal for day trading.
Here are some catalysts:
● Debt offerings
● Buybacks
● Stock splits

● Management changes
● Layoffs
● Restructuring
● Significant contract wins / losses
● Partnerships / alliances
● Major product releases
● Mergers and / or acquisitions
● FDA approval / disapproval
● Earnings surprises
● Earnings reports
Retail traders who are engaged in reversal trades usually choose stocks that
are selling off because there has been some bad press about the company.
Whenever there’s a fast sell-off because of bad press, many traders will
notice and begin monitoring the stock for what is called a bottom reversal.

How can you identify the stocks that are alluring retail traders? There are
some proven ways to do this.
First, you can use day trading stock scanners. Basically, the stocks that are
significantly moving up or down are the stocks that are being monitored by
retail traders.
Second, find online community groups or social media groups where retail
traders hang out. Twitter and Stock Twits are often good places to learn what
is currently trending. If you regularly follow successful traders, then you may
see for yourself what everyone is following. There’s a significant advantage
to being part of a community of day traders.
Securities in Play
There’s a reason why many investors, traders and analysts focus on market
movements or indices. It’s because they know that for the most part, most
financial securities follow the overall trend of their respective markets unless
they have an excellent reason not to. For example, the prices of most stocks
in the NYSE tend to go up when the Dow Jones is trending upwards and vice
versa.
However, there will always be outliers that will – for one reason or another –
go against the general trend for some specific purpose. When their general
markets are tanking, they’re picking up. When their general markets are
picking up, their tanking.
These securities are called securities in play (SIP). As a retail or individual
day trader, these are the securities you should focus on within your chosen
day trading market.
If you want to day trade stocks, these are stocks that buck the general trend of
the NYSE or the Nasdaq. If futures contract, these will be futures contracts
that go against the general direction of most other similar agreements.
You get the drift, right? Right!
What are some of the reasons that may account for the contrarian behavior of
SIPs? These may include:
Unexpected results of earnings;
Surprise company or economic developments; and Major policy changes by
the governing authorities.
So, just because a particular security bucks its general market trend doesn’t
mean you can consider it a SIP. There should be an underlying reason for the
contrarian movement. If none, it’s probably not a SIP.
Always remember another important day trading rule, particularly for
choosing SIPs to day trade: Find out if a particular security’s movement is
due to general market sentiment or is it due to some unique fundamental
reason?
For this, you’ll need to do your homework. As a beginner day trader, you
may have to do a bit more research than what you’re accustomed to. But as
you become a more experienced day trader, you’ll be able to easily
distinguish when a particular security is just going with the general market
flow or when it’s trending based on a unique and specific reason.
Professional day traders are those who do this type of trading for a living.
While other forms of trading can sometimes be done as a hobby or a
gambling high, day trading is often not included here. If you don’t have a
good understanding of the market and its fundamentals, you will most likely
lose money.
 CHAPTER 2:

High Frequency Trading and Penny Stocks

High-frequency Trading (HFT)

H igh-frequency trading is usually conducted with the help of

powerful computers that operate on sophisticated algorithms for
analyzing stock markets. They buy and sell shares in a matter of
seconds. They work on specialized software. You will have to obtain a high-
end computer to do HFT successfully. HFT offers you benefit which regular
traders lack in general. This kind of trading existed before crypto currency
and is now estimated to make up a whopping 80% of the total volume in
different asset markets. It is now becoming a decisive factor in the realm of
decentralized assets, and more investors are starting to take notice of this
trading strategy.
The basic principle behind HFT strategies demands that the ones who are
executing them are the first to execute that as it takes a fraction of a second to
make a profitable move an unprofitable one. There are a bunch of techniques
that traders can use to stay afloat in a neck-on-neck competition. Top
investment banks, hedge funds, and financial institutions usually carry out
HFT. They employ experts who use automated trading platforms for making
profits. However, now high-frequency trading firms have come into place to
do the job.
HFT, as already mentioned, runs on a set of complex algorithms that study
the market, learns from it, and make decisions in a split second. These
algorithms can spot the latest emerging and developing trends in the markets
across the globe and kick off trading on them before human players get a
chance to trade and bag profits on the same. These superfast computers place
huge volumes of trades across multiple markets to double up profits on the
trade transactions they make over time. If you compare their trade
transactions and earnings with the ones carried out by human players, you
will see the visible difference in the giant size of the profit that HFT brings
for you. They have the power to convert small margins into big margins.
These systems do achieve this otherwise tough feat by their enormous speed
of making money. They generally capitalize on the theory that high-end tech
can raise the level of profits from the stock markets. However, high-speed
trading companies don’t enjoy a good reputation as compared to manual
trading. More often they are viewed as rogue players that are aiming at
getting an edge over their competitors at all costs.
Retail investors are used to this kind of delays but HFT systems can make or
lose money in milliseconds. The best strategy is to buy the best tech
equipment that is available in the market and the other, as I just told you,
transporting your server as close to the data center as you can. Some traders
set up shops in the area close to the data center. These exchanges often house
private servers for the interested traders. You also can have a cross-
connection that links to the main server of the data center, which helps you
circumvent connecting through the internet. This ultimately cuts the undue
delays and this translates into catching up with some big profits.
An HFT strategy is a market-making strategy in the trading world. It can be
spotted whenever a trader who has adequate resources in hand places bids
and asks in the stock market. This act of his offers liquidity and gives him
profit that is based upon spread. Market-making is generally provided by big
firms and it is considered as a positive practice to keep essential markets
liquid. HFT market makers are firms that don’t have any contracts with the
exchange. They leverage their top speed and improved performance to make
sure that it is their bids and asks that drive and shape the markets.
Another HFT strategy is arbitrage which is the act of taking advantage of the
difference in the price of the same stock on multiple markets. It happens that
a single stock has inconsistent prices across different exchanges. Traders
often locate the difference and exploit it to make profits. In crypto currency,
the frequency of arbitrage is higher than the ordinary markets therefore it
offers a more significant opportunity for making profits.
The method, however, just like others, has its flaws. First of all, it is
considered a controversial method of trading that tends to strip you of human
decision-making. Trades usually take place in a split second which can create
flash lows and highs in the stock market without any reason or warning. It
means that a single bad order or a glitch in the algorithm or computer system
can result in the loss of millions of pounds in a matter of seconds. This kind
of market volatility can result in a ripple effect in the stock market. There
have been concerns by the Financial Conduct Authority that it can put small
investors at a more considerable disadvantage and can eventually distort the
shape of markets. There is another risk that watchdogs cannot detect potential
wrongdoing.
Penny Stocks
Day trading in penny stocks is gaining steam due to a lower barrier of entry
and the ability to earn a significant amount of money. Savvy investors who
learn the art of making money with penny stocks can bag big profits. Still, we
cannot deny the fact that a vast majority of people tend to lose their capital in
a matter of days just because they don’t follow the right strategy. Trading in
penny stocks is different from trading in the normal stock market therefore
you need to make out the complications that are involved in this type of
trading before you make a dive.
Penny stocks have different names such as small caps, micro caps, and stocks
under $5. The most common aspect of penny stocks is that they are usually
not listed on some big stock markets. Also, they demand a different approach
from day traders. Standard stocks are generally listed on NASDAQ, New
York Stock Exchange, Dow Jones, and other major stock markets. On the
other hand, penny stocks are traded on Over the Counter markets. Most
online brokers support these markets. You cannot label a stock that is listed
on a traditional exchange as penny stock no matter how low its price is. If the
shares of a major company sink to the bottom of the market, they don’t
become penny stocks. The downfall of a share comes due to a wide range of
factors such as the bad reputation of the company and any negative news
about the company.
Trading in penny stocks is hazardous, to say the least. Most penny stock
companies are highly volatile which puts regular traders in a risky position to
lose their capital big times. However, risks are a part of the stock market
game. You can still make big bucks by trading in penny stocks if you keep it
smart and targeted. You need to know what you have to look for in the stock
market. There are a bunch of characteristics by which you can tell if a penny
stock will help you make money or not.
First of all, you must know that a company is on her way to making money.
The company should be in good monetary health with positive reports
flowing in for the near past. A company that is losing capital is not a good
investment and this is true for the general stock market as well. It doesn’t
matter how low the share price is. What matters is the fact that the company
is posting sufficient profits for the past few quarters. The second most crucial
factor that you must keep into consideration is that the company you are
investing in has enough cash to fulfill contingencies. Powerful companies
need not liquidate their future viability to service debts. You must conduct in-
depth research into whether the company has got enough money for the
purpose or not. Only invest in, if the answer is affirmative. What most
investors ignore is the fact that penny stock companies don’t like to remain
penny stock companies. They are looking forward to grabbing the earliest
opportunity to jump into the mainstream stock markets. Therefore, you need
to scan the companies to find out a viable strategy to materialize their plan of
jumping into mainstream markets. If a company has got an idea, it means it is
aiming at gaining exponential growth to change its fate. This kind of
company can help you make big money. The most common indicators of
these plans include rebuilding a powerful and long-term business plan and
paying back to investors.
When you have scanned a company for all the three pre-requisites and you
are convinced about them, dive in to earn the money you are looking for. But
wait! There is another problem in your way of making money. You cannot
just scan all the penny stock companies. Just like we learned about choosing
the best stock to trade, there should be a method to select the best penny
stock to invest in. On the penny stocks, the same rule applies: you need to
pick one at a lower position and sell it when it rises. That’s a challenge. How
can you find a stock that is undervalued and is likely to break free and
increase in price? You need to find a stock that is low in value and also has a
positive outlook. Here is a pack of some proven strategies to trade in penny
stock.
Find a day trader who is willing to sell the share at the bargain price. If the
company is expecting a turnaround, the trader will hold on to the stock to
enjoy the benefits, which makes the shares challenging to buy. Once you
have purchased a lucrative penny stock, you need to make sure that you will
be able to sell it. Hold on to it and wait for the right opportunity. When the
time finally comes, sell it. You must realize that you have bought the shares
at a lower price because it is undesirable at the moment. Its price is low
because people are selling it. Therefore, it needs time to regain investors’
confidence. This is the time you need to sell it without any further delay.
Penny stocks are not stable companies. They might be new companies who
are looking for an island in the vast ocean of business to gasp for a while.
They might be companies that are in grave danger of running out of business.
Therefore, you need the right mindset to trade in penny stocks. When you are
evaluating penny stocks, you need to take a look at some key indicators to
analyze if a stock is likely to perform well shortly or not. There is usually no
fundamental information available for penny stocks because they don’t file
necessary paperwork which is mandatory for large-cap stocks. You need to
look around for a few positive and negative indicators based on which you
can determine which penny stock is the best for investment.
You can buy penny stocks on some major exchanges as well but they are
mostly traded on OTC exchanges. There are various reasons as to why they
cannot be sold in big markets. A few of them are the size and profits of the
company. There are usually thousands of penny stocks to choose from.
 CHAPTER 3:

Day Trading Myths

A s a trader using both short-term and day-trading strategies, I got a

unique insight into the real benefits and disadvantages of both. As
a trading trainer, I also had the opportunity to hear several
frequently quoted words about trading that are firmly believed but are clearly
not subject to scrutiny. Many of these centers on day-trading topics. If you're
interested in day-trading, you have to know what's real and what isn't.
Myth 1-Day-Trading Is Far Riskier Than Short-Term Trading
or Investment.
The risk of short-term trading is unquestionably higher. You risk far less in a
day-trade in any single trade than in a short-term trade or long-term
investment in ether. What gives the impression of higher risk is that you
usually make more trades. I've never lost as much on my worst day as I do on
short-term trading. Yes, that's Okay. Even on my worst day combining all
those day trades, I still haven't balanced what I lost to some of my short-term
trades also though it's only one trade. My own experience shows that short-
term trade and investment often prove to be riskier than day-trading.
Amazed? You shouldn't be; it's common sense. How much, in contrast to a
short-term trade, do you risk on a day trade? If a short-term trade has so
much more significant potential loss than trading any day, what will
obviously be the result if trades go bad?
Myth 2-Gambling is Day-trading
If you trade without a strategy or allow emotion to influence your decisions,
every trade is gambling. The main difference is whether or not you put the
odds in your favor. If you do that, then trading becomes a company, whether
you're thinking about short-term, trade, or day-trading. If you can't put the
odds to your favor, then they can all be known as gambling. None of them
has an advantage over others.
Myth 3-Day-Trading Links You to A Machine the Entire Day
I must laugh at the story. My average day is an hour and a half in the morning
and two afternoon hours with a lunch break of two hours. Even when I'm
trading, I don't watch the market all the time because I'm waiting for set-ups
to create, so sometimes I play a game on the computer or watch TV while
waiting. There are limited times when the most profitable times to trade
during the day are market trends. It just consolidates most of the time. There
is no need to look at the markets like a hawk during these downtimes when
the market is in consolidation. There are straightforward ways to alert you
when preparing for a trade is high time. Frequent breaks have to be the rule,
not unusual. I don't know about any other job that can pay you as much, and
yet give you too much free time.
Myth 4-Day-Business Is Too Stressful
Any trade is stressful if you lose money just like any trade is easy if you
make a lot of profit. It is not the trading type, but how well you adapt to it
and whether or not you are successful. Usually, the stress of day-trading
stems from two things; bad trading and the inability to emotionally adjust to
the fast rate. Day-trading requires reactions much quicker because they are
produced in real-time. There is not much time for analyzing and then
reanalyzing a situation before making a decision as a person might do with
short-term trades. So a trader needs to know their method of trading well, to
the point that it's almost second nature and they need to keep their emotions
in check too. Although initially doing this may be difficult, many of us have
already mastered other endeavors that require critical decisions in real-time,
such as driving an automobile. Acquiring such ability is a matter of pure
practice, practice, and then more practice.
Myth 5-The Greatest Money Is Spent on Long-Term
Movements That Last Weeks or Longer
A day trader can multiply in assets and sky rocket to the top of the trends in
the long term. This is due to that as it grows, a market can naturally flow like
a wave, allowing repeated profits to cover the very similar point. The only
way a short-term trader succeeds in making more profit is when there are
market shortages overnight, but even in a good day trader will generally be
much more handsomely compensated in the long run.
Myth 6-You Miss the Big Profits Generated by Overnight Gaps
When You Trade Day.
You also miss out on the losses overnight. Gaps indicate a high uncertainty,
and in many situations, both directions will swing the market violently. Day-
trading protects you against that risk of overnight. But here's the thrill about
gaps overnight; it's not unusual for a closed market on a daytime overnight
gap, giving a chance to a day trader to capture the generated profit through
overnight trading. Specific markets, of course, day trading is not suitable for
this, while some are. So when it comes to this problem, the market choice
will make a difference. Trading a market that is inclined to overlap during the
day will more than compensate for any gaps occurring overnight.
While there are several more myths that could be dispelled here, balancing
and understanding the other side of the coin is also essential; the negative
aspect of day-trading. While day-trading is a great way to make a living if
you're consistently successful, if you always lose, it can also be the worst
career option. This is true of any type of trading, but an individual has
typically given up a regular job in day-trading and, of course, a steady
income. More is emotionally needed too. This latter factor is one that most
assumes is of no concern personally, and yet often proves to be the one issue
that prevents their success. There's an inherent emotional weakness that
everyone has, and however most refuse to believe they could have a problem
with it personally. And they still fail to answer it correctly, and it continues to
plague them.
However, if a trader is learning to trade profitably on a consistent basis and
they are also learning to control their emotions, then day-trading is one of the
most significant ways to make a living that anyone can afford. The freedom
to work when you want to, the amount of money that can be made, and the
lifestyle that it provides is truly incredible. It's all that's promised, really; the
dream job. Although achieving that goal requires a lot of work, don't be
swayed by the day-trading myths. This one is really for.
 CHAPTER 4:

Day Trading Vs Swing Trading

M ost companies in the financial markets are familiar with the

different schedules that traders might have in the day to day
lives; therefore, they made a consideration. All stocks in the
market are categorized according to their traders.
Traders are grouped into two categories:
Swing Traders
Day Traders
Swing Traders are those who buy stocks that are not fast perishable and
therefore stay on the market longer.
Day Traders are in the market for something fast-moving and has a high
volatility rate.
This distinction makes the different types of trading applicable to those in the
market. How to identify what stocks are suitable for day trading or swing
trading is reliant on the information gotten from the different platforms.
Different website platforms are perfect for this dissemination of information
as they are regularly updated and get direct information from those
companies and big investors.
Day Trading VS Swing Trading
Just when you thought you were getting a grip on day trading; you discover
that there is another type of trading. Swing trading is another form of trading
that is undertaken by people who have not as much time as the day traders.
Similarities
While there are more stark contrasts, there are also a few similarities between
these two modes:
Day trading and swing trading are easily tracked and charted on a regular
basis. Their activity on the market is manageable, and statistics well
documented regularly.
There is always a possibility for huge profits based on the stockiest on the
market. When the stockist's graph has been on a constant rise, both day and
swing traders are bound to reap heavily from it.
There is no limit to the number of stocks. However, you will need to stick to
the max dollar stop-loss rule. Both types of trading allow for the purchase of
the stocks that are viable, and this is essential as they use different time
frames to track.
Both of these types of trading can be done on the same platforms, and the
transactions remain the same.
There is a real-time opportunity to keep track of the charting of your stock
performance at will in both day and swing trading. There are the limit and
timer that can be set by the trader to go off at the time of analysis.
Differences
All traders are grouped into two categories: swing traders and day traders.
Day trading is for people who are impulsive and have a high level of
discipline. Swing traders tend to be more cautious and take a long-time
making decision hence the amount of time they use.
Day trading is based mostly on making profits unlike swing trading that is
done so as to identify swings in stocks and occurrences in the forex market
over a period of time.
When it comes to risks, day trading carries the most. Day traders, therefore,
have to invest a lot of time in the markets due to the longevity of their stocks.
Swing trading only carries the risk of having the amount out on the market
for long.
Day trading can be drawn back with a power outage while swing trading will
carry on even after the power is back. Therefore, one should continuously
have backup internet access or an alternative form of communication on their
stocks.
Day Trading Is Full Time While Swing Trading Doesn't Have
to Be.
Day trading rarely works with high-value stocks and focuses more on small
and retail companies while swing trading mostly stocks belonging to
corporate companies.
A swing trader is able to concentrate on his own personal off time and
probably strengthen his trading skills as opposed to a day trader. The day
trader is always rushing to make as much profit from the maximum number
of stocks he purchased to hone his skills.
Day trading involves more bank transactions than swing trading. This is
because, in the buying of stocks, the bank is involved whereas swing traders
do that less often. This is likely to increase the day traders' chances at daily
transactions than that of a swing trader.
Day trading involves more charting of stocks and thus a better understanding
of fast-moving stocks than swing traders.
Swing traders stand to lose out in case of a market crash than day traders are
they are done with everything at the end of the day. This takes a lot of faith in
that their stocks will payout and not burn out.
Strategies Used in Swing Trading
Swing trading comes with different opportunities and also frequent scares.
These trades are made in shaky markets, and any time the market can crash
with all those dollars invested in it.
Its advantage is that it uses more extended time frames to track; therefore,
one can manage a full-time job as opposed to the shorter time frames on day
trading. So, to avoid any pitfalls, one is advised to try it on a demo account
first while learning the ropes. While swing trading, do not need to keep
worrying about the trades that you made. The long-time frame allows you to
easily pursue other things as you wait to conduct your trade. Such a trade is
very convenient since it gives room for flexibility
Swing trading is also best experienced once one has mastered the art of
money management so that you can project your profits wisely. This
advanced time on the market will help you identify the patterns in the stocks,
and this will improve your decision-making ability. In any business
investment, the management of money matters a lot. We have had some
businesses start out really well and ended up failing. You will be amused that
they do not fail due to the lack of a good strategy. Instead, they fail due to
poor management of finances. With a proper money management strategy, it
gets easier to make progress in swing trading. You find that you will easily
double your profits with this strategy.
Observe the trends in the market and steer clear of trading with the trend.
This is because its longevity might be questionable and therefore having a
stock that fazed out while you were not tracking it is detrimental. Avoid
trading against the most appealing trend and exercise caution by withholding
yourself. As a trader, you need to be keen on how the market moves.
Swing trading allows for different skill sets in the trading as it takes a while
for the stocks to exit the market. During this time, the beginner can go over
whatever steps he would have forgotten in order to fortify his trading process.
Asides from knowledge, we need to gain skills that help us in conducting
different trades. These skills make the trading process easier. The difference
between the people who succeed at certain things, and those that fail lies in
the extra mile that they are willing to take. How hungry are you for success?
What extra miles are you ready to make to get to a place that you would like
to be? Your response to these questions can tell a lot about the kind of
individual that you are. You find that successful people tend to be driven by
their ambitions.
Strategies Used in Day Trading
Know what stocks you are trading by keeping up with the latest using
newspapers, financial markets and trade events. Use reliable sources to keep
you up to tabs with the general markets and the high-flying financial players.
As the market expands, there is more to learn. We need to continually keep
up with the changing terms and factors influencing the market. It is a good
thing that there are plenty of resources that we can utilize to have the
information that you need. When you use this strategy, it allows you to be
well informed. You find that you will even find it possible to make better
decisions.
Be mentally prepared to make losses as much as you are ready to make
profits. This is an inevitable step in the trading process. Day trading is
unpredictable as a stock can crash at any time during the day. This strategy
has been a challenge for most people. You find that you are not open to the
possibility of incurring a loss. Asides from the fact that the primary purpose
of investing is earning a profit, you have to be open to the challenges that
come with investments.
The time invested must be more than any other investment. The individual
must set aside enough time to track and chart the stocks in order to see their
performance and enable him to exit at the opportune time.
Use the percent rule in terms of funds. You must be willing to lose a bit so as
to gain a lot in the financial markets. Some stocks are liable to burn while
others are clear wins. At times we are advised that we need to part with
money to make money. As we aspire to get rich, there are some significant
decisions that we will need to make. At times it will involve making
sacrifices to get to the levels and positions that we aspire to be in. the path to
success is not a comfortable journey, but we have to be fully committed to
the process.
Learn how to time your trades. Even after getting on the market, allow some
time to pass so as to see the stocks that are going to remain so as to avoid the
volatile trends. During this time, you will have enough time to observe the
patterns and allow for a window to make profits.
Be realistic about your profits and stick to the percentage rule so as to
maximize your earnings in the trade. Plan your exit strategy based on the
profits you make and then leave. The high expectations that one has at the
beginning makes them think that they can make money quickly. Sadly, day
trading is not a plan to quickly earn an income. With this attitude, you will
have major frustrations and disappointments. In the beginning, be patient
enough to start small. You will grow as you proceed. The same way a child
develops from childhood to adulthood in the same way that you can
experience growth while day trading. It will take some time until you have
the adequate skills to carry out trades successfully.
An exit strategy is one that the majority keep ignoring. We do not consider
that there are moments when one needs to quit a given trade and at the same
time. We mainly focus on how we get in a trade. A good strategy needs to
have a good exit plan. Based on the circumstances and factors influencing a
trade, you can easily know when you need to stop engaging in a given trade.
There are some signs that will point you towards exiting, and you need to be
keen to note them. When you exit a trade, you can avoid making losses.
 CHAPTER 5:

Risk Management

S ince the goal of every good trader is to make profit, to be a good and
successful one you have to learn how to manage risks associated
with your trading and how to protect your profits. How well you
manage your risks determines how successful you will be as a trader.
Prepare your mind because you are about to learn straightforward but
powerful and practical techniques in risk management strategies and
techniques.
Planning Your Trade
A Chinese military general, Sun Tzu once said: “Every battle is won before it
is fought”, this implies that planning and strategy is essential in trading.
Planning is inevitable. It is just like the famous quote says “Plan the trade and
trade the plan”. This determines the success or failure of your trade, no
successful trader goes into trade without carefully planning out the trade,
pointing out possible future losses, calculating risks and listing out potential
future profits in your trade.
A plan should be written down clearly and concisely, your plan can change
with changes in market, risks tolerance should also be incorporated. Here are
some steps you must follow for a successful trade plan:
Skill Assessment: here you should be able to assess yourself
very well to determine how ready you are to trade. You
should ask yourself very crucial question such as: are you
prepared to trade? How much confidence do you have in a
particular market? Have you tested your system by paper
trading? (paper trading is a way of practicing buying and
selling without investing real money, it is usually done
using online trading platforms such as paperMoney and
Investopedia) How sure are you that your system will work
in a live trading environment? Can you spot and follow your
signals without delaying?
Mental preparation: As a good trader you should
emotionally and mentally prepared for the upcoming tasks,
you should be prepared for whatever situation that might
arise and whatever changes that may occur in your market.
Avoid distractions as much as possible in your trading area.
 If you are emotionally incapable, try taking a day off, take
some rest, do some exercise. This keeps your brain ready
for the upcoming task because trading has a lot of thinking
associated with it.
Also have a market mantra before the day begin, it is a kind of special quote
or phrase that gets you ready for trading.
Set Risk Level: this determines how much of your portfolio
you should risk on a trade. Your portfolio includes all
financial assets, such as bonds, stocks, and currencies, cash,
commodities and cash equivalents. This depends on how
you choose to trade and the risks tolerance; It can vary, but
it should be within the range of 1% to 5% of your portfolio
on a given trading day. If you lose any of that amount of
money in a day, leave that market immediately and save
your portfolio for a better market.
Consider the One-Percent Rule
Most successful traders make use of what is called the one-percent rule; it
merely states that you should never invest more than 1% of your capital or
portfolio into a single trade or market. This means that if you have $10,000 in
your trading account, the highest amount you would invest should not be
above $100 per single trade.
This technique is usually done by traders with account with less than
$100,000. Some other traders may decide to go as high as 2%. It all depends
on your position and the size of your account. The best thing to do is to keep
the rule at least below 2%.
Setting Stop-Loss and Profit Points
Just like the name implies, a stop-loss point occurs when a trader decides to
sell a stock and bear the loss, this situation usually happens when the market
doesn’t turn out well enough for the trader. The stock’s in the market goes
way below expected, hence before the stock’s value could get any lower the
trader decides to sell it out.
The take profit point is the price at which a trader will sell a stock and gain a
profit from the trade. Traders usually sell before a period of consolidation
takes place.
How to More Effectively Set Stop-Loss Points?
Setting stop-loss points in order to have profit is usually done in technical
analysis, although fundamental analysis can help out.
A great way of setting stop-loss or take profit levels is by resistance trend
lines; this can be done by connecting and comparing previous highs or lows.
Diversify and Hedge
To diversify and hedge is just like the famous phrase “never put all your eggs
in one basket”. If you decide to put all your money in one stock, you are
taking a big risk. So spread your investments across different sectors. There
may also be times when you need to hedge at a particular position
considering a stock and the market.
The Bottom Line
As a good trader you should be able to know when to enter or leave a trade.
By using the stop-loss, the trader can minimize losses. It is better to plan
ahead of time.
Calculating Expected Return
Calculating expected returns is very crucial in managing risks, it helps you
think through your trade and it is a perfect way to compare trades in order to
choose the most profitable and less risky ones. Returns can be calculated
thus:
[(Probability of gain) × (take profit % gain)] + [(probability of loss) × (stop-
loss % loss)]
The result of this calculation will give you your expected returns.
To become a successful trader, you need to aware of the various risks that
you are bound to face before getting into the trading world. There are three
major categories of risks:
Market Risks
Understanding market changes in your trade is an essential aspect of your
business. Understanding when the markets rises and falls coupled with the
possible risks associated with it will help you to protect more your profit.
Types of market risks include:
Inflation risk: inflation occurs when there is an uncertainty
in the future value of an investment you are making. While
a deflation may mean more returns and profit for you. A
rising inflation often reduces the returns and profit you’d be
expecting from it. This also means that as prices of stocks
and commodities increases, the demand for it decreases.
Hence, you should prepare your plan for any market
changes at all.
Marketability risk: this tells how sellable your investment
is. If there is any form of resistance or delay in selling or
marketing your investment effectively, then your target
market won’t mean anything. For example, if you choose to
invest in a small company whose stock isn’t sold on one of
the major stock markets, then you risk losing your
investment for nothing.
Currency translation risk: this usually occurs when you are
trading with foreign countries, when there are fluctuations
between the values of your local currency and the currency
of your trading foreign country. A good knowledge about
currency trading risk would be very beneficial to traders
because even if your stock or investment rises in price you
can still lose money based on the currency exchange rate
between the two countries. If the value of your local
currency falls against the other currency, your investment
can be far smaller when you convert it back?
Investment Risks
This suggests how you invest your money and manage how you enter into or
leave trades. There are two major types of risks:
Opportunity risks: this type of investment risk shuts, or
stops, you from investing in other more profitable trades
due to the fact that your money is already tied up in your
current trade. This type of risk makes you lose golden
opportunities, all because your money is blocked by another
one.
Concentration risks: this happens when you focus all your
investment and capital in just one particular trade, perhaps
because you think that you have found your dream trade
that will make you a millionaire. Hence you invest all
you’ve got, leaving yourself very vulnerable to any
potential risks that might arise in that trade with the
possibility of losing it all.
Trading Risks
Trading risks are common risks that swing traders usually encounters and
every trader needs to know about them; just as the saying “knowledge is
power”, you need to be knowledgeable about them, and this will give you a
leverage in managing future risks that may arise. Some common risks that are
associated with trading risks includes:
Slippage risk: this risk focuses on some hidden costs that
may be related to every transaction the trader makes. Every
time you enter or leave a trade there are some very minor
and little subtraction of money from your account. Also,
every time you buy a stock at the ask price, which is the
lowest price available for the stock that you want, and sell it
at the bid price which is highest price someone is willing to
pay for your shares, you have to know that it is always less
than the ask price. At first, the amount for each trade may
seem small but as your trading increases, the amounts you
lose also increases.
Reduced execution risk: this risk occurs when your broker
has a difficult time in filling out your order, perhaps due to
fast market conditions, reduced availability of stock and the
absence of other buyers and sellers. When this happens, you
risk have your stock trade going below than it should or not
getting your order filled at all.
Gap risk: this occurs when there are price gaps in your
transactions; sometimes a stock opens at a significantly high
or lesser price and sometimes may trade through your exit
price. For example, a stock may close at $25 today and
begin at $20 tomorrow. If your planned price is $24 your
order is likely to be filled out at the opening price. Although
these types of risk are rare, it can cause problems for most
traders.
Other Types of Risks Include:
BLACK SWAN EVENTS: these are the type of risks that comes up
unexpectedly. They are tough to predict. It is a type of significant risk that
has considerable impact on the market.
SOVEREIGN RISKS: when a sovereign risk occurs, the bond market falls
with yields skyrocketing while at the same time depreciating the country’s
currency value. Causing breaks in trading and more losses to abound. A
typical example of this kind of risk includes Argentina and Mexico which
delayed on paying back their loans back in the 1970’s pushing their
respective currencies to record lows.
UNDIVERSIFIED RISK: this is a type of risk that occurs when you ‘put all
your eggs in one basket’. This type of risk is usually tough to avoid and
difficult to predict as markets can also influence this type of risk. This type is
one of the primary reasons why investors and traders usually decides to
diversify their stocks and money, avoiding the risk of losing everything at
once.
 CHAPTER 6:

Account Management

A ccount/Financial management is not a new aspect of the world of

business management. It started when there was a rise of
capitalism. When the economy was in a system that has been
dominated by private owners, who have won their private property and
profits. Money management began in 1600, and people survive only by
actually earn your income. Today, as a successful financial means having the
ability and desire to save and invest a modest surplus.
Financial management is a term for the many ways people manage their
financial resources. Budget planning revenue. Money management involves
planning elements and purchases that are important to you. Without proper
planning and a lack of money management skills, the amount of a person
provided that it is not enough for them.
Before the start of any person wandering money management, you must be
aware of the assets and liabilities that you have. Some examples of tangible
and personal values are cars, home, retirement, investments and bank
accounts. Also, commitments are personal loans, debt and mortgages. To
know your net worth, note the difference between its assets and liabilities. If
the liabilities exceed the assets, they have a lower net worth. They have
excellent money management skills; you will be able to avoid.
Setting goals helps you manage your money. Without setting goals, we are
concerned by the draft law's daily management; it may harm their long-term
goals. By setting goals, you have a clear vision, and necessary expenses
should be cut. A perfect example is when you have a goal to get a $ 30,000
cars, your goals will be to reduce your costs. As someone whose goal is to get
a vehicle $ 20 000?
After planning and know your goals, start creating a budget. The budget is an
estimate of sales in a given time - a tool that will help you manage your
money well. With a budget, you'll be able to save money and be able to
minimize impulse buying. An example of a reasonable budget will allocate $
250 for entertainment and miscellaneous expenses fixed basic monthly needs.
If revenues increase, it would be desirable to add additional income to a
savings plan and not add to the budget to spend.
In preparing the budget, the need to manage multiple accounts. For example,
you can have an emergency fund and savings accounts—so the temptation to
spend money to avoid impulse buying. Pension Plans must be stored
separately from other accounts. Different programs can be used to help
manage money. An example of Quicken money management software; that
keeps track of their accounts and ensures that they are saving and spending
goals is on track.
Various aspects of money management include analysis, planning and
implementation of a financial portfolio. The portfolio consists of the types of
financial investments, taxes, savings and banking. The management of the
company is economic variables that could affect their business finances. The
best money management must be able to access and control all the factors
that may affect its financial position.
You can achieve your goals through excellent money management. To dream
of your own home without the use of student loans and be able to have a life
of debt stress. You have a better plan to be able to cope with unpredictable
events that may affect your finances, such as job loss, serious illness. With
money management, you will have your savings to cover unexpected events.
The Internet is a global computer network containing information
communication and ensures. Banking, insurance and investment needs did
not exist before. These days, customers have restrictions on decision making
in their financial affairs, with less information about their opportunities in
their area. Without the Internet, without the limitations and restrictions on
where to find the correct information. People had to go shopping for various
items, such as furniture and electronics and purchasing mortgages and
insurance policies.
Money Management
Do you know your tax expenditures? How to store your expenses, clothing
and entertainment?
Financial management is a skill that is not in the program. Most people teach
parents how to manage money.
Since most people do not become financially literate at school, you can learn
right now. These are money management skills that you can follow to
improve your skills.
Budgeting
Keep track of how to spend their money. As it appears on food, movies,
entertainment and clothing? How many times have you found your bank
account? If this is true, then set a budget. Categorically Check your
statements and how balanced spending. He realizes how much money it
wastes are not aware.
Spend Wisely
Having a list when you go shopping at the grocery store? Have you checked
the price of an item before you place the item in your cart? Use coupons if
available. The use of online resources and mobile applications to focus on
their spending.
Monitor your spending! A moment of inattention to these guidelines
continues to lose money. It takes time to get coupons, and it takes a little
effort to find tickets and write a shopping list and check the product prices
before buying, but the pain will be worth the long-term.
Balance your Books
Most people trust go online to search for a bank account. Because you will
not be able to know how much is spent now. The best advice is responsible
for the registration of all expenses; you can avoid overspending.
Plan
You must have a plan to achieve anything. To access the site from A to B, it
will not be possible without a GPS to display roads. The result will be driving
without anywhere purpose.
This is similar to not having a financial plan. There will always be broke and
not knowing where their money is spent. " Where is the money? "With a
great program, you will be able to track your money and spending.
Think Like an Investor
The education system does not teach about money management, especially
how to invest in the development of their wealth. Not only are the rich saving
$ 500 per month; They learned to grow and invest their savings. Return to $ 1
000 to $ 500, then $ 10,000 and finally to $ 100 000 or more.
Invest and grow your money; you have a stable financial future. Think like an
investor, and watch your money grow.
They Have the Same Financial Goals with Your
Partner/Spouse
If you are married and have a joint bank account and learn to work together.
You must accept the business targets.
Make a budget and see your financial advisor about how to invest your
money. You should make sure they have the same business goals and stay
focused.
Save Money
Strong commitment to save money and your future. You can improve your
financial situation and make it better! But you have to start with the decision
to do so. Deciding to start saving money and improving their management
capacity.
The Importance of Money Management
Maintain a budget and live within your means - is proper money
management. Look at the price and the bid to avoid bad company. When you
start to make more money, to understand how the investment will become an
essential means to achieve their goals, payments at home. Understand the
importance of proper money management will help you achieve your projects
and goals for the future. Part of the importance of money management are:
Greater Financial Security
Beware of spending and saving; you will be able to save enough for the
future. Savings give financial security to cover unexpected expenses or
emergencies such as job loss, car, or savings on holiday break. They have
savings; you must use a credit card to Settle crises. Conservation is an
integral part of the use of money because it helps build their financial security
insurance for the future.
Seize Opportunities
You can find opportunities to invest in the business to make more money or
experience as a case of many exciting holidays. A friend can tell you a great
chance to investment or holiday vacation dreams once in a lifetime. It can be
frustrating, not the money to get access to these capabilities.
Low-Interest Payment
Excellent skills in money management, you can determine your credit score.
The highest score of the average wage in time and obligations of the lower
total debt. Having a credit score can save you more than what you have and
have low-interest rates for car loans, mortgages, credit cards and car
insurance, even. And there is the possibility of portions of credit cards to
praise friends.
Reduce Stress and Conflict
Pay your bills on time can have a sense of relaxation. But on the other hand,
the delay in paying bills is stressful and hurt, stopping the flow of gas and
water. Always be damaged before the next payday can bring conflict and a
considerable amount of stress for groups. And as we all know, stress causes
health problems, according to experts, such as hypertension, insomnia, and
migraines. Be aware of how you can manage your finances. You have the
extra money and the savings you can put your mind at ease. Enjoy a stress-
free life.
Make More Money
With income growth, financial planning includes not only the monthly
expenditure of the budget but also to invest the extra money that has
accumulated. Know the different types of investments, such as stocks and
mutual funds; you can earn more money to spend, which could leave the
money in the savings account at the bank. But note that all investments are
considered a good idea of finance, for example, the offshore casino. One of
the best benefits of investing, you can be at work generating monthly income
and expenditures, but they make more money for you.
More Savings and Time
Excellent money management can help you keep control of your finances
spiral. It's easy to be in debt if you are not aware of how all of your income is
spent each month. Cash management means better use of free time. You can
spend time with family and friends to have a clear budget, you can organize
fun days, and you have the money available to do it.
Peace
Excellent money management gives a certain level of peace. With revenues
and savings, you can manage your financial needs with confidence that it has
the resources to meet any demand that arises.
Times are hard. If you earn a higher net income or obtained by monitoring
where the money is spent. There are several ways to control your expenses,
how to invest, and more. We can use our mobile phones so far, and we
always have our phones in your pocket all the time, use the application to
help you manage your money is the best option.
Have a good understanding of cash flow is fundamental in managing your
finances. How much of your income goes? When the money reaches your
bank account? How is the money spent? These are essential aspects of their
financial success.
 CHAPTER 7:

Technical and Fundamental Analysis of a Stock

Prices move in only three directions: up, down & sideways.

The Price Says It All!

T he stock market is like a huge giant that continually changes its

appearance. Every trading day is different from the preceding one,
and every trading hour is different from the hour before. As the
ancient Greek philosopher Heraclitus once said, “You cannot step in the same
river twice.”
The stock market is the outcome of the sum of all persons operating on and in
it. Each has an individual opinion and thoughts, and individually, each pushes
the market in the direction he or she is able, whether as a buyer or seller.
Can we nonetheless know what the sum total of persons operating in the
market is thinking? Of course we can. A quick glance at that most essential
piece of information gives us the answer: the price.
A dynamic market which constantly changes is inherently challenging. Our
human thinking processes are very standardized. Most people wish to
demarcate concepts within boundaries, and sort and catalog things, whereas
the market is highly dynamic. To cope with this challenge, you will need to
become intimately familiar with the market, the principles of stock trading,
and how markets behave. This will enable you to establish your own work
program, your own rules and limitations, and apply them when you join the
market.
The Market Is Always Right!
The stock market’s conduct as described has given rise to two similar
statements: “the market is always right” and “the price is always right.” At
any given moment, the market and the price consistently embody all relevant
information. Don’t try to argue with the market. Many before you have tried
and failed. Any attempt to force your opinion or hopes on the market is
predestined to failure. Even large players in the stock market, who truly have
the ability to shift the market slightly, are aware of the market’s forces and
consider their moves with due gravity.
Askers
Understanding the market means first understanding the forces controlling it:
in other words, gaining a deeper understanding of the interests of buyers
(bidders) and sellers (askers) and the impact of their interests. It is customary
to say that if bidders control the market, the price of a stock rises, and if
sellers are controlling, the stock price will drop. This is true in general, but
too simplified and appropriate to a novice trader or amateur investor. We
know that bidders want to buy cheaply, and sellers want to sell for the highest
price they can get. For investment banks, who buy and sell for institutional
clients and are remunerated according to the bid and ask prices they procure
for the clients, buying cheaply and selling at higher prices gets translated into
action. We, the small traders, can do nothing but follow in their footsteps.
Let’s take a look at the following: one fine morning, a trader in a large
investment house on Wall Street is instructed to buy 500,000 stocks of
Company X. In anyone’s view, that’s a lot of stocks… Will Company X’s
stocks open on that same day with a rise or a drop in rate? The answer
depends on multiple factors, but because the bidder wants to buy a huge
amount of stocks at the cheapest price possible, the bidder will first try to
make the stock price drop. The bidder may start the day by selling a large
quantity of stocks as soon as trading opens, igniting a wave of sales. When
the stock drops to a price that is sufficiently low in the bidder’s view, the
bidder will then start buying. Simply put, the buyer’s control over the stock
caused it to drop instead of rise. A trader following the stock’s movement
may accidentally think the stock is facing a day of downward-spiraling
prices, when in actuality that was only at the start, followed by rising prices
for the rest of the day.
Average is sipping his coffee, turns on the television and watches a morning
show. The word from the sponsors ends, and the emcee asks, “And how did
our money do this week?” We’re shown an investment house. The presenter
sums up the week’s events, ending with the statement: “The stock market is
boiling. The public is streaming in.” That’s actually another good reason to
take caution, but more on that later.
Technical Analysis
Technical analysis is the research study of the rate motion on a chart of a
particular Forex money pair or other market. We can consider technological
analysis or "T.A." for brief, as a sort of framework that investors make use of
to study as well as utilize the price activity of a market.
The primary factor that investors use T.A. is to make forecasts concerning
future rate motion based on past cost activity.
Technical analysts think that all present market variables are mirrored using
the cost motion or price activity on a rate chart. So, if our team believe that
all market variables are shown using cost activity, it only most likely to
reason that we don't really require much else to evaluate and also trade the
marketplaces besides cost. Being a technical expert and so are the participants
in my trading neighborhood, we choose T.A. since we agree with the idea
that all market variables are reflected using rate action, so we see no factor to
make use of other ways to examine or trade the marketplace. That's not to say
having some knowledge of basics as well as information occasions is a weak
point, but we simply do not rely on them heavily.
Technical analysis likewise encompasses discovering to examine the
marketplace framework, identify trends, support, and resistance degrees and
also typically discover to 'read' the ups and downs of a market. There is
undoubtedly discretion entailed right here and I will undoubtedly be the first
individual to tell you that T.A. is even more of an art than a science.
That said, it is something you will undoubtedly get even more comfy with as
well as far better at provided time as well as practice. T.A. forms the back-
bone of primary core trading method of cost action, which is merely a
derivative or off- shoot of 'traditional T.A.", other than with even more
clearness and shorter ways that do not include complicated foreign exchange
indicators or points like Elliot Wave Theory that are much too messy and also
open to interpretation for me to believe they are worth trading or training.
Fundamental Analysis
It is the study of how global economic information, as well as various other
news events, affect economic markets. Fundamental evaluation encompasses
any news event, social pressure, financial news, policy change, firm earnings
as well as information, and also possibly one of the most essential piece.
Fundamental information suitable to the Forex market, which is a country's
interest rates and rate of interest plan.
Major Financial Occasions in Forex
Now, allows promptly review a few of one of the most critical financial
occasions that drive Forex rate motion. This is simply to familiarize you with
some even more of the jargon that you will likely discover on your forex trip,
you don't need to fret excessive concerning these financial events besides
being aware of the moments they are released every month, which can be
located each day in my Forex profession setups commentary.
Trade Balance
The CPI record is the most extensively utilized procedure of rising cost of
living. This report is released at 8: 30 am EST around the 15th of monthly
and it shows the previous month's information. CPI determines the
modification in the price of a bundle of consumer goods and services from
month to month
The Producer Price Index (PPI)
Together with the CPI, the PPI is among the two crucial procedures of
inflation. This report is released at 8: 30 am EST during the second complete
week of every month and it reflects the previous month's data. The
manufacturer, consumer price index, gauges the rate of goods at the
wholesale level. So to comparison with CPI, the PPI gauges just how much
manufacturers are getting for the products while CPI determines the cost paid
by consumers for goods.
Work Indicators
The most vital employment news happens on the very first Friday of monthly
at 8: 30 am EST. This statement consists of the joblessness price; which is the
percent of the workforce that is out of work, the number of brand-new work
produced, the average hours functioned weekly, and also typical hourly
revenues. This record frequently leads to substantial market movement. You
will certainly typically listen to traders and analysts talking about "NFP", this
indicates Non-Farm Employment record, and it is maybe the one record
monthly that has the most significant power to relocate the marketplaces.
Consumer Goods Orders
The durables orders record gives a dimension of just how much people are
investing in longer-term purchases, these are defined as items that are
anticipated to last more than 3 years. The report is released at 8: 30 am EST
around the 26th of every month and also is thought to give some
understanding right into the future of the manufacturing industry.
Retail Sales Index
The Retail Sales Index gauges products marketed within the retail sector,
from large chains to smaller sized local shops, it takes a sampling of a
collection of retail stores throughout the country. The Retail Sales Index is
released at 8: 30 am EST around the 12th of the month; it shows information
from the previous month. This record is typically changed relatively
dramatically after the last numbers appeared.
Real Estate Data
Housing data consists of the variety of new houses that a nation began
building that month as well as existing house sales. Residential construction
activity is a significant root cause of economic stimulus for a government and
so it's extensively followed by Forex individuals. Existing residence sales are
a good measure of financial stamina of a country as well; reduced existing
residence sales and reduced new house starts are typically an indication of a
slow or weak economic climate.
Rate of Interest
Interest rates are the main driver in Forex markets; the Federal open market
committee carefully watches every financial indication to determine the
general health and wellness of the economy. The Federal can make use of the
devices at its disposable to lower, increase, or leave rate of interest
unmodified, depending upon the evidence it has collected on the health and
wellness of the economy. So while interest rates are the leading chauffeur of
Forex price action, every one of the above economic indicators are
additionally very important.
Relationship between Technical Analysis and Fundamental Analysis.
Technical evaluation and Fundamental analysis are the two major schools of
assumed in trading and investing in financial markets. Technical analysts
consider the price motion of a market as well as use this details to make
forecasts about its future rate direction. Fundamental analysts look at
financial news, also referred to as fundamentals. Now, given that almost any
type of worldwide news event can have an effect on globe financial markets,
practically any kind of information event can be financial news.
 CHAPTER 8:

Finding Stocks for Trades

Stocks in Play

W hen a stock is widely believed to be a takeover target, it is said

to be in play. Day traders extensively trade stocks in play
because their volatility produces reasonable risks and trading
opportunities. When company stocks have less volatility, they move slowly,
and they only have an equitable price change only when the company shows
good or bad trading outcomes. This may occur only a few times in a year.
Such companies are ideal for investors looking for returns in the long-term.
Long term investors buy shares in these companies, which have good
prospects, with shares moving slowly in the right direction, and it matters less
to them if the share price doesn’t move much intraday. But day traders buy
and sell stocks during stock market opening hours and exit the trade before
the day ends. Sometimes they even trade for a few minutes or an hour and
exit the market. They, therefore, require more action than investors. They
need stocks that move and produce price swings so that their trade becomes
worthwhile. Such fluctuations in prices leave enough room for them to
realize profits, after paying the association fees charged by stockbrokers for
buying and selling shares.
Stocks in play also have a large volume. Day traders are after quick entries
and exits, and they want liquid stocks. That means they can buy and sell
shares in the stock on demand. A stock that doesn't have good liquidity and
my cost the broker time to strike a promising buying or selling deal. The
broker is unable to negotiate the deal that the trader wants to buy or sell at.
For day traders, this is a problem because it means the difference between a
profitable trade and a non-profitable one. Day traders are guided by trade
volumes of shares that are traded each day to arrive at what they consider
good liquidity for them. For most traders, one hundred thousand shares
traded per day would be their minimum, while some other traders may
require a million shares.
Stocks in play will change in one day. An ordinary stock will be put in play
by the company news which is typically released early in the morning, and it
will vary depending on the nature of the new, whether it is good or bad.
Sometimes good news for traders may be bad news for investors. Some of the
big companies like Apple, Amazon, and Facebook have stocks that are
always in play, and day traders will have these stocks always in their watch
list. This is because they have large volumes of trades and traded shares. This
is where a day trader looks for excellent trading opportunities, and proper
levels to trade from.
Float and Market Cap
Market cap means market capitalization. It expresses the stock value of all
the company shares. To arrive at the market cap of an entity, multiply the
entities’ shares by the stock price. An Entity with $50 million in shares with
each share trading at $20 then $10 billion will be its market cap. Market cap
is necessary because it helps traders to understand and compare the size of
different companies. Market cap helps you to know the worth of different
companies in the open market. It also helps you to understand how the
market perceives a particular company and mirrors what investors and traders
are ready to pay for its stock.
Large-cap stocks: $10 billion and over is their stock market value. Typically,
these are reputable companies that produce quality goods and services. They
experience steady growth and have a history of consistency in dividend
payments to their shareholders. Their brand names are familiar to national
and even international consumer audience. They are dominant players in their
respective industries of the establishment. They are ideal for conservative
investors since they pose less risk as they have less growth potential.
Mid-cap stocks: Typically, these are businesses with a minimum market
value of $2billion and a maximum market value of 10$billion. In other
words, their market value is between $2billion and $10 billion. They are
medium-sized, established companies with growth potential. Such companies
are either experiencing rapid growth, or there is an expectation that they will
proliferate in the near future. They are in the stage of boosting their
competitive advantage and widening their share of the market. This is a
crucial stage since it determines their ability to attain maximum potential. In
terms of risk, they have less risk in comparison with new startups. When it
comes to potential, they offer more potential than blue-chip companies since
they are expected to continue to grow until they reach full potential.
Small caps: their market stock value ranges from $300 million to $2 billion.
They are growing businesses that are just emerging in the industry. They are
the riskiest and the most aggressive and rely on niche marketing to survive in
the industry. Due to limited resources, they are vulnerable to economic
shocks. They are susceptible to intense competition and market uncertainties.
Since they are new startups, they have high growth potential in the long-term,
and they are ideal for investors who can cope up with volatile stock price
swings in the short run.
Float, on the other hand, is the number of shares, which are available for
trading by the general public. Unlike the market cap that calculates the total
stock value of all company shares, free-float does not include locked-in
shares. Locked-in shares are those that are held by company employees and
the government. Market cap can be affected by several factors. When there is
a significant change in the value of shares, either up or down, this can have
an impact on the market cap. Market cap can also be impacted when the
number of issued shares changes. Market cap can be diluted when warrants
are exercised on the stock of the company because the number of shares
outstanding will increase. This is because such an exercise is often carried out
below the shares market price, hence has the potential to impact on the
market cap. On the other hand, issuing a dividend or a stock split typically
doesn’t alter the market cap.
To build a stable watch list, comprising large-cap, mid-cap, and small-cap
stocks, a trader will have to evaluate their time horizon, risk tolerance, and
financial goals. A balanced watch list comprising all the market caps may be
ideal in helping to reduce the investment risk.
Pre-Market Gappers
Pre-market trading refers to trading activities that take place between 8 am
and 9:30 am EST every trading day. This is usually before the regular market
session begins. Traders and investors monitor the pre-market trading period
to judge the direction and the strength of the market while waiting for the
regular trading session. During the pre-market activity, there is limited
liquidity and volume. Wide bid-ask spreads is a common thing during the
pre-market period. The type of orders that can be used during this period is
limited by many retail brokers, even though they offer pre-market trading. As
early as 4 am, direct-access brokers begin to allow access to the pre-market
activity to start. It is crucial to bear in mind that there is limited activity
during this pre-market period.
The most reliable types of stocks that are beneficial to trade during pre-
market activities are gapper or dumper. They are usually viable during the
seasons when earnings for various companies are reported. During such
season, these stocks gap with the volume either up or down. They are usually
triggered by a primary catalyst such as press releases, news, or earnings
reports. They can also be reacting to rumors or analyst upgrades or
downgrades. It is important to note that stocks tend to get more ‘tradability,’
follow-through, and consistent volume when they are gapped in reaction to
earnings reports and guidance. As you trade during pre-market activity, you
should always know that this period is characterized by fewer participants,
wider spread, and thin liquidity. It is not advisable to trade pre-market unless
there is a substantial volume gap that is being driven by a catalyst. Waiting
for the market to open is the most suitable option for most traders.
Real-Time Intraday Scans
A stock scanner is a screening tool that uses user-selected criteria and trading
metrics to search the market and find stocks that meet the set standards. They
can be modified to find the most suitable candidates that match user-specific
filters using technology. They have helped to streamline the time-consuming
task of attempting to trace new trading opportunities. This makes it efficient
and convenient for traders to quickly find potential stocks. It is an essential
tool for traders and investors due to its speed and convenience.
Real-time intraday scans are essential for day traders, and they work to spot
stocks during market hours. They produce results that are highly sensitive to
time and require the trader to analyze them quickly on the fly to determine
whether a trade should be made. Intraday patterns require quick action as
they develop and fade within a short period. Real-time intraday scans help
day traders to maximize the limited time duration they have to make
decisions before the patterns shift. They are a great way to introduce a trader
to new stocks, especially when they search the whole market for candidates.
These new stocks can then be added to the watch list. These new stocks can
then be monitored to get acclimated to the liquidity, trade volume, spread,
and the pace of the price action. A trader can dramatically narrow his field by
modifying the filters to search only for stocks that meet his desired price
range and minimum volume requirements.
The ability of the scan to produce accurate results will be determined by the
tightness of your parameters. It is good to make sure that the parameters have
been set correctly, to provide precise intraday alerts. Always make sure to
validate the accuracy of the scan results, whether you are scanning for pattern
ups or pre-set ones. By prudently leaning the necessary programming, you
can customize your scan to produce the results you need. Always remember
that scans are not intuitive, and they may miss the context that determines
how effective the pattern is.
Planning Trade Based on Scanners
When correctly used, scanners are helpful, enabling the trader to wave
through the market noise and concentrate on the most qualified stocks. But as
a trader, it is always important to keep in mind that the results produced by a
scanner only act as filters. You still need to carry out careful analysis to
determine their credibility. Make the necessary confirmation of the set-ups
before you consider a trade. The reliability and accuracy of scanners can be
doubtful, mainly if such results have been produced by pattern-based
scanners. Sometimes you can spread your trade too thin between candidates
when you use scanners in the wrong way. This may create opportunities for
you to lose money faster than you expect
Make sure that you understand the criteria better and test the screened results
to gauge how reliable the scanner is. Therefore, do not jump head over heels
to pop up stocks in a scan.
Familiarize yourself with the stock by applying your triggers the moment the
candidates become validated. Therefore, you should take the time to analyze
the screened results thoroughly and plan your trade well based on those
stocks.
 CHAPTER 9:

Thing to Consider Before Your First Trade

How to Control Your Emotions?

W e associate trading psychology to some behaviors and

emotions that are often the triggers for catalysts for decisions.
The most common feelings that every trader will come across
are fear and greed.
Fear
At any given time, fear represents one of the worst kinds of emotions that you
can have. Check-in your newspaper one day, and you read about a steep
selloff, and the following thing is trying to rack your brain about what to do
following even if it isn’t the right action at that time.
Many investors think that they know what will happen in the following few
days, which makes them have a lot of confidence in the outcome of the trade.
This leads to investors getting into the trade at a level that is too high or too
low, which in turn makes them react emotionally.
As the trader puts a lot of hope on the single trade, the level of fear tends to
increase, and hesitation and caution kick in.
Fear is part of every trader, but skilled traders have the capacity to manage
the fear. There are various types of worries that you will experience, let us
look at a few of them:
The Fear to Lose:
Have you ever entered a trade and all you could think about is losing? The
fear of losing makes it hard for you to execute the perfect strategy or enter or
exit a strategy at the right time.
As a trader, you know that you need to make timely decisions when the
strategy signals you to take one. When you be afraid guiding you, the level of
confidence drops, and you don’t have the ability to execute the strategy the
right way, at the right time. When an approach fails, you lose trust in your
skills as well as strategy.
When you lose trust in many of the strategies, you end up with analysis
paralysis, whereby you don’t have the capacity to pull the trigger on any
decision that you make. Making a move becomes a considerable challenge.
When you cannot pull the trigger, all you can think about is staying away
from the pain of losing, while you need to move towards gains.
No trader likes to lose, but it is a fact that even the best traders will make
losses once in a while. The key is for them to make more profitable trades
that allow them to stay in the game.
When you worry too much, you end up being distracted from your execution
process, and instead, you focus on the results.
To reduce the fear of trading, you need to accept losses. The probability of
losing or making a profit is 50/50, and you need to take this fact and accept a
trade, whether it is a sell or a buy signal.
The Fear of a Positive Trend Going Negative (and Vice Versa):
Many traders choose to go for quick profits and then leave the losses to run
down. However, many traders want to convince themselves that they have
made some money for the day, so they tend to go for a quick profit so that
they have the winning feeling.
So, what should you do instead? You need to stick with the trend. When you
notice a trend is starting, it is good to stay with the direction until you have a
signal that the trend is about to reverse. It is only then that you exit this
position.
To understand this concept, you need to consider the history of the market.
History is good at pointing out that times change, and trends can go either
way. Remember that no one knows the exact time the trend will start or end;
all you need to do is wait upon the signal.
The Fear of Missing Out:
For every trade, you have people that doubt the capacity of the trade to go
through. After you place the trade, you will be faced with many skeptics that
will question the whole procedure, and they will leave you wondering
whether to exit the strategy or not.
This fear is also characterized by greed – because you aren’t working on the
premise of making a successful trade rather the fact that the security is rising
without you having a piece of the pie.
This fear is usually based on information that there is a trend that you missed
that you would have capitalized on.
This fear has a downside – you will forget about any potential risk associated
with the trade and instead think that you have the capacity to make a profit
because other people benefited from the action.
Fear of Being Wrong:
Many traders put too much emphasis on being right that they forget that this
is a business they should run the right way. They also forget that being
successful is all about knowing the trend, and how it affects their
engagement.
When you follow the best timing strategy, you create many positive results
over a specific time.
The uncanny desire to focus on always being right instead of focusing on
making money is a great part of your ego, and to stay on the right path; you
need to trade without your ego for once.
If you accommodate a perfectionist mentality when you get into trades, you
will be after failure because you will experience a lot of losses as well.
Perfectionists don’t take losses the right way, and this translates into fear.
Ways to Overcome Fear in Trading:
As you can see, it is evident that fear can lead to losses. So, how can you
avoid this fear and become successful?
• Learn
You need to find a way to get knowledge so that you have the basis for
making decisions. When you know all there is to know about options, you
know what to buy and when to sell, and learn which ones to watch. You are
then more comfortable making the right decisions.
• Have Goals
What are your short term and long-term goals? Setting the right goals helps
you to overcome fear. When you have goals, you have rules that dictate how
you behave, even in times of fear. You also have a timeline for your
journey.
• Envision the Bigger Picture
You always need to evaluate your choices at all times and see what you have
gained or lost so far for taking some steps. Understanding the mistakes, you
made gives you guidance to make better decisions in the future.
• Start Small
Many traders that subscribe to fear have lost a lot before. They put a lot of
funds on the line and ended up losing, which in turn made them fear to place
other trades. Begin with small sums so that you don’t risk too much to put
fear in you. Once you get more confident, you can invest more considerable
amounts so that you enjoy more profit.
• Use the Right Strategy
Having the right trading strategy makes it easy to execute your trades
successfully. Make sure you look at various options trading strategies so that
you know which one is ideal for your situation and skills.
Many strategies can help you succeed, but others might leave you confused.
If you have a strategy that doesn’t give you the returns you desire, then adjust
it to suit your needs over time. Refine it till you are comfortable with its
performance.
• Don’t Hesitate
At times you have to jump into the fray even if you aren’t so comfortable
with the way it works. Once you begin taking steps, you will learn more
about the trade.
However, you need always to be prepared when taking any trade. The more
prepared you are, the easier it will be for you to run successful trades.
• Don’t Give Up
Things might not always go as you expect them to do. Remember that
mistakes are there to give you lessons that will make you a better trader.
When you lose, take time to identify the error you made and then correct it,
later try again.
Greed
This refers to a selfish desire to get more money than you need from a trade.
When the desire to get more than you can usually make takes over your
decision-making process, you are looking at failure.
Greed is seen to be more detrimental than fear. Yes, fear can make you lose
trades, but the good thing is that you get to preserve your capital. On the
other hand, greed places you in a situation where you spend your capital
faster than you return it. It pushes you to act when you shouldn’t be acting at
all.
The Danger of Being Greedy:
When you are greedy, you end up acting irrationally. Irrational trading
behavior can be overtrading, overleveraging, holding onto trades for too long,
or chasing different markets.
The more greed you have, the more foolish you act. If you reach a point at
which greed takes over from common sense, then you are overdoing it.
When you are greedy, you also end up risking way much more than you can
handle, and you end up with a loss. You also have unrealistic expectations
from the market, which makes it seem as if you are after just money and
nothing else.
When you are greedy, you also start trading prematurely without any
knowledge of the options trading market.
When you are too greedy, your judgment is clouded, and you won’t think
about any harmful consequences that might result when you make certain
decisions.
Many traders that were too greedy ended up giving up after making this
mistake in the initial trading phase.
How to Overcome Greed:
Like any other endeavor in trading, you need a lot of effort to overcome
greed. It might not be easy because we are talking about human emotions
here, but it is possible.
First, you have to know that every call you make won’t be the right one at all
times. There are times when you won’t make the right move, and you will
end up losing money. At times you will miss the perfect strategy altogether,
and you won’t move a step ahead.
Secondly, you have to agree that the market is way bigger than you. When
you do this, you will accept and make mistakes in the process.
Hope
Hope is what keeps a trading expectation alive when it has reached reversal.
Hope is usually factored in the mind of a trader that has placed a significant
amount on a trade. Many traders also go for hope when they wish to recoup
past losses. These traders are always hopeful that the following business will
be the best, and they end up placing more than they should on the trade.
This type of emotion is dangerous because the market doesn’t care at all
about your hopes and will take your money.
Regret
This is the feeling of disappointment or sadness over a trade that has been
done, especially when it has resulted in a loss.
Focusing too much on missing trade makes the trader not to move forward.
After you learn the lessons after such a loss, you need to understand the
mistakes you made then move ahead.
When you decide to let regret to rule your thinking, you start chasing markets
with the hopes that you will end up making money on a position by doubling
the entrance price.
 CHAPTER 10:

Guidelines to Better Trading

R egulation is used to try to shield investors from the potentially

volatile aspects of day-to-day trading. But with as low as 5% of
brokers controlled, it's not always easy to get that security.
However, as this page demonstrates, forex, stocks, CFDs, and binary options
trading legislation will help traders and brokers alike. But first, let's look at
the sense and security offered when you start trading with controlled brokers
and platforms.
Regulation – What is it?
Regulation of trade is mostly self-explanatory. Regulatory agencies and
watchdogs regulate capital markets and brokers. We follow a number of
consumer rights rules and regulations. See below for standard rules and
stipulations. Notice that there is a common misconception that regulators will
regulate brokers in a wide variety of jurisdictions. Nevertheless, regulatory
powers are mostly limited to certain brokers within a particular jurisdiction.
For instance, if an FX agent is planned, they will be given a license to work
within the designated area, given that they comply with relevant terms and
conditions. However, unregulated brokers, operate without needing to adhere
to a set of guidelines. Consequently, they may not have the same value in
safeguarding your interests.
It is also worth noting that day-to-day trading laws will cover a wide variety
of trading aspects. For example, certain brokers may have to comply with
minimum capital laws, margin requirements, day-to-day trading rules and
more.
Regulation Protection & Benefits
For Traders
So, what kind of benefits and protection do you get if you choose from a
regulated broker list?
Risk alerts – One effect of the legislation is that your broker
would need to show specific risk alerts before you sign up
for an account. It means that you have a full picture before
you start trading.
Accountability – Forex traders, for example, are typically
expected to submit to routine audits. If brokerage is defined
as using an ECN model, it cannot control trades. Not to
mention, this will help to keep you away from dishonest
brokers and scams.
Limitations of leverage – Another way of controlling
consumer security is by reducing overall leverage. Leverage
trading basically helps you to borrow money from your
broker. But that also puts you at risk of losing more than
your initial money. Regulatory bodies are now applying
maximum leverage restrictions to deter individuals from
borrowing disproportionate quantities.
Segregation – Another regular and fair day trading rule is
that brokers must hold all operating resources apart from
customer funds. It will ensure that your broker responds to
withdrawal requests and can still afford to pay for you.
Payment – Benefit plans are another benefit of regulated
brokers. It means that if your broker goes bust, you can
expect at least some of your money back. For example,
CySec brokers need to sign up for the Investor
 Compensation Program.
Anti-money laundering – Opting for a broker who meets the
regulatory guidelines often offers legal benefits. You are
also asked to have identification, such as a photo ID and/or
proof of address. While this can be time-consuming, it helps
deter money laundering, a problem that torments
governments around the world.
Fundamentally, legislation helps ensure that your broker provides you a
reliable product, equal pricing and open processes.
For Brokers
Trading regulation are not only of interest to traders. Brokers do have a lot to
gain from, including:
Credibility – The main benefit is that regulatory scrutiny
helps create a trustworthy credibility. This allows
brokerages to distinguish themselves from dishonest brokers
and scams. As a result, they will draw more customers and
increase profits.
Consistency – The other advantage of day-to-day trading
rules is that brokers do not have to actively try and beat
each other in different fields, such as leverage caps. It
makes for a more secure and manageable future to some
degree.
Checks & Balances – Monitoring supervision serves to
prompt agents that providing high-quality goods to
customers and preserving their interests is vital. This means
that legislation will help discourage businesses from relying
exclusively on profit margins.
Breaching Regulations
But what happens if a broker finds it trading regulation unreasonable and
breaches them? Ok, then a range of steps can be taken by the regulatory
body. It can, in addition, take criminal, civil and regulatory action.
Clearly, one choice is to strip the controlled broker of his rank. This can do
serious harm to their image and dissuade potential customers. Regulatory
bodies that then publish notices and issue warnings both locally and overseas
to warn prospective customers.
In some instances, these regulatory bodies possess an immense amount of
control. While scams have risen in recent years, traders are searching more
than ever for trustworthy, reliable and controlled brokers. For instance, when
a broker fails to comply with product, bitcoin or trading legislation, they may
easily lose much of their customer base.
Are all Regulatory Bodies the Same?
It is important to remember that not all regulators provide the same degree of
security. For example, entities outside the financial jurisdiction may not be
able to guarantee such robust legal redress if a matter occurs.
Bodies also impose various degrees of legislation. For instance, the FCA
stockbrokers should isolate the funds of the trader. Whereas CySec does not
follow the provisions of this Legislation. In addition, FCA approved brokers
must immediately automate and process customer withdrawals, while CySEC
brokers can postpone withdrawals by months.
Now it's not really the case that any brokers are less interested in searching
after their clients. There could be other things at stake. FCA permits, for
example, are relatively costly. As a result, many tiny but still big brokers opt
for CySec.
In addition, you need to test if they are a licensed broker or an agency-
controlled brokerage. The former has legal authorization to provide services
in a country. Whereas a licensed broker must comply with the rules and
guidelines laid down by the regulator.
The main argument is that there is often a difference between regulators in
the effectiveness and scope of security. It is also significant to do your
homework and not just click the Sign Up button as soon as you see the
'Regulated Broker' button.
Automated Trading Regulation
Recent years have seen a significant rise in digital, high-frequency trading. In
addition, up to 70% of transactions are made through these algorithmic
systems. Nevertheless, the high-speed and dynamic design of automated
systems poses issues for regulators. For instance, algorithmic traders took the
blame for the 2010 'flash crash' that caused Dow Jones to drop 7% in just a
few minutes.
Unsurprisingly, significant measures have been taken to implement high-
frequency, electronic trading legislation. In addition, in 2015, the US CTFC
unanimously accepted legislation known as 'Regulated Automated Trade.'
These regulations were meant to incorporate risk management, accountability
mechanisms and a number of other protections.
As a result, high-frequency day trading laws and regulations may be
expanded in the United Kingdom, Australia, Europe, Canada and India in the
coming years.
Forex Regulations
Forex is one of the biggest markets in the world. In addition, the daily
amount of trade exceeds $5.3 trillion. For example, this is substantially
greater than the futures markets equities. It is common that the Forex trading
code of practice are on the rise around India, in the United Kingdom, the
United States and Canada. Indeed, countries and bodies around the world are
increasingly seeking to track and control the strong FX marketplace
effectively.
For example, Japan is one of the most active forex retail markets in the
world. It is the Financial Services Authority (FSA) which regulates all
markets, including FX. The body has been constructive, raising the full
leveraging restrictions open to traders.
Similarly, in the US, SEC regulations state that those not registered with
Retail Foreign Exchange Dealers (RFEDs) would not be allowed to sell retail
forex services. Once a Retail Foreign Exchange Dealer has been created,
brokers must comply with specific customer protections for risk management
as well as other regulations.
Alternative Trading Systems
Alternative trading refers to a simple framework that lacks regulatory
oversight of standard exchanges. Alternatively, these electronic
communication networks (ECNs) essentially suit the procurement and selling
of orders. Some of the laws require them to assign as instead of exchanges,
they are broker-dealers.
Note that these alternative schemes do not enforce rules to control the actions
of subscribers. They are concerned only with electronically matching orders.
These systems actually play a crucial role in providing liquidity, and their
global popularity is on the rise.
Copy Trading Regulations
Given the lack of a detailed text, there are increasingly specific rules
regulating copy trading. That is when users copy tactics from other traders. In
addition, a range of bodies are implementing regulations that allow copying
services to be licensed as investment managers.
Disadvantages of Regulated Brokers
There are pros and cons of electronic trading laws. The first downside to
selecting a controlled broker is that you restrict your exposure to a vast
number of possible brokerages. Most of them will sell high-quality goods and
great trading apps. Cherry Trade and Porter Finance, for example, are both
unregulated brokers who seek excellent reviews from their clients.
 CHAPTER 11:

Step by Step Instructions On

How to Make Your First Trade

A lot of retail traders operate from a small home office. Others work
in regular offices but remain small traders with limited funds but
sufficient trading equipment. As a day trader, there is basically no
boss or supervisor to tell a trader what to do. Nobody watches over them or
bosses them around. This means a trader has the freedom to organize and
manage their trading days.
Because of this freedom, day traders need to exercise a lot of discipline.
Traders need to wake up early and prepare for the trading day. Mental
preparation is part of a trader’s morning ritual before, during, or after
breakfast. It is advisable to be up a couple of hours before the trading day
begins and ensure everything is in place. There are a couple of things that
generally need to be achieved.
As soon as breakfast is done, the trader should rehearse their
strategies in their minds and probably on paper too. Sometimes it
is necessary to run a strategy on a demo platform. Also, a good
plan should be made and followed to the letter. This plan
includes how much money to place on a trade, which points to
exit a trade, when to take profits, and so on.
Traders need to check and confirm their trading accounts and the
amounts therein. It is crucial that a trader knows the amount
 available for trading purposes so they know the amounts they
can spend per trade. It is recommended that traders should not
spend more than 2% of their trading capital on a single trade.
The accepted range is between 1% and 2% of the account
balance.
Beginners with no prior trading experience should not spend more than 1% of
their trading balance per trade. Also, a trader should exit their positions three
minutes prior to a significant financial or economic announcement.
It is advisable to always or regularly check the financial calendar
and note any significant events. Any such events should be
clearly marked onto the calendar and reminds initiated. These
events have significant implications for stocks and activity at the
markets.
It is crucial that day traders learn how to select the best stocks to trade. This
is because the stocks chosen for day trading will pretty much determine the
outcome of your trading ventures. As such, choosing the correct stocks
ensures that you fare better at the markets and maximize on profitability.
Identifying Stocks for Day Trading
Funds Available
The first instance is to take cognizance of a trader’s financial position.
Depending on the number of funds available, you can determine the stocks to
choose. There is a wide variety of stocks to choose from. However, you can
only choose as much as your funds allow you.
You also need to consider the amount of risk you can tolerate. Generally, the
amount of risk a trader is willing to take the more they stand to win. Traders
also need to consider buying a security in a field or industry that they are
familiar with.
For instance, an accountant may be happy trading financial stocks while an
engineer will be at home with tech stocks, and so on. Such considerations
will ensure you understand what is going on in the industry, and this will
boost trading ventures.
Industry
Another crucial aspect to consider when selecting a stock is the industry. One
of the best industries for day traders should be the financial services sector.
This sector is excellent because it features most of the above factors like large
volumes and volatility.
A great example, in this case, is Microsoft Corp. This is a well-established
company with a large global market, growing income, and a positive
reputation.
Microsoft Corp also happens to be among the most highly traded stocks. This
is why it is among the most preferred stock by most day traders. It is
definitely an excellent choice for day trading forays as it exhibits all the
desired characteristics. Bank of America is a large corporation, it trades a
large volume of shares each day, its stock is volatile, yet the bank remains
stable and profitable through the years.
Emotions
One important point worth mentioning is that a day trader should never let
emotions take charge of trading activities. When a trading strategy is
formulated, it should be implemented to the letter. All too often, traders either
become greedy or despair and then begin trading guided by their emotions.

For instance, they refuse to exit a winning trade instead of collecting profits
first. In other cases, traders choose to continue incurring losses beyond the
stop-loss point. These are dangerous attributes and are common among new
and novice traders. It is a practice that should be shunned at all costs for
successful and profitable day trading.
Life of a Typical Day Trader
It is commonly believed that the life of a trader is fun and exciting and that
they deal in numbers and money all day long. This is far from the truth. A
trader’s life is not all fun and glam, and they do not really live on the edge.
While it is true that they spend the entire trading day dealing in options,
stocks, currencies, and other securities, they really do work very hard and
tend to focus too much on the markets.
The life of a day trader can actually be exciting simply because of all the
numerous events and unexpected occurrences that can take place. But in
general, most trading days are quiet with little or no excitement but general
trading as usual.
There is hardly any action except for reading charts, entering positions,
checking news feeds, and so on. Therefore, any glamor that people think
exists in day trading is only a figment of the imagination.
Traders and their Trading Styles
There are different definitions that define traders. For instance, experts
sometimes divide traders by the time in which they enter and exit trades. This
time is also known as the holding time. At other times, traders can be
classified based on the ways in which they identify opportunities and the
approach they use to trade these opportunities.
For instance, we have discretionary traders. These are traders who base their
trades on decisions based on certain factors. We also have system traders who
are named thus because they automate their businesses and use the system to
execute their strategies.
Other kinds of traders are the day trader, swing trader, scalpers, and high-
frequency traders. Based on these definitions, it is clear to observe that there
is no typical day trader, but a variety of different strategies adopted by
various day traders.
How to Make Profits
The whole purpose of trading is to generate profits. So every time a trader
trades and the trades earn a profit, these profits need to be consolidated,
locked in, and then taken out. If this does not happen, then the profits could
disappear and sometimes even turn into a loss.
A good day trader should close all their open trades just before the markets
close for the day. One of the best ways of collecting any profits generated is
to exit at the close of one trade. There are other ways of making profits.
Learning to do so is essential if you want to be profitable.
If the trade entered is a short position, then it is advisable to exit just above
this support area. Now if the price continues falling, this is not desirable but
is something that could happen. A fall in price will break the support, and the
trader will have to enter another short trade.
The Price Can Stall and Reverse
It is possible in some cases for the price to stall and sometimes even make a
reversal. It is advisable to study tendencies in order to determine the best exit
points. Sometimes it may be profitable to avoid exiting at the resistance and
support points. However, in all cases, it is essential always to have a
determined exit point. If a price continues to increase, then keep watching
until it stalls, then exit at this point.
In stocks trading a consolidation is also known as a stall. It refers to a
collection of three or four price bars which do not progress any trend that
existed. When the price momentum stalls, it will indicate on the charts.
A trader should locate their exit point just beneath the upper side of the
stalled bars. If this is not possible, then an alternative is to exit a trade as soon
as the price falls below any one of the three bars.
Take out Profits before Major Financial Announcements
All traders are aware of the impact of major economic and financial news on
the markets. Depending on the news, stock prices are likely to dip or rise.
Such news causes the stock market to be very volatile. Any day trader knows
that they should make profits right before any significant announcements in
the business and finance worlds.
Announcements such as economic release news, payrolls, company losses,
and so on can result in huge price moves due to volatility. Taking profits
before any such significant announcements are generally the norm.
Traders will avoid unnecessary turmoil or risks associated with significant
announcements. Once a trader exits the markets after the major
announcement, the next step would be to review the market and then see how
they can capitalize on the resulting movement.
Taking Profits
Traders need to be very attentive to the markets and to actions that may affect
the market. Profits are often taken at resistance or support points, and
attention is also necessary for such instances. Exiting generally occurs when
the momentum slows down or when the trend reverses. There is always the
possibility of entering into other trades, but the profit opportunities may not
be similar.
Regular and close monitoring of economic news is a must. A good day trader
should keep one eye on the news and another on the trading platform.
Monitoring economic and business news then exiting a position before the
news is released is absolutely essential.
Such events, when announced, can have a significant impact on the markets
and taking profits early enough is definitely the best approach. Once the news
is released, the trader is free to get back into the market and see what
opportunities are present. Also, it is essential to know that the scenarios
mentioned above do not happen all the time.
Not all day trading sessions will see a relevant support and resistance position
or a consolidation point. Therefore, it is advisable to be on the lookout, be
disciplined, and learn the best time to take profits and generally have a
suitable profit making plan.
 CHAPTER 12:

Volatility in the Markets

W hile the stock market has long term trends that investors rely
on reasonably well as the years and decades go by, over the
short term the stock market is highly volatile. By that, we
mean that prices are fluctuating up and down and doing so over short time
periods. Volatility is something that long-term investors ignore. It’s why you
will hear people that promote conservative investment strategies suggesting
that buyers use dollar cost averaging. What this does is it averages out the
volatility in the market. That way you don’t risk making the mistake of
buying stocks when the price is a bit higher than it should be, because you’ll
average that out by buying shares when it’s a bit lower than it should be.
In a sense, over the short term, the stock market can be considered as a
chaotic system. So from one day to the next, unless there is something
specific on offer, like Apple introducing a new gadget that investors are
going to think will be a significant hit, you can’t be sure what the stock price
is going to be tomorrow or the day after that. An increase on one day doesn’t
mean more increases are coming; it might be followed by a significant dip the
following day.
For example, at the time of writing, checking Apple’s stock price, on the
previous Friday it bottomed out at $196. Over the following days, it went up
and down several times, and on the most recent close, it was $203. The
movements over a short-term period appear random, and to a certain extent,
they are. It’s only over the long term that we see the actual direction that
Apple is heading.
Of course, Apple is at the end of a ten-year run that began with the
introduction of the iPhone and iPad. It’s a reasonable bet that while it’s a
solid long-term investment, the stock probably isn’t going to be moving
enough for the purposes of making good profits over the short term from
trades on call options (not to mention the per share price is relatively high).
The truth is volatility is actually a friend of the trader who buys call options.
But it’s a friend you have to be wary of because you can benefit from
volatility while also getting in big trouble from it.
The reason stocks with more volatility are the friend of the options trader is
that in part the options trader is playing a probability game. In other words,
you’re looking for stocks that have a chance of beating the strike price you
need in order to make profits. A volatile stock that has large movements has a
higher probability of not only passing your strike price but doing so in such a
fashion that it far exceeds your strike price enabling you to make a substantial
profit.
Of course, the alternative problem exists – that the stock price will suddenly
drop. That is why care needs to be a part of your trader's toolkit. A stock with
a high level of volatility is just as likely to suddenly drop in price as it is to
skip right past your strike price.
Moreover, while you’re a beginner and might get caught with your pants
down, volatile stocks are going to attract experienced options traders. That
means that the stock will be in high demand when it comes to options
contracts. What happens when there is a high demand for something? The
price shoots up. In the case of call options, that means the stock will come
with a higher premium. You will need to take the higher premium into
account when being able to exercise your options at the right time and make
sure the price is high enough above your strike price that you don’t end up
losing money.
Traders take some time to examine the volatility of a given stock over the
recent past, but they also look into what’s known as implied volatility. This is
a kind of weather forecast for stocks. It’s an estimate of the future price
movements of a stock, and it has a significant influence on the pricing of
options. Implied volatility is denoted by the Greek symbol σ, implied
volatility increases in bear markets, and it actually decreases when investors
are bullish. Implied volatility is a tool that can provide insight into the
options future value.
For options traders, more volatility is a good thing. A stock that doesn’t have
much volatility is going to be a stable stock whose price isn’t going to change
very much over the lifetime of a contract. So while you may want to sell a
covered call for a stock with low volatility, you’re probably not going to want
to buy one if you’re buying call options because that means there will be a
lower probability that the stock will change enough to exceed the strike price
so you can earn a profit on a trade. Remember too that stocks that are very
volatile will attract a lot of interest from options traders and command higher
premiums. You will have to do some balancing in picking stocks that are of
interest.
Being able to pick stocks that will have the right amount of volatility so that
you can be sure of getting one that will earn profits on short term trades is
something you’re only going to get from experience. You should spend some
time practicing before actually investing large amounts of money. That is,
pick stocks you are interested in and make your bets but don’t actually make
the trades. Then follow them over the time period of the contract and see
what happens. In the meantime, you can purchase safer call options, and so
using this two-pronged approach gain experience that will lead to more
surefire success down the road.
One thing that volatility means for everyone is that predicting the future is an
impossible exercise. You’re going to have some misses no matter how much
knowledge and experience you gain. The only thing to aim for is to beat the
market more often than you lose. The biggest mistake you can make is
putting your life savings into a single stock that you think is a sure thing and
then losing it all.
Options to Pursue If Your Options Aren’t Working
At this point, you may think that if the underlying stock for your option
doesn’t go anywhere or it tanks that you have no choice but to wait out the
expiration date and count the money you spend on your premiums as a loss.
That really isn’t the case. The truth is, you can sell a call option you’ve
purchased to other traders in the event it’s not working for you. Of course,
you’re not going to make a profit taking this approach in the vast majority of
cases. But it will give you a chance to recoup some of your losses. If you
have invested in a large number of call options for a specific stock and it's
causing you problems, you need to recoup at least some of your losses may
be more acute. Of course, the right course of action in these cases is rarely
specific, especially if the expiration date for the contract is relatively far off
in the future, which could mean that the stock has many chances to turn
around and beat your strike price. Remember, in all bad scenarios actually
buying the shares of stock is an option – you’re not required to do it. In all
cases, the most significant loss you’re facing is losing the entire premium.
You’ll also want to keep the following rule of thumb in mind at all times –
the more time value an option has, the higher the price you can sell the option
for. If there isn’t much time value left, then you’re probably going to have to
sell the option at a discount. If there is a lot of time value, you may be able to
recoup most of your losses on the premium.
Let’s Look at Some Specific Scenarios.
The stock is languishing. If the stock is losing time value (that is getting
closer to the expiration date) and doesn’t seem to be going anywhere, you can
consider selling the call option in order to recoup some of your losses related
to the premium. The more time value, the less likely it is that selling the
option is a good idea. Of course, the less time value, the harder it’s going to
be actually to sell your option. Or put another way, in order to actually sell it
you’re going to have to take a lower price.
There are two risks here. The first risk is that you’re too anxious to sell and
so do it at the first opportunity. That really isn’t a huge downside; you’re
going to make some profits in that case. On the other hand, it's going to be
disconcerting when you sit back and watch the stock continuing to rise. That
said, this is better than some of the alternatives.
One of the alternatives is waiting too long to buy and sell the shares. You
might expect and see the stock apparently reaching a peak, and then get a
little greedy hoping that it's going to keep increasing so you can make even
more profits. But then you keep waiting, and suddenly the stock starts
dropping. Maybe you wait a little more hoping it's going to begin rebounding
and going up again, but it doesn’t, and you’re forced to buy and sell at a
lower price than you could have gotten. Maybe it's even dropping enough so
that you lose your opportunity altogether. A really volatile stock might
suddenly crash, leaving you with a missed opportunity.
The reality is that like everything else involved in options trading since none
of us can see the future it's going to be flat out impossible to know if you are
making the right call every single time. Keep in mind that your goal is to
make a profit on your trades. Don’t get greedy about it, hoping for more
riches than you actually see on the screen. In other words, the goal isn’t to
sell at maximum possible profits. Nobody knows what those are because it's
going to be virtually impossible to predict what price the stock will peak at
before the contract expires. Instead, you’re going to want to focus on making
an acceptable profit. Before you even buy your call options, you should sit
down and figure out a reasonable range of values that define ahead of time
what that acceptable profit level is. Then when the stock price hits your target
range, you exercise your options and sell the shares. You take your profit and
move on, going to the next trades.
That is not a guarantee that you’re going to make money on every trade, but
it’s a more rules-based system that gets you into the mindset of trading based
on objective facts rather than relying on unbridled emotions.
Also, remember that you can exercise the option to buy the shares, and then
hold them until you think you’ve reached the right moment to sell. At other
times, you may want to exercise the option to buy shares and stay in your
portfolio as a long-term investment.
 CHAPTER 13:

Tools and Platforms

L ike beginning any other business or profession, to start day trading

you require a few essential tools. You will definitely need a broker
and an order execution platform.
What or Which Broker Should We Use?
For day trading, you need an excellent direct-access broker. In fact, you don’t
just need a good broker; you need an extraordinary broker. Your broker is
your vehicle to trade. If you have a bad broker, you lose money, even if you
are trading correctly and accurately, because your broker eventually has to fill
your order on time and at a reasonable price. There are many brokers out
there with various software and price structures. Many of them are significant
but expensive, others are terrible but cheap, and some of them are both
terrible and expensive.
Conventional Brokers vs. Direct-Access Brokers
Conventional online brokers usually direct customer trade orders to market
makers and other liquidity providers through pre-negotiated order flow
arrangements. This multi-step process often takes time - from a few seconds
to several minutes. These brokers usually do not offer a super-fast execution
as their services tend to place a greater emphasis on research and fundamental
analysis functions over speed execution. These brokers, at times called “full-
service brokers”, provide research and advice, retirement planning, tax tips,
and much more. Direct-access trading system transactions are executed in a
fraction of a second and their confirmations are instantly displayed on the
trader's computer screen. This has opened up a new avenue for retail traders
like us. Decades ago, it was almost impossible for a retail trader sitting in
their home office to trade at the Exchanges. You needed to pick up the phone
and talk to a broker and ask for trades, a process that might have taken
minutes, if not hours.
Interactive Brokers
Based on quite a few different criteria, IB maintains the largest electronic
trading platform in the United States and is also the largest broker on the
foreign exchange market (Forex). In addition, I appreciate their global
presence as more than half of their customers are from outside of the United
States. I was interested to learn recently that it was because of IB’s lobbying
that back in 1983 computers were first allowed on the trading floor. These
days, it’s hard to imagine trading, or doing anything in life, without access to
computers!
Capital Markets Elite Group Limited
Capital Markets Elite Group Limited, not to be confused with the famous
CME Group Inc., an American financial market company operating an
Options and Futures Exchange, is an offshore broker that offers an excellent
6:1 margin for traders, higher than most brokers do. Since they are based
outside of the U.S., the PDT rule does not apply to their clients. This results
in CMEG being an excellent alternative for those with less than $25,000
available for day trading. CMEG uses the DAS Trader and Sterling
platforms. If you live in the U.S., have under $25,000 available for day
trading, and are looking for a broker-platform combination which resembles
what I use, CMEG is the ideal broker.
When a broker notices that you are using leverage and losing money, they
might issue a “margin call” to you. A margin call is a serious warning and
day traders must avoid getting them. It means that your loss is now equal to
the original money you had in your account. You must add more money or
else your broker will freeze your account. If you are interested in learning
more about margin, leverage or margin calls, check the broker’s website, do
some research on the Internet, or ask other traders in your chatroom.
Trading Platform
An electronic online trading platform is a computer software program that is
used to place orders for day trading. The trading platform is different from
the direct-access brokers themselves. However, I see often that traders
confuse these two as one. The trading platform sends and places your order at
the Exchange so the direct-access brokers can clear the order for you.
Usually, direct-access brokers offer their own proprietary trading platform to
their clients. The quality, charting capability, speed of the software, and many
other features regarding the software, varies significantly, which also of
course affects their pricing. Many brokers offer their platform for a monthly
fee, but they may waive that fee if you make sufficient commissions for the
broker.
The table below summarizes some of the well-known direct-access brokers
for day trading. Please note that there are many more firms that are not listed
below.
Real Time Market Data
Swing traders enter and exit trades within days or weeks, therefore end-of-
day data that is available on the Internet for free is sufficient for them. But
day traders need real time intraday data because they enter and exit trades
within a few hours and often within a few minutes. Unfortunately, real time
market data is not free, and you need to pay a monthly fee to your broker or
to your platform provider such as DAS Trader. Which market data you
should buy depends on the market that you are trading in. If you are planning
to trade in the Canadian market, you need real time Toronto Stock Exchange
(TSX) data. I mostly limit my trading to the U.S. markets because of its high
volume (liquidity) and volatility, therefore I need the real time Nasdaq Total
View Level 2 data feed. Without real time market data, you cannot day trade
correctly.
Nasdaq Level 2 and Bid-Ask
From my perspective, having access to Nasdaq Level 2 is virtually mandatory
in order to day trade in the U.S. markets. Level 2 provides essential insight
into a stock's price action, including what type of traders are buying or selling
a stock and where the stock is likely to head in the near term. Level 2 is
identified more as a “leading indicator”, which denotes the action before a
trade takes place. Moving averages, graphs and majority of the other
indicators are identified as “lagging indicators”, signifying an activity during
a marked instance.
Whenever the market is open, there are always two prices for any trading
stock - a bid and an ask. A bid is what people are offering to pay for that
stock at that moment; an ask is what sellers are demanding in order to sell it.
A bid is always lower, an ask is still higher, and the difference is called the
bid-ask spreads. Bid-ask spreads vary for each stock and even for the same
stock at different times of the day.
The most important information you must take away from Level 2 is the bid-
ask spreads. Spreads are higher in lower volume traded stocks, as the market
makers who dominate such stocks demand higher fees from those who want
to join their party.
Indicators on my Charts
I keep my charts relatively clean with a minimal number of indicators
displayed. In day trading, you need to process information quickly and you
need to make decisions very, very quickly. Therefore, I cannot keep track of
too many indicators. Here is what I have on my charts:
1. Price action in the form of candlesticks
2. Volume of shares being traded
3. 9 Exponential Moving Average (9 EMA)
4. 20 Exponential Moving Average (20 EMA)
5. 50 Simple Moving Average (50 SMA)
6. 200 Simple Moving Average (200 SMA)
7. Volume Weighted Average Price (VWAP)
8. Previous day’s closing price
9. Daily levels of support or resistance
Buy and Sell Orders
There are three essential types of orders you can use for day trading:
1. Market orders
2. Limit orders
3. Marketable limit orders
Market Orders
“Buy me at any price! Now!”
“Sell me at any price! Now!”
When you use market orders, you are asking your broker to immediately buy
or sell the stock for you at any cost. Let me repeat that: at ANY cost. If you
place a market order, it will be filled at the current price, whatever that
happens to be. A limit order, on the other hand, allows you to specify the
maximum or minimum price you will accept.
Market makers and many professional traders make a good living from filling
market orders. I discourage traders from placing market orders at any time. A
market order is like a blank check. Most of the time a market order will be
filled very closely to the quoted bid or ask price, but sometimes you will get a
nasty surprise.
Limit Orders
“Buy me at this price only! Not higher!”
“Sell me at this price only! Not lower!”
A limit order, in contrast to a market order, limits the price you are willing to
pay for the stock. You specify the number of shares you want to buy and the
amount you are ready to pay. Just as an aside, swing traders commonly use
limit orders.
Marketable Limit Orders
“Buy me now, but up to this price! Not higher!”
“Sell me now, but down to this price! Not lower!”
The most crucial type of order for day traders is a marketable limit order.
Marketable limit orders, once sent, will immediately give you as many shares
as possible within the price range you have set. In marketable limit orders,
you ask your broker to buy or sell stock for you immediately, but you specify
the highest price you are willing to pay.
Community of Traders
Trading alone is complicated and can be emotionally overwhelming. To
whom will you ask your questions? It is beneficial to join a community of
traders and ask questions, talk to them if needed, learn new methods and
strategies, get some hints and alerts about the stock market, and also make
your own contributions. Online trading rooms are excellent places for
meeting like-minded traders, and they can be powerful learning tools.
New and developing traders will absorb the knowledge of mentors and
experienced traders like a sponge; this helps them establish the right trading
behaviors faster and more effectively. When you share your trading results
and your ups and downs with other professionals, you turn social interaction
into social learning. Find experienced traders who will not hesitate to tell you
when you are making a mistake. It is in interacting with other traders that you
will learn to teach yourself.
If you join a chatroom, you will see that quite often even very senior traders
will lose money. It is always a good feeling to see that losing money is not
just limited to yourself, but that everyone, including the most experienced of
traders, have to take some losses. It is part of the process.
 CHAPTER 14:

Day Trading Strategies

A nyone who wishes to make money with the stock trading should
have a better strategy on how to predict the trend in prices of the
stock in order to maximize profits. The charts show the trends that
have different patterns that a new person in the trade cannot easily interpret.
The patterns in the trend have meanings that give signals to the trader on
when to make a move by either buying or selling stock.
The ABCD Pattern

This is a harmonic pattern that is used to derive the other patterns of trade.
This pattern is made up of three swings that are made up of the AB and CD
lines, also known as the legs. The line BC is known as the correction line.
The lines AB and CD are almost of the same size. The AB-CD pattern uses a
downtrend that indicates that the reversal will be upward. On the other hand,
the bearish pattern uses the uptrend than means there will be a reversal
downward at some point. When using this pattern for trade, you have to know
the direction of the trend and the movement of the market. There are three
types of ABCD pattern: the classic ABCD pattern, the AB=CD pattern, and
the ABCD extension.
When using this pattern, remember that one can only enter the trade when the
price has reached point D. Therefore, it is essential to study the chart o at the
lows and highs; you can use the zigzag indicator, which marks the swings on
the chart. As you explore the chart, watch the price that forms AB and BC. In
a bullish trade ABCD, C should be at the lower side of A. The point A, on the
other hand, should be intermediate-high after B that is at a low point. D
should be a new point that is lower than B. as mentioned earlier, the entry is
at point D, but when the market reaches point D, you should not be too quick
to enter the trade, consider other techniques that would make sure that the
reverse is up when it is a bullish trade, and down when it is a bearish trade.
Flag Momentum
In a trading market, there are times when things are good and the traders
enjoy an upward trend, which gives a chart pattern that represents a bull flag
pattern. It is named as such because when you look at the chart, it forms a
pattern that resembles a flag on a pole. The trend in the market is an uptrend,
and therefore the pattern is referred to as a bullish flag. The bull flag pattern
is characterized by the following; when the stock makes a positive move with
a relatively high volume, the pole is formed, when the stock consolidates on a
lighter volume at the top, the flag is formed. The stock continues to move at a
relatively high volume breaking through the consolidation pattern. The bull
flag momentum is a trading strategy that can be used at any given time frame.
When it is used to scalp the movements of price, the bull is used only on two
instances of time frame: the second and the fifth minute time frames. The
trading bull flags also work well when using daily charts to trade and can also
be used effectively when swing trading.

It is simple to trade, but it is challenging to look for the exact bull pattern.
This problem can be solved using scanners that help to look for stocks on the
upward trend and wait for them to be in a consolidation position at the top.
The best and free scanners that can be used to locate bull flags are Finviz and
chart mill. There are tips that can be used to indicate a bull flag. When there
is an increase in stock volume that is influenced by news, and when the stock
prices remain high, showing a clear pattern for a pullback. At this point, you
can now check out when the prices break out above the consolidation pattern
or on high volumes of stock. To make a move, place a stop order at the
bottom of the consolidation. At this point, the ratio of risk to reward is 2:1,
and it is the best time to target. The most substantial part of the pattern is the
volume of the stock, and it is a good sign that there will be a significant move
and a successful breakout. On the trend, it is also good to look at the
descending trend as it gives a sign on the next breakout. This can be seen in
the trend line that is found on at the topmost of the flag.
When used well for trading, the bull flags are useful tools of the trade;
however, things can go wrong, and therefore one must be ready with an exit
strategy. There are two strategies, one is placing a stop order at a point below
the consolidation area, and the second method is using a moving average that
is monitored for within 20 days. Within the 20 days, if the price of the stock
is below the moving average, then it is time to close out the position and try
out other trading routes.
Reversal Trading
Reversal trading, also known as a trend reversal pattern, is a trading strategy
that indicates the end of a trend and the start of a new one. This pattern is
formed when the price level of stock in the current trend has reached a
maximum. This pattern provides information on the possible change of trend
and possible value of price movement. A pattern that is formed in the
upwards trend signals that there would be a reversal in the trend, and the
prices will go down soon. Conversely, a downward trend will indicate that
there will be a movement of the costs and it will be upwards. For you to
recognize this pattern, you have to know where specific patterns form in the
current trend. There are distribution patterns that occur at the top of the
market; at this point, traders sell more than they buy. The patterns that occur
at the bottom of the markets are referred to as accumulation patterns, and at
this point, traders buy more than they sell.

Reversal trends are formed at all time frames, and it is because the bank
traders have either place trades are taking profits off the trades. The trend can
be detected when there are multiple up and down formations that are fully
formed; they should be at least two upswings and two downswings indicating
a bearish pattern. The swing highs of lows on the trend line depend on which
reversal pattern is formed.
The highs or lows form at a similar price because the bank traders want to
appear as if they are causing a reversal in the market, by getting all their
trades places at the same time. In the real sense that is not the case because
they appear at different points of the trend. Therefore, as a trader, you should
wait for a bright and steady trend upward for you to sell in the case of a
bullish trade and a steady trend downward for the case of a bearish trade for
you to buy.

There are different types of reversal patterns. The double top reversal pattern
is a pattern that has two tops on the chart. It looks like “M.” The double top
has its reverse type known as the double bottom pattern that resembles “W.”
The double bottom has two bottoms located either on the same support or at
different supports.
Another reversal pattern is the head and shoulders; this pattern resembled two
shoulders and ahead. The two shoulders are tops that are slightly below the
other top that is known as the head. The head and shoulders can also be
represented in a descending pattern whereby the tops become bottoms.
Moving Average Trend Trading
This strategy of trading is common among traders and it uses technical
indicators. A moving average helps to know which way the price is moving,
if the moving average is inclined upwards, then the price is moving up, and if
it is inclined downwards, then the price is going downwards. Moving average
can also help to show resistance or support of the trend, but this depends on
the amount of time of the moving average. Support is shown when the trend
of the price is downward, and at this point, the selling pressure reduces, and
buyers start to step in the market. Resistance is shown when the trend in the
price of the stock is upward. At this point, buying of stock reduces and sellers
step in. it should be noted that the prices of trade stock do not always follow
the moving average, but it is good to know that when the stock price is above
the moving average of the trend, then the price trend is upward. Conversely,
if the price is below the moving average, then the trend of the cost of the
stock is downwards.
Moving average is a powerful tool of the trade as it is easy to calculate,
which makes it popular among traders. This tool of trade enables the trader to
understand the current trend and identify any signs of a reversal. It also helps
the trader to determine entry into the trade or an exit, depending on whether it
offers support or resistance.
There are different types of moving averages. The simple moving average,
which sums up five recent closing prices and calculates the average price,
another one is the exponential moving average, whose calculation is a bit
complex because it applies more weighting to the data that is most recent.
When the simple moving average and the exponential moving averages are
compared, the exponential moving average is affected more by the changes in
prices that the simple moving average.
VWAP Trading
VWAP is the volume-weighted average price. It is a trading strategy that is
simple and highly
effective when you are trading in a short time frame. For it to work for you,
you must use
different strategies, and the most common approach is the waiting for a
VWAP cross above and enter long. A VWAP that is across above gives
signals to the traders that buyers would be joining the market, and there
would be an upward movement of price. The bearish traders might short
stock giving it a VWAP cross below, thus signaling the buyers to leave the
market and take profits. VWAP can also be used as a resistance or support
level for determining the risk of trade; when the stock trades above the
VWAP, the VWAP is used as the support level, and when the trading is
below the VWAP, the VWAP is used as a resistance level. In both cases, the
trader is guided by the VWAP to know when to buy and when to sell.
When doing trading transactions, trading costs are determined by comparing
the price of the transaction, against a reference or a benchmark, and the most
common benchmark is the VWAP. The daily VWAP benchmark encourages
traders to avoid risks of trading on extreme prices of the day by spreading
their trades over time. This trading strategy favors those people who use
market orders to trade rather than limit orders. This is because an opportunity
cost arises from delays and passive trading.
 CHAPTER 15:

Creating Your Own Day Trading Strategy

A s you start to get more into day trading, you may decide to
develop your own strategy. There are a lot of great trading
strategies that are out there, but there may be some market
conditions or other situations where you need to be able to develop your own
strategy. Or, after trying out a few different things, you end up finding a new
approach, or a combination of strategies, that ends up working out the best.
Over time, it is essential that you find your own place inside the market. As
you go through, you may even find that you would rather be more like a
swing trader rather than a day trader just because of the different methods
that are available. The good news is, there is a market for any kind of trader,
and there are a million types of strategies that you can use based on your own
personal preferences along the way.
Before you jump into the market as a beginner with your own trading
strategy, it is essential that you start out by picking one of the strategies that
are in this guidebook (or another proven approach that you have researched).
You need to have some time to try out a strategy and tread through the
market a bit before you start coming up with your own strategy. Even if you
have invested in the stock market before, you will find that working with day
trading is entirely different compared to some of the other methods available,
and you do not want to pick a strategy that may have worked with one of
your other trades, but will make you fail miserably with day trading.
It is all about spending some time in the market and getting familiar with the
market. You will want to get familiar with how the day trading market works,
how to recognize good stocks and so on before you make a good strategy that
can help you. After spending some time in the market, working with one or
two strategies that you like, you will be able to learn the patterns that you like
and what to watch out for, and it becomes so much easier to make a strategy
that will actually work.
But no matter where you are as a trader, it is so crucial that every trader has a
strategy of some sort to help them get started. It is so easy for beginners just
to pick out a stock and then start trading, without having a plan in place at all.
This is a dangerous thing to work with. It pretty much leaves the decisions up
to your emotions, and we all know how dangerous this can be when you are
first starting out. You should never leave your trades up to the feelings; this
will make you stay in the market too long or leave the market too early, and
you will end up losing money.
In addition, you need to pick one strategy, whether it is one from this
guidebook or one that you made up on your own, and then you need to stick
with that strategy. Learn all of the rules that go with that strategy, how to
make that strategy work for you, and exactly how you should behave at
different times in the market with that strategy. Even if it ends up leading you
to a bad trade (remember that any type of approach and also the best traders
will end up with a bad trade on occasion), you will stick it out until the trade
is done.
Switching strategies can seem tempting when you are a beginner in the
market. You may see that things are going south or may realize once you are
in the market that you should have done a different strategy from the
beginning. But as you look through some of the strategies that are in this
guidebook, you probably notice that they are a bit different, and they need
some different requirements before you can get in and out of the trade.
Switching in the middle is not going to work and will lead to an automatic
loss.
The most important thing that you can remember when you become a day
trader is that all traders will fail at some point. Many beginners will fail
because they do not take the time to learn how to correctly day trade or they
let their emotions get in the way of making smart decisions. But even
advanced traders will have times when they will fail and lose money as well.
The market is not always the most reliable thing in the world. Also when you
are used to reading the charts and looking at the market, there will be times
when it does not act as expected and a trader will lose out. Or the advanced
trader may choose to try out a new strategy, and it does not work that well for
them.
If you are worried about getting started in the market or you want to mess
around and try out a few of the strategies ahead of time to see how they work,
especially if you are using one of your own strategy, then you should
consider working with a simulator. Sometimes you will be able to get one of
these from your broker to try out and experiment with the market, and
sometimes you may have to pay a bit from another site to use this simulator.
However, this can be a valuable tool that will help you to try out different
things, make changes, and get a little familiarity in the market before you
invest your actual money. As a beginner, if you have access to one of these
simulators, it is definitely worth your time to give it a try.
Picking your Trade Based on the Time of Day
Before we move on, we will take a look at which types of strategies seem to
work the best at different times of the day. As you get into the market, you
will notice that each time period of the day will be changed and there are
some patterns that seem to show up over time with them. We will work with
three times of day, the open, the mid-day, and the close. If you want to be
successful with day trading, it is not a good idea to use the same strategy at
all three times of the day because these strategies will not be successful at all
times of the day. The best traders will figure out what time of day they get the
most profitable trades and then they will make some adjustments to their
strategies and their trading to fit them into these useful times.
First, let’s talk about the open. This time period will last about an hour and a
half, starting at 9:30 in the morning on New York Time. This is a busy time
of the day because people are joining the market for the first time or they are
making adjustments based on how their stocks had done overnight. Because
this time is so busy, it can also be a really profitable time period if you play
the game right. It is a good idea to increase the size of your trades during this
time and do more of them because you are more likely to make some good
money during this time. The best strategies to use during the open will be the
VWAP trades and the Bull Flag Momentum.
Next session is the mid-day session, and this will start at 11 in the morning
and go for about four hours. This is a slow time in the market, and it is
considered one of the more dangerous times to trade during the day. There is
not going to be much liquidity or volume in the market. Even a smaller order
will make a stock move quite a bit during this time, so you really need to
watch the market if you are holding onto your stocks. It is more likely that
you will be stopped with unexpected and strange moves during this period.
It is common for many traders, both beginners and those who are more
advanced, to have a lot of trouble during the mid-day. Many decide that it is
not the best idea to work in the market during this time. But if you do decide
to trade, it is essential to keep the stops tight and also to lower your share
size. You should also be really picky about the risk and reward ratio during
this time. You will find that new traders will often do their overtrading during
this time, and it may be best to avoid trading during this time period
altogether merely.
If you do decide to trade during the mid-day, it is best to watch the stocks as
closely as possible, get some things ready for close, and always be very
careful about any trading decisions that you try to do. You will find that
support or resistance trades, moving average, VWAP, and reversal strategies
work well during the mid-day.
And finally, there is the close, which starts at 3 in the afternoon and goes for
about an hour. These stocks are considered more directional, so it is best to
stick with those that are going either down or up during this last hour. It is
possible to raise the tier size compared to what it was at in mid-day, but you
do not want to go as high as you were at open. You will find that the prices at
closing are often going to reflect what the traders on Wall Street think the
value of the stocks is. These traders have stayed out of the market during the
day, but they have been closely watching things so that they can get in and
dominate what happens during the last little bit of trading.
If you notice that the stock starts to move higher during this last hour, this
means that the professionals are considered bullish on that stock. However, if
you see that the stock begins to move lower in that last hour, it means that the
professionals in the market are considered bearish. It is best during this last
hour to work with trades that go with these professionals, rather than doing
businesses that go against them. When you decide to trade in the closing
hour, you will want to use the moving average trades, support and resistance
trades, or VWAP to get the best results. As a beginner trader, you may find
that you will profit during the open and then end up with a lot of losses
during the rest of the day. You do not want to be one of them because this
can wipe out all of the profits that you earned earlier. A good rule of thumb
that you can stick with to keep things conservative with your losses is that
you should never lose more than 30 percent of what you made in the open
during the rest of the day. If you reach that 30 percent, you will stop trading
for the day to protect your assets.
 CHAPTER 16:

Trade Management and

Price Action for Day Trading
Day Trading Risk Management

I n all forms of trading, traders have a specific level of risk that they may
be willing to take. Since the ultimate aim of participating in any
particular trade is to gain profits, your exposure to risk should be as
minimal as possible. In Day Trading, the incidence of risk may not be as
damaging to small-scale low-risk traders. However, failure to enforce risk
management strategies may be financially catastrophic for large investors and
companies. The following risk management strategies could be of use to new
investors in Day Trading:
a. Employ stop-loss orders
b. Take favorable positions
c. Stick to your trading plan
d. Make low-risk trades
e. Seek expert assistance
Stop-Loss Orders
These orders provide a mechanism for you to minimize the extent of any
potential losses. The stop-loss order mandates the trader or your stockbroker
to cease a particular type of trade instantly upon meeting specific conditions.
Ideally, these orders indicate the range of values beyond which a given
trading action begins to become significantly unprofitable. It applies to both
short and long trading positions. Falling prices are not ideal for stock sellers,
and stock buyers frown on expensive costs.
For instance, you could set a particular limit for the range of losses that you
may be willing to tolerate adequately. Beyond this limit, your damages would
start affecting your bottom line significantly, hence the need for an immediate
halt to the trade deal. For them to act as a risk management tool, you need to
have your stop-loss orders in place long before taking part in Day Trading. In
this manner, you will be covering a potential loss that is yet to occur as
opposed to reacting to real-time unfavorable stock prices.
Position Sizing
Taking a favorable trading position is the essence of position sizing. Before
jumping into any trade opportunity, you should acquire relevant information
about that trade. This data should enable you to make the appropriate
selection when choosing to take a position. Ideally, rising stock prices with
the expectation of a corresponding upward trend in the price chart favor
buying stocks. Hence, this Day Trading scenario warrants you to take a long
position. Short positions are beneficial when the prices drop or when the
trading chart shows a sustained downward trend in the stock price. Position
sizing is more of an account management strategy but also applies to risk
evasion techniques. If you grow accustomed to taking productive positions,
your risk index decreases, and vice versa. Therefore, you should seek
assistance with position sizing and how to take up profitable positions if the
need arises.
Simple Trades
Day Trading often has small margins for either profits or losses. Therefore,
you must learn to conduct small but assured trade deals in this strategy. It is
advisable to refrain from lusting over the promises of impractically
significant returns. The greed resulting from chasing quick profits over short
time intervals is counterproductive to your ultimate aim. When you conduct
illogical trades using large amounts of money, you are likely to run out of
your available capital sooner than you expect. A simple trade has to be low in
its risk index, small in amount, and a value that you can afford to lose.
Volatility and trade volume are factors that affect your type of trade, but if
you stick to logic, your profits will outnumber your losses. Most financial
risk exposures are the consequences of rash decisions and poor Day Trading
habits. If you have challenges in trying to identify the viable trading
opportunities, you could seek the help of other seasoned traders or a
stockbroker.
Expert Assistance
Whenever you engage in an unfamiliar trading practice, it is advisable to
know what you are doing. The same advice applies to investors who are new
to Day Trading. Heeding to this counsel will spare you from financial ruin
down the line. One way you could make use of available Day Trading
expertise is by hiring a stockbroker. Trading blindly without any idea of the
expectations is a risky proposition. Stockbrokers are often highly experienced
traders in their own right. They know about all the potentially profitable
trading opportunities and doomed trades that are bound to go bust.
Therefore, when you have a qualified and registered stockbroker by your
side, you are less likely to get yourself into financially risky situations. It is
essential that you can predict a wrong trade deal from a mile away, but since
you cannot, a stockbroker may be the next best option. In addition to spotting
potentially wacky trade deals, your stockbroker is typically responsible for
managing your brokerage account. He or she participates in the different
trading commitments and takes favorable trading positions on your behalf. As
a result, the chances of making a fruitless trade decision are minimal.
Price Action in Day Trading
Price action is one of the strategies used by traders who take part in Day
Trading. It relies on the movements in the price of the security under trade.
Plotting the raw stock prices against the trading period on a chart is
necessary, thereby showing the behavior of your stock value over a specified
time. Indicators that are common to other strategies play an insignificant role
when using price action.
As a price action trader, you will not bother to find out the conditions
affecting particular price movements in either direction. You will take the
pattern at its face value because you put more credence to the trends in the
stock prices than their contributing factors. As per this reasoning, it could be
an excellent time to sell your stock when the prices start rising due to its
corresponding increase in value. A downward trend is suggestive of falling
prices; hence, buying the stock at favorable prices is possible.
As an investor or trader, your point of entry into Day Trading is dependent on
potential profitability and minimal risk exposure. Buying at the least
reasonable price and selling at the highest stock price are the two main
objectives in price action Day Trading. Besides, technical analysis comes
from the price action of a particular stock over a specified period. Price action
mainly deals with the ongoing, real-time stock price fluctuations. It is an
instant form of Day Trading strategy without the lagging period or delays
experienced in waiting for the relevant indicators.
You can modify your stock price chart to show distinct price movements in
different colors. This color transition alerts you to a trading opportunity due
to the obvious and easy to spot a change in price direction. Once again, you
will only concentrate on the upward or downward trend in the price and if
that particular pattern will hold. The following concepts describe some
everyday experiences attributed to price action Day Trading:
a. Price Breakouts
b. Candlestick Charts
c. Optional Indicators
d. Support and Resistance
e. Technical Analysis
Price Breakouts
A primary concept for you to understand is the Day Trading event of a
breakout. It is common in almost all cases of price action trading. A breakout
is a sudden jump in stock value in either direction from an extended hovering
position. This spike in your stock price is readily visible on a price action
chart. A breakout is an indicator that alerts you to a possible trading
opportunity. However, it could also be a false breakout, in which case, the
prices would soon rebound in the opposite direction.
For instance, if the price of a particular stock keeps fluctuating between $25
and $27 for about a month, you would not think much of the security. Yet, if
the stock price goes up to $29 in one day after the month, your curiosity and
alertness would peak. This sudden upward spike in the stock price is the
breakout. Ideally, you would assume that the price is about to keep rising and
continue on this trajectory for the foreseeable future. Therefore, as a price
action trader, you would take a long position on the same stock hoping for a
significant profit from the increasing value. However, the breakout could turn
out to be false, and the spike to $29 was only a one-day occurrence.
In this case, the rebound effect would cause the stock value to start dropping.
A possible explanation could be that the upward spike caused many other
price action traders to buy the stock, which in turn led to more investors who
previously held shares to sell. Based on the mechanism of economies of
scale, this influx of stock security into the market causes its price to start
falling. The price could decrease by a considerable margin past the initial low
of $25 to the horror of the traders who took an initial buy position. If you
bought plenty of shares based on the initial upswing in the breakout ($27 to
$29), you would experience a massive loss afterward.
This uncertainty is part of the characteristics of price action trading, i.e., you
can only know the previous behavior of a particular stock, but you cannot
predict its future action. Learn to accept the possibility of losing some capital
in such price action trades that do not go according to your expectations.
Price action trading is akin to speculative trading. Hence, the best mentality
you can have is to try to increase your profit margins on the good days more
than your losing margins.
Optional Indicators
In addition to candlestick charts, you may incorporate a group of specific
indicators depending on your objective. However, due to lag delay, trade
indicators are not essential to price action trading. In case you need them,
trade indicators can easily fit on a price action chart. Examples of such
commonly applied indexes include:
• Moving average
This indicator enables you to pick out the mean price movement of your
particular stock over a specified time frame. In its purest form, this indicator
centers on the average value of your security or commodity under trade based
on the most recent behavior of that particular stock.
• MACD indicator
The acronym for this indicator stands for Moving Average Convergence
Divergence. It depicts momentum by relating the mentioned moving average
to a specific point on the price chart. This point indicates the price level at
which you may decide to purchase stock, thereby making it subjective.
Taking a particular position depends on this interaction. A possibly long
trading position is considerable if the MACD indicator goes above your level
or price point.
• Stochastic Oscillator
Just like the MACD, this indicator is descriptive of momentum, as well. First,
based on your trading hunch, you decide on an appropriate trend that your
stock price will take. This hopeful trend will enable you to estimate the
expected value in the stock price at a particular time in the future. Next, sit
back and wait for the trading to reach your estimated time. Finally, use the
stochastic oscillator to verify whether the current stock price and pattern at
this new time match with your earlier speculated expectation.
• Fibonacci Retracement

This indicator is useful for testing the level of support or resistance when
subjected to the trends in the price action chart. You can obtain a detailed
perspective of the stock market based on the patterns formed by this
indicator. This information guides you on when and how to trade as well as
on which particular stocks to trade.
 CHAPTER 17:

Candlesticks
Bullish Candlesticks

C andles that have a larger body towards the top are considered
bullish, and they mean that the buyers will be the ones who are in
control of the price. When you see this kind of chart, realize that it
is likely that the buyers will keep pushing so that the price goes higher. This
kind of candlestick is not only going to tell you the price, but it is also able to
tell you that the bulls are winning and that they have the power.
Bearish Candlesticks
There are also the bearish candles. They will work a bit differently than you
will find with the bullish candlesticks and can have you react in a different
manner. When you see a bearish candle, it means that the sellers are the ones
in control of the price action that goes on in the market and that buying would
probably not be a good idea at this time.
When you see a candle that is filled and has a pretty long filled body, it
means that your opening was high, but the closing was low. This is one way
to tell that the market is bearish right now and it is probably not a good idea
to get into the market at this time. You will probably not get a reasonable
price for the stocks because the market price is going down and there are not
as many buyers interested right now. Just by being able to read these
candlesticks, you will be able to generate an opinion for how the stock will
generally, or the price action. You need to understand which party (the buyer
or the seller) is in charge of the price can help you determine whether now is
an excellent time to purchase the stock or not. When you have a bullish
market, the price will keep going up, so it is a good idea to jump in and then
sell the stock at a higher price. But if you are in a bearish market, the price is
most likely going to go down, and it is not in your best interest to make a
purchase.
Indecision Candlesticks
There are also some candlesticks that are known as indecision candlesticks.
There are two main types of indecision candlesticks including spinning tops
and Dojis. Let’s take a look at these and determine what they both mean for
the market.
Spinning Tops
The spinning tops are candles that have the high wicks that are similarly sized
and then low wicks that happen to be larger than the bottom and look a bit
indecisive. With these candlesticks, the sellers and the buyers have powers
that are pretty close to even. No one is really in control over the price of the
stock, but there is still a fight that is going on. The volume on these will be
lower because the traders want to wait and see whether the buyers or the
sellers will be the ones that wend.
You will notice that a trend in the price is often going to change right away
after this kind of indecision candle, once the fight has been won by either the
sellers or the buyers, so it is worth your time to recognize this kind of price
action. You may want to wait a bit before jumping into the market to see
which way the market will go. Sometimes it will go well, and the price will
go up, but the market could also go the other way, and you could see the
price drop.
Dojis
Another type of candlestick pattern that you should watch out for is the Doji.
There are actually a few forms and shapes of this, but they are either going to
have no body to the candlestick or at least a tiny body. When you see that
there is a Doji in the chart, it means that there is a fight that is going on
between the bulls and the bears and no one is winning yet.
There are some times when the Doji will have a bottom and top wick that are
unequal. If the top of the wick ends up being longer, it means that the buyer
tried to get the price higher, but they were unsuccessful. They may show that
the buyers are starting to lose power and it is possible that the sellers may
start to take over. On the other hand, if the bottom wick is more extended,
this means that the sellers tried to push the price down and they were not
successful. This may mean that there will be a takeover of the price action by
the bulls.
You can definitely use this to help you see what trends are going on. If one of
these candlesticks shows up during a bullish trend, it means that the bulls are
wearing out and now the bears are trying to take over control of the price. If
this candlestick forms when there is a bearish downward trend, it suggests
that now the bears are tired and now the buyers or the bulls will take over the
price. This can help you to see when a trend is about to occur in the market
and can help you to make some smart decisions.
The candlestick pattern is a great way to predict how the market is going.
When the market is going up based on these candlesticks, you will want to
purchase and then sell before they go down. When the market is going down
based on these candlesticks, you will either want to stay out of the market if
you are not already in, or you will want to sell before the price goes down
and you lose too much money. Take some time to learn how to make these
charts, and you will find that they are a fantastic way for you to monitor the
idea that the market is going.
Candlesticks Patterns
The “candlestick” pattern is best suited for people who would like to adopt a
technical approach and trade based on patterns and predictions. The
“candlestick” pattern involves the creation of patterns for particular stocks
based on its “LOD” or lowest of the day and “HOD” or highest of the day
prices. Depending on these statistics, the graph is plotted. There is a
technique known as the doji reversal pattern that helps in establishing proper
“candlesticks”. Once the “candlesticks” have been established, the trader will
be able to identify the pattern that the stock will follow. Once it has been
established, he will predict whether the price will rise or plummet. Depending
on the prediction the trader will decide to either hold on to the stock or sell it
off. This technique is easy to follow if you understand the technique properly
and for that.
 CHAPTER 18:

Momentum Trading

M omentum is at the heart of all-day trading as finding trades

with the right amount of momentum is the only way you can
reliably guarantee a profit on your trades. Luckily, it is not
unrealistic to expect to find at least one underlying asset that is likely to move
as much as 30 percent each day due to the fact that all underlying assets with
this much momentum all tend to share a few common technical indicators.
Momentum Stock Anatomy
While it might seem difficult to understand how anyone could expect to pick
a stock with the right momentum out of the thousands of possible choices, the
fact of the matter is that all high momentum stocks typically have several
things in common. In fact, if you were given a list of 5,000 stocks, using the
factors below you could likely come up with a list of 10 or less.
Float: The first thing you are going to want to keep in mind is that the stocks
with the highest momentum are generally going to have a float that is less
than 100 million shares. Float refers to the total number of shares that are
currently available and can be found by taking the total number of
outstanding shares and subtracting out all those that are restricted or are,
functionally speaking, no longer traded. Restricted shares are those that are
currently in the midst of a lockup period or other, similar restriction. The less
float a stock has, the more volatility it is going to contain. Stocks with
smaller float tend to have low liquidity and a higher bid/ask spread.
Daily charts: The next thing you are going to want to look for is stocks that
are consistently beating their moving average and trending away from either
the support or resistance depending on if you following a positive or negative
trend.
Relative volume: You are also going to want to ensure that the stocks you are
considering have a high amount of relative volume, with the minimum being
twice what the current average is. The average you should consider in this
case would be the current volume compared to the historical average for the
stock in question. The standard volume is going to reset every night at
midnight which means this is a great indicator when it comes to stocks that
are seeing a higher than average amount of action right now.
Catalyst: While not, strictly speaking, required, you may still find it helpful to
look for stocks that are currently having their momentum boosted by external
sources. This can include things like activist investors, FDA announcements,
PR campaigns and earnings reports.
Exit indicators to watch
Besides knowing what a potentially profitable momentum trade looks like,
you are also going to need to know what to look for to ensure that you can
successfully get while the getting is good. Keep the following in mind and
you will always be able to get out without having to sacrifice any of your
hard earned profits.
Don’t get greedy: It is important to set profit targets before you go into any
trade, and then follow through on them when the trade turns in your favor. If
you find yourself riding a stronger trend than you initially anticipated, the
best choice is to instead sell off half of your holdings before setting a new
and improved price target for the rest, allowing you to have your cake and eat
it too.
Red candles: If you are not quite at your price target and you come across a
candle that closes in the red then this is a strong indicator that you should
take what you have and exit ASAP. If you have already sold off half of your
holdings at this point, however, then you are going to want to go ahead and
hold through the first red candle as long as it doesn’t go so far as to trigger
your stop loss actively.

Extension bar: An extension bar is a candle with a spike that causes

dramatically increased profits. If this occurs, you want to lock in your profits
as quickly as possible as it is unlikely to last very long. This is your lucky day
and it is important to capitalize on it.
Know your filters
Day trading is about more than finding stocks that are high in volume, it is
also about finding those that are currently experiencing a higher than average
degree of movement as well. The following filters will help ensure that the
stocks you find have plenty of both.
Steady volatility: In order to trade stocks that are extremely volatile with as
little research as possible, the following criterion is a good place to start.
While additional research is always going to be preferable in the long run,
you can find success if you run this scan once a week and pay close attention
to the results.
The third criterion will determine the level of volume that you find acceptable
for the given timeframe. The example will look for volume that is greater
than four million shares within the past month. From there, it will eliminate
leverage ETFs from the results which can be eliminated if you are interested
in trading ETFs. Finally, the add column will show the list of stocks with the
largest amount of volume and the greatest overall amount of movement.
Selecting these columns will then rank the results from least to greatest based
on the criteria provided.

Monitor regularly: Alternately, you may want to do a daily search to

determine the stocks that will experience the greatest range of movement in
the coming hours. To do so, you will want to create a new list of stocks every
evening to ensure that you will be ready to go when the market opens. This
list can then be made up of stocks that have shown a higher volatility in the
previous day either in terms of gains or in terms of losses. Adding in volume
to these criteria will then help to make sure the results will likely continue to
generate the kind of volume that day trading successfully requires. Useful
filters for this search include an average volume that is greater than one
million and the more you increase the minimum volume the fewer results
you’ll see.
Monitor intraday volatility: Another option that is worth considering is doing
your researching during the day as a means of determining which stocks are
experiencing the greatest overall amount of movement at the moment. A vast
majority of trading platforms provide this information in real time so it is
easy to keep up to date on the changes that are happening at the moment. For
example, if a stock opens at a point down 10 percent from its previous close
and stays there you can then assume that there is no one biting on the action
that the stock has available.
On the other hand, if the stock starts in a position where it is down 10 percent
and then it just keeps dropping then that is a sign it is worth taking a closer
look at. You may also find it useful to track stocks that are currently on their
way to breaking through the established levels of resistance or support.
Look for bigger moves: In order to find the stocks that are likely to be
making big moves sooner than later, without spending all of your free time
doing research, you will want to primarily focus on the stocks that are
showing a constant state of volatility. This is a great scan to run over the
weekend in preparation for the coming week. On the other hand, you can run
this scan every night to ensure you know what the differences are likely to be
tomorrow. Furthermore, you may instead want to monitor volatility during
the day as a means of determining which stocks have seen the most activity
during the session in question.
Confirm the Chart Patterns
Once you have found a few stocks that your scanner indicates are likely to
move in the direction you are hoping for, the next step is to double check this
fact before you get your hopes up. To do so, you are going to want to analyze
the relative candlestick charts and try and determine the correct entry point
based on the point where the first pullback occurred. While many traders will
simply buy in at the point where the pullback occurs, this then creates an
additional volume spike which pushes the prices even higher. As such,
finding the best entry point, in real time, is the key to long-term success.
Pennant: A pennant is a type of indicator that forms when there is significant
movement in a given stock, followed by a sudden consolidation period that
causes the pennant shape to form from a pair of converging lines. A breakout
will then likely occur that goes in the same direction as the previous
movement. This typically manifests as extreme movement first, followed by
weaker volume from there as the tip of the pennant forms, followed then by
more strong growth and even more post-breakout volume.
Cup and handle: The cup and handle pattern look like the bowl of a cup with
the ride side handle. The pattern is u-shaped, charting a series of lows for the
stock while the handle also slopes slightly downward. This is a sign that
volume is going to remain low overall and that the stock in question should
be avoided.
Triangles: Triangles are one of the most frequently seen patterns which tend
to occur when the price range converges with the current high, during a
period of naturally higher lows. When the convergence is at its peak the price
action generates a triangle formation. You will find triangles that are
symmetrical, descending and ascending but all three can be traded
successfully in the same way. Triangles are going to remain viable trading
indicators for differing amounts of time, but you can generally count on them
to have two high points and two low swings. When the prices converge, they
will then reach an apex and the closer in the timeline it is to this occurring,
the tighter the price action ends up being and the closer the price is to
experiencing a breakout.
 CHAPTER 19:

Building a Trading Plan

A trading plan offers a guide on how we carry out our trading

activities. It can help you make important trade decisions a trader.
Below are some factors that you need to consider while coming
up with a trading plan.
Understand Your Commitment to Trading
We all have different inspirations that led us to invest in trading options. For
instance, you might have a desire to have an extra source of income; another
individual might want to become a millionaire and is seeking financial
freedom by engaging in different investments. All these individuals have the
right dreams, and they should inspire them to succeed at trading options. At
times, it is difficult to work hard and give our all in the activities that we are
undertaking, and it is, therefore, important to find something that sets the
mood and allows us to achieve our goals. You find that any time you feel like
giving up, your goals keep you committed to achieving the best out of life. It
is very easy to lose hope or to lack faith in our capabilities, especially when
we encounter failure. However, these goals make us have something to look
forward to each day, regardless of the challenges that we face in life. We are
always inspired to do better and become more than we could imagine we
would become.
Assess Your Skills
While coming up with a trading plan, it is advisable that you assess your
skills. Depending on the time you have spent trading and your years of
experience, you may have different trading skills. Normally, if you are a
beginner, your skills are incomparable with an expert who has been in the
game for long. You find that there is some information that you might not be
aware of, but the other individual is well informed. This difference in the
skills attained also portrays a difference in the amount of money that you earn
from the different trades. While coming up with a trading plan, be familiar
with your skills and abilities. This assessment helps you in making numerous
trade decisions. For instance, as a beginner, you should avoid engaging in
multiple trades. The reason behind this decision results from the fact that you
might not be fully aware of how to trade. Your skills are limited, and hence,
taking up bigger challenges may not turn out so well for you. At the same
time, patience is necessary. You do not expect that you will immediately start
earning six-figure incomes at the beginning. One must be willing to take
simple steps before they can proceed to much bigger steps. After all, the
journey of a thousand miles begins with a single step. While at it, you should
be gracious enough to believe in the steps that you take.
Having a trading journal
If you like journaling like I do, having a journal should not be a debatable
issue. It comes automatically, and it goes without saying. I tend to believe
that things become more real when written on paper. When the pen connects
with the book and sends a message to inspire by the writer, it’s all magic
altogether. Journaling helps us express our ideas and goals that we want to
achieve. For instance, earlier on, I mentioned that we should write down our
goals. I went ahead to explain how having them written down helps us work
hard toward achieving them. Any time you get to open your journal, you get
to see the various goals that you have, and it, in turn, inspires you to do more.
Life will, at times, pose its own challenges, and we may forget what we want
out of it; therefore, having a constant reminder of why we are living makes
the whole difference. As you educate yourself more about day trading, it is
good to note down some of the points that you have picked up while reading.
If you are a slow learner, this is something that will help boost your learning
process and make things easier for you. Documenting helps in creating some
emphasis on the information acquired. You find that you easily understand
and recall what you read.
Risk Management Skills
There are different risks that you will experience while trading. There are
some instances where you will feel as if you are placing a bet. In such
moments, your trade is entirely dependent on luck. You find that there are a
lot of uncertainties involved, which increase the chance of either getting a
profit or ending up with a loss. While both situations are possible at that
instance, it is very important to have some risk management skills. The
option strategies that we use in different trades happen to be major in risk
management. You find that the option strategies emphasize minimizing the
risks as you maximize the profits. Risks, if not properly handled, can
sabotage the whole investment scheme. You might find that you are more
invested in trading without properly evaluating all the risks that are involved;
it becomes easy to make a loss.
Determine The Amount of Money You Wish to Invest
The amount of money an individual use while trading has remained a topic
under debate for a long period of time. We seem to have mixed reactions on
what should be spent and what we should avoid spending. From my own
perspective, as a beginner, you should have some limits on the amount of
money that you spend. Taking into consideration that you are still learning
and trying to find your foot in the industry, taking big risks may not be a wise
move. At the same time, you want to go low on your budget to ensure that
you do not make losses that you cannot recover from. I feel like I would write
an entire book on the importance of having a budget and how it can be a real
lifesaver. Spending on things that you had not budgeted for is always an
unwise move. It makes us remain at a point of stagnation, and we rarely make
an impact in our lives. While conducting multiple trades, we, at times, end up
spending money that we had not planned for. This mainly occurs while trying
to cover up for a previous trade that ended up in a loss. You trade again,
hoping that it will cover for the previous trade and that you will make more
profit, so you will not have to suffer due to the previous loss.
Know When to Exit or Enter a Trade
As a trader, you need to learn when to enter a trade and when to exit a trade.
Interestingly, most of us have mastered the art of entering a trade, but few of
us know when to exit. You find that the trade was doing really well at the
beginning, but because we failed to identify when to quit, we end up
experiencing a loss. The same commitment we have while engaging in a
trade should be the same commitment that we should apply while exiting.
There are some red flags that can easily point out when it is time to exit. If
one is careful enough, they cannot fail to notice some of these red flags.
While trading, one needs to be keen, any slight shift or sudden occurrence
should be easily detectable before it sabotages your investment. Instead of
being focused on identifying buying signals, we also need to shift to being
focused on noting exit signals. This focus will save a lot of traders from
making huge trading mistakes. At the same time, we need to identify when to
take a break from trading. You might be encountering a series of losses from
all the trades that you engage in. Once you realize such a sequence, it should
act as an alarm for you to stop trading.
Select The Right Broker
Be careful while selecting the right broker through which you carry out your
trade. This process is essential since there are many brokers currently. Some
of which end up being scams, and you lose your money before you even
invest. At times, we are quick to take action and fail to analyze the various
steps that we take. So we end up making rash decisions that we regret later
on. The process of looking for a suitable broker is very crucial since it
determines how your investment turns out. Ideally, any individual would like
investing in a place where their investment is well protected, and they are
guaranteed great returns at the end of it all. As the market grows and
expands, there are a lot of emerging brokers. Some have good intentions,
while others are after stealing people’s money. As an investor, you need to be
careful so that you can find a legit broker.
The Time to Trade
The way we do things requires order and precision. One of the tricks that
successful people make in life is being very particular with time. The time
factor has been a topic regularly associated with matters of success. You are
probably wondering about the essence of proper timing when it comes to day
trading. Well, as you trade, you will find out that there are certain times the
trades have a high likelihood of earning a profit, and, at other times, you end
up with a loss. One of the ways you can figure this out is through tracking
your progress. If you have a journal where you note down the trades you
make and provide the timestamps, it could be an added advantage.
Decide On the Number of Trades to Use While Evaluating
Your Performance
For an individual to keep engaging in day trading, they need to have good
performance. How one performs shows the wins and losses that they have
encountered. If you keep losing your finances, then that would not be a good
venture to keep investing in. keeping track ensures that you make the right
choices and helps you know how far you are moving. It is important to track
your performance regularly. You can decide on the number of trades to use
based on the period you have traded. For instance, you might have traded for
a year and done 24 trades in that year. This information points out that you
have made at least an average of 2 trades in a month. With this information,
you can decide to use at least 4 trades that you carry out in 2 months to track
your performance.
Identify Stocks to Trade
Knowing the best stocks is beneficial as it influences the profits you will earn
at the end of the day. You have the potential to make high returns or make
losses. This possibility is influenced by a number of decisions that you make
while trading. Identifying the best stock to engage in happens to be one of the
decisions that you need to make. While carrying out this process, try to avoid
recently introduced stocks. Lack of experience can pose a challenge to a
beginner in the day trading industry.
 CHAPTER 20:

The Entry and The Exit

The Entry

A fter doing your analysis and deciding to make a trade, the next
important step is getting a good entry. Your risk to reward
analysis will have been done on an assumed entry price that in
many situations will be the price that the security traded on at the close of the
trading day. Unfortunately, there is no way to know if this price is where the
stock will open on the following day. It may gap the next morning and start
the move you were expecting without you getting an entry. Therefore, your
trading plan should include the most extreme price you are willing to pay to
maintain that important risk to reward ratio.
As a disciplined trader, you would not take this trade with an entry at $11.00.
Instead, you would determine the entry you need to get a 2 times reward,
which in this case would be about $10.30 per share. You are now risking
$1.30 (entry at $10.30, stop-loss at $9.00) to make $2.70 (entry at $10.30,
exit at $13.00) per share, thus giving the appropriate risk to reward ratio. If
you still wanted to proceed with the trade, you would therefore enter a buy at
or below the $10.30 price level and hope to get a fill on the buy order at that
level.
In our example, if the stock price opens lower than the $10.00 previous close,
then the disciplined trader would take the trade unless some significant news
happened overnight to change the outlook for the stock radically. The trader
can consider themselves lucky because now the risk to reward ratio is even
better if they can get in at under the $10.00 level.
In summary, chasing a stock price higher will likely end up giving you a bad
entry with a bad risk to reward ratio. As a disciplined trader, you should
continue to monitor the price action for a good opportunity to enter a trade or
move on and look for other opportunities.
Limit Order or Immediate Fill
The other decision you will need to make when entering a long trade is
whether to go for an immediate fill by entering an order to buy at the ask
price or to place a bid lower and hope to get your entry filled later in the
trading day. If you are going short, your option is to go for an immediate fill
by selling at the bid price, or to place an order higher with a hope to be filled
at some point during the trading day. There are pros and cons for entering the
trade using these 2 different approaches.
If you try to get an entry by bidding at a lower price for a long position, you
might get a better price but you may also miss the trade completely if the
price starts moving higher and you do not have a position. The stock could
quickly move to a point where your risk to reward ratio is no longer a
winning trade. The same situation applies if you are trying to enter a short
position and the stock price starts to drop quickly, leaving you out of the
trade opportunity.
Each trade will be different, and if you believe that you can get an entry at a
lower price on a long, then you can set a “limit order” at a specific price and
hope to get a position during a normal day’s volatility in price. You can refer
to the ATR value to see if your limit price is reasonable and within a price
range that you could expect to see on any one day.
Another option is to take half of a position at the market price and set the
other half of the order at a limit price in the hope that you will get a better
average entry price. This increases your commission costs but also ensures
that you do not get completely left out of a good trade with half of the
position taken immediately.
I feel that, in most cases, if you have an opportunity to take an entry at or
below your targeted entry price in your trading plan, then it is better to take
the entry immediately. This is my preference but you may decide another
entry strategy works better based on your personal preferences and trading
style.
The Exit
Once you have entered a trade, 1 of 2 things will usually happen. If a trade
does not work out as planned, then you will be stopped out for a loss. This is
pretty straightforward and an unfortunate outcome of a trade that did not go
your way. This will happen because not a single swing trader on Earth has a
100% success record. As I have said a number of times throughout this book,
a good trader will accept a loss as part of their business, not take it personally
or emotionally, and move on to another trade.
If the trade does work out as planned, then you will be exiting the trade with
a profit. Remember though, you have not made any money on a trade until
you exit the position and the cash is in your account.
Exiting for a Profit
If the trade goes as hoped, then the security price will hit the targeted exit
price and you will exit the position for a profit. However, some swing traders
will not exit their entire position if they feel that there is more profit to be
made in the trade. They may hold a portion for further gains. This is called
“scaling out” and is an acceptable practice as long as the minimum risk to
reward ratio of 2 times is maintained.

For example, you have identified a trade that will give you 3 times the reward
to the risk that you are taking. That is obviously a good trade and you take a
position. The trade works and the target exit price is hit. Now you have a
choice of selling the entire position or selling a fraction for a profit in
anticipation of making further gains down the road. The obvious advantage
of scaling out is that you can make more gains compared to selling the entire
position. The downside is that the stock might reverse direction against you
and you will get stopped out, giving back some of the gains that you made on
the trade.
In the case mentioned in the previous paragraph with the possibility of a 3
times reward, you could scale out at the target price and move your stop price
up so that the reward on the remainder does not fall below a 2 times reward
level. By selling half at the target and getting stopped out at the lower level,
you will still receive an acceptable 2.5 times reward on the trade (3 times on
half and 2 times on the other half gives an average of 2.5).

TTD gave a reversal signal around February 12th, 2018 with a dragonfly doji
pattern. You could have taken an entry just under $44.00 with a stop out price
level of around $43.00 on the low of the pattern. Three levels of prior
resistance of about $46.00, $48.00 and $50.00 can be seen through December
2017 and January 2018. The first level of $46.00 gives the minimum risk to
reward of 2 times and the stock ended up aggressively moving through this
area. Knowing that the older resistance level was likely going to be weaker
than the other 2 resistance levels of $48.00 and $50.00, you could have taken
half of the position off and held the remainder for more gains into these next
levels of resistance.
The trade could have played out as follows:
buy at $44.00
 sell half above the $46.00 level and move the stop out price
up to just under $46.00
sell another quarter at $48.00 and move the stop up to
$47.50 to trail the stop
sell the remainder at $50.00
In this case, the trade was much more profitable compared to selling 100% at
the $46.00 price level.
In summary, below are some final thoughts on selling out of a position versus
scaling out:
At a target price based on areas of resistance or support,
generally speaking at least half of the position should be
taken off and the stop moved up on the remainder. On hot
sector mania plays, scaling out should be done more
gradually.
As a disciplined swing trader, you should never let a trade
fall back into a situation where you do not get a 2 times
reward for the risk that you took. When scaling out, a stop
on the remainder should be moved up so that a reward of 2
times is respected if the trade gets closed on a reversal.
A “trailing stop” can be used on the remainder of the
position if you have chosen to scale out. If the trend
continues, you can continue to monitor the position and
move your price stops up or down (depending on if you are
long or short) to follow the trend. You want to be prepared
to lock in the additional profit once the trend does change.
You can use the ATR as a guide to how far away the stop
should be set from the current price to avoid being stopped
out on a normal price variation during a trading day.
Once you have taken a position in a stock or security, enter
another trade to exit your position at your first target price
regardless of whether you decide to scale out or exit your
entire position. That way you will lock in profits if your
target is hit while you are away from your trading platform.
Alternatively, you could decide to set an alert and get a
notification by email or text from your broker, but I usually
prefer to get a fill immediately when my target is hit.
 CHAPTER 21:

Money Management for Success

M oney management mainly involves budgeting, saving,

investing and spending one’s money. Another way to explain it
would be how an investor makes wise investment decisions
with their funds and how they make plans around it. Making money is one
thing, but knowing how to spend it wisely is what makes the whole
difference. There are so many people who would be able to lead a great life,
only if they managed their finances well. Unfortunately, this is not something
that comes automatically, but rather something that needs a lot of discipline
and prior preparation.

In the investment industry, money management is a wide topic that comes

with solutions to wise investments. In the financial market, consumers always
have access to wide range of investment opportunities, but depending on how
they manage their funds, they might find themselves making wrong money
moves. An investor’s min goal is always to increase their net worth; hence
they have to have great money management skills. Some would learn it
themselves; while a few would always opt for financial advisors or money
management apps, that then manages their money for them.
Simple Ways to Manage Money
Put down a budget
This applies to both small amounts of money or even any planning involving
a lot of money. Budgeting helps a lot in having control over what or how one
spends their money. Many people do not work with budgets as they think it is
a useless process. However, boring it is, budgeting gives you a clear picture
of the amount of money you have and will help you limit yourself in
spending on wrong things. Budgeting also helps one not to get into debts or
live beyond their means.
A simple way to budgeting:
Set realistic goals: Be it in investments, saving, etc., always set goals that you
can achieve. Once you have goals to achieve, it becomes easier to work
towards achieving them.
Identify your expenses: Since most people know how much they make or
have, they rarely bother to look into their expenses. Track down your
expenses to the last coin for a certain period of time. It can be a few weeks or
month.
Identify your needs vs. your wants: Know what you need and what you want,
as in this difference is where the problem lies. Knowing what you can live
without will always make a huge difference as you get to set clear priorities
for yourself when it comes to money matters.
Create your budget: Working with the needs, write down a budget breakdown
for yourself, making sure you are not spending more than you make.
Stick to the budget
Once you have the budget created, it only makes sense if you can stick to it to
the latter. It would be a waste of time not working alongside the created
budget, as it is the guide to spending. Refer to it along the way as you get
things done, ensuring that you are not going beyond the amount allocated to
the specific areas.
Have a limited miscellaneous fund
This is very critical when working with budgets, as it allows you some
wiggle room to spend outside the budget. This is what one can use for fun or
entertainment, but it has to be up to a certain limit. With the limit, one can be
able to know how far they can go with the spending. Without a limit, the
chances of spending too much on mere wants and not needs are very high.
Track your spending
Small frequent purchase always adds up quickly. This happens without one’s
knowledge, but before they know it, they have exhausted their finances.
Tracking one’s expenses gives one room to see where they are spending too
much on any unnecessary purchases. Other people spend out of habit, even
when they do not need the items. Tracking this sets, a way of controlling how
one gets to use their money on the most important needs.
Go for the best prices
When making purchases, always do a lot of comparison to go for the lowest
and best prices. This can also be used in investment, where an investor with
scout the market for affordable assets that are still great in value. Some items
that are highly priced are because of mere differences in packaging, or
branding. Always take advantage of discounts, coupons or clearance sales
that always have prices lowered. This helps in saving money.
Do long term plan for big purchases?
Once you have tracked the expenses are have started to make sense out of it,
have a long term plan for any big purchases. This means one can start by
saving and putting away fund even for investment. Rather than maybe taking
a loan to invest, one can take a year to put away money for the same and they
would not feel the heavy impact on their money.
Planning this in advance also helps an individual discipline themselves even
more on where to spend and where to save.
Keep practicing
Once you have a clear picture of what works for you as an individual, keep
practicing it to make it a habit. With time, you will be able to manage any
amount of money and will know when to spend it or not. Even as an investor,
you can be able to grow your portfolio by know when, when and how to
invest.
Understanding Risk / ratio
Common risks to avoid in money management
There are so many ways one can avoid making money mistakes, but there are
a few basic ideas on how to go about it. So many business owners and
investors learn through their mistakes, but it does not always have to be the
case for everyone. Here are a few examples on how to make great money
decisions as a beginner:
Not working with a financial plan
When working with any kind of funds, and with no tangible financial plan,
always ends up in a mess. This is one risk most people make and end up
spending money haphazardly and without knowing it, have nothing to show
for the spending. One always ends up going back to the drawing board once
they realize they have incurred costs on so many things that they cannot
account for. This is an area that needs a lot of caution be it for business men,
households or even normal office set ups.
Not measuring and having an idea where your money goes
Not knowing how much one is spending on a business or investment is very
risky, as it leaves room for financial mistakes. Buying or having random
expenses always leads to over spending and one might end up prioritizing
wrong things. Always have a clear idea of what you need to spend on and
have it written down, so you can stick to the plan to the latter. That way you
can be able to track and see where you spend most of your money, and how
to cut down on some of the costs.
Borrowing money that one does not need
There are people who borrow money just for the sake of borrowing, or just
because they have access to the funds. This is a very dangerous move
because one always ends up spending money on wants and not needs. As
much as one has access to money, it is advisable only to borrow money when
with a clear plan of how the money is going to be spending, and how much
returns will come out of it.
Not budgeting for non-monthly expenses (holidays, lunches, vacations)
There are people who go for holidays without making any plans. They get
into their investment fund; take a chunk of the money just to take a break.
This is a very bad financial move as the funds should be put into great use in
order to have high return on any investment. Holiday or vacations are good,
but should be planned for in advance. This also helps in controlling the
spending. Have a clear budget for the expenses, and then work out on a plan
to achieve the budget, working with specific timelines.
Spending more than is needed
Impulse purchases are also a downfall to many when it comes to money
management. When one spends too much or more than they are needed, it
always becomes a habit and money gets wasted. This is most common in day
to day expenses where one buys small things that will end up accumulating
and make a great expense. Always spend money on things that are a need and
not nice to haves.
Surviving on paycheck to paycheck
Majority of the society falls in this category of poor money management.
They survive on one paycheck to the other and it would be disastrous if they
lost their day jobs. Paychecks are great, but they are not the best when it
comes to the high level of unemployment and company's cutting costs.
It is advisable to always have something on the side that one can use to boost
they usual paycheck. This can be any kind of business whose money can be
used for bigger investments. Also, with the paycheck, one still needs to use
the money management tips shared to be sure they are utilizing it well to their
growth and benefit.
Not having a plan around managing of one's monthly paycheck is risky, as it
also makes one a slave to employer.
Saving after spending
The most efficient way to save money is never saving after budgeting for
everything else, but rather saving first then plan for the remaining money.
The mistakes people make is they do the reverse, and everyone knows how
money issues are. One will always find a use for the money.
Expenses are always many in every setting of life, hence for one to be
disciplined, they need to learn that saving is the most important aspect of
budgeting, and that is should come first.
Not having emergency fund
An emergency fund refers to money that you set aside to use when you need
something fast. If you find yourself struggling with every issue that comes up
in the road, then you need an emergency fund. Working with an emergency
fund is similar to operating a business without any savings at all. The
emergency fund protects you from any unexpected expenses that might come
your way.
 CHAPTER 22:

Money Mistake to Avoid

N ow we’ll turn our attention to giving some tips, tricks and advice
on errors to avoid in order to ensure as much as possible that you
have a successful time trading.
Avoid The Get Rich Quick Mentality
Any time that people get involved with trading or investing, the hope is
always there that there’s a possibility of the big winning trade. It does happen
now and then. But quite frankly, it’s a rare event. In many occasions, even
experienced traders are guessing wrong and taking losses. It’s important to
approach Forex for what it really is. It’s a business. It is not a gambling
casino even though a lot of people treated that way so you need to come to
your Forex business–and it is a business no matter if you do it part-time, or
quit your job and devote your entire life to it–with the utmost seriousness.
You wouldn’t open a restaurant and recklessly buy 1 thousand pounds of
lobster without seeing if customers were coming first. So, why would you
approach Forex as if you were playing slots at the casino? Take it seriously
and act as if it’s a business because it really is. Again, it doesn’t matter if you
officially create a corporation to do your trades or not, it’s still a business no
matter what. That means you should approach things with care and avoid the
get rich quick mentality. The fact is the get rich quick mentality never works
anywhere. Unfortunately, I guess I could say I’ve been too strong in my
assertion. It does work on rare occasions. It works well enough that it keeps
the myth alive. But if we took 100 Forex traders who have to get rich quick
mentality, my bet is within 90 days, 95% of them would be completely
broke.
Trade Small
You should always trade small and set small achievable goals for your
trading. The first benefit to trading small is that this approach will help you
avoid a margin call. Second, it will also help you set profit goals that are
small and achievable. That will help you stay in business longer.
Simply put, you will start gaining confidence and learning how to trade
effectively if you get some trades that make $50 profits, rather than shooting
for a couple of trades that would make thousands of dollars in one shot, but
and up making you completely broke. Again, treat your trading like a real
business. If you were opening a business, chances are you would start
looking for slow and steady improvements and you certainly would not hope
to get rich quick.
Let’s get specific. Trading small means never trading standard lots. Even if
you have enough cash to open an account such that you could trade standard
lots, I highly recommend that you stay away from them. The large amount of
capital involved and margin that would be used could just get you into a lot
of financial trouble. For beginners, no matter how much money you are able
to devote to your trading, I recommend that you start with micro lots. Take
some time and learn how to trade with the small lots and start building your
business earnings small profits at a time. Trading only with micro lots will
help in force discipline and help you avoid getting into trouble. Make a
commitment only to use micros for the first 60 days. After that, if you have
been having decent success, consider trading a mini lot. You should be
extremely cautious for the first 90 days in general.
Be Careful with Leverage
Obviously, it’s extremely beneficial. It allows you to enter and trades that
would otherwise not be possible. On the other hand, the temptation is there to
use all your leverage in the hopes of making it big on one or two trades. You
need to avoid using up all your leverage. Remember that you can have a
margin call and get yourself into big trouble if your trades go bad.
And it’s important to remember there’s a high probability that some of your
trades are going to go bad no matter how carefully you do all your analysis.
Not Using a Demo Account
A big mistake the beginners make, is jumping in too quickly. There is a
reason that most broker-dealers provide demos or simulated accounts. If you
don’t have a clue what that reason is, let’s go ahead and stated here. Brokers
provide demo accounts because Forex is a high-risk trading activity. It can
definitely be something that provides a lot of rewards and it does for large
numbers of traders. But there is a substantial risk of losing your capital. Many
beginners are impatient hoping to make money right away. That’s certainly
understandable, but you don’t want to fall into that trap. Take 30 days to
practice with a demo account. This will provide several advantages. Trading
on Forex is different than trading on the stock market. Using the demo
account, you can become familiar with all the nuances of Forex trading. This
includes everything from studying the charts, to placing your orders and,
most importantly, understanding both pips and margin. The fact that there is
so much leverage available means you need to learn how to use it
responsibly. You need to know how to experience going through the process
and reading the available margin and so forth on your trading platform while
you are actually trying to execute trades. A demo account let you do this
without risking real capital. It is true that it’s not a perfect simulation. The
biggest argument against demo accounts is that they don’t incorporate the
emotion that comes with trading and real money. As we all know, it’s those
emotions, including panic, fear and greed, that lead to bad decisions.
However, in my opinion, that is a weak argument against using demo
accounts. The proper way to approach it is to use a demo account for 30 days
and then spend 60 to 90 days doing nothing but trading micro lots. Don’t
worry, as your micro trading lots you can increase the number of your trades
and earn profits. While I know you’re anxious to get started, keeping yourself
from losing all your money is a good reason to practice for 30 days before
doing it for real.
Failing to Check Multiple Indicators
There is also a temptation to get into trades quickly just on a gut level hunch.
You need to avoid this approach at all costs. Some beginners will start
learning about candlesticks and then when they first start trading, they will
recognize a pattern on a chart. Then in the midst of the excitement, they will
enter a large trade based on what they saw. And then they will end up on the
losing end of a trade. Some people are even worse and they don’t even look
at the candlesticks. Instead, they just look at the trend and think they better
get in on it and they got all anxious about doing so. That means first checking
the candlesticks and then confirming at least with the moving average before
entering or exiting a position.
Use Stop Loss and Take Profit Orders
Well, I hate to repeat myself yet again, but this point is extremely important. I
am emphasizing it over and over because it’s one of the tools that you can use
in order to protect yourself from heavy losses. One of the ways that you can
get out of having to worry about margin calls and running out of money is to
put stop-loss orders every time you trade. This will require studying the
charts more carefully. You need to have a very clear idea where you want to
get out of the trade, if it doesn't go in the direction you hoped. But if you have
a stop-loss order in place, then you can avoid the problem of having your
account just go down the toilet. Secondly, although the temptation is always
there to look for as many profits as possible, in most cases, you should opt to
set a take profit order when you make your trade. That way you set as we
said, distinct boundaries which will ensure that you make some profit without
taking too much risk. The problem with doing it manually is that excitement
and greed will put you in a position where are you miss the boat entirely.
What inevitably happens, is people get too excited hoping to earn more
profits and they stay in the trade too long. The Forex market changes very
fast and so what eventually happens is people that stay into long inevitably
and up with a loss. Or at the very least they end up missing out on profits.
There is one exception to this point. There are some times when there is a
distinct and relatively long-term upward trend. If you find yourself, by doing
the analysis and determining that such an upward trend is here, that might be
an exception to the rule. In that case you want to try to ride the trend and
maximize your profits.
Remember Price Changes Are in Pips
Beginners often make the mistake of forgetting about pips. Remember that
pips play a central role in price changes, you need to know your dollar value
per pip in order to keep tabs on your profit and losses. This is also important
for knowing the right stop loss and take profit orders to execute.
Don’t Try Too Many Strategies or Trading Styles at Once
When you are a beginning Forex trader, it can be tempting to try everything
under the sun. That can be too much for a lot of people. The most advisable
thing to do is to stick with one strategy so don’t try scalping and being a
position trader at the same time. The shorter the time frame for your trades,
the more time and energy, you have to put into each trade. Scalping and day
trading are activities that would require full-time devotion. They are also
high-pressure and that can help enhance emotions involved in the trades. For
that reason, I don’t really recommend those styles or strategies for beginners.
In my opinion and to be honest it’s mine alone, I think position trading is also
too much for a beginner. It requires too much patience.
Perhaps the best strategy to use when you’re beginning Forex trading is to
become a swing trader. It’s a nice middle ground, in between the most
extremely active trading styles and something that is going to try people’s
patience such as position trading. When you do swing trading, you can do
time periods longer than a day certainly, but as long or short as you need to
meet your goals otherwise. Swing trading also takes off some of the pressure.
And it gives you more time to think and react.
This does not mean that you can’t become a scalper or day trader at some
future date. What I am advising is that you gain some experience using more
relaxed trading styles before taking that path. And believe me, swing trading
is going to be challenging enough.
 CHAPTER 23:

Important Psychology of Trading

I f you want to become a successful trader who consistently earns a

passive income, time and again, you need to know how to navigate the
psychology of trading. Anywhere you look, you will discover that the
psychology of trading is as crucial to your success as virtually anything else
and that a truly magnificent trader enforces this proper psychology.
Through fostering the right mindset and preparing your psychology for
success, you can ensure that you are able to make the best trades possible,
allowing you to maximize your profits.
The biggest reason why your mindset is so important when it comes to
trading is that trading in and of itself can be incredibly stressful, and there is a
lot at stake with each trade that you make. Although options trading is
significantly less risky than other trading strategies, it is still risky and should
be treated like any other form of trading to protect yourself against the risk.
When we become stressed during any life experience, our emotions have a
tendency to hijack the experience and prevent us from being able to make
logical rational decisions. Naturally, this would not be productive to you
making the best decisions with your trades which mean that this needs to be
avoided at all costs.
Fostering the right mindset allows you to remain objective and logical in
every trade decision that you make so that you are always making decisions
that lead to your profits, rather than mistakes that lead to your losses.
It does take time to learn how to foster this particular mindset, especially with
the amount of stress that you might face with trading. Ideally, however, if
you practice at it every single day you will find that it becomes a lot easier for
you to see your trades objectively. As a result, you will find that your trades
become more productive and your passive income stream grows
exponentially.
Never Take Anything Personally
In life, it can be challenging to separate yourself from your experiences,
especially when higher emotions such as stress and overwhelm come into
play. Early on, you might feel like every trade you make reflects you
personally and like any bad trade, you make means that you are a bad trader
or that you are incapable of earning an income through trading. This type of
response is fairly natural, but it is also unhelpful when it comes to learning
how to trade to earn a profit.
Experiencing losses and trade deals gone wrong is a natural part of trading,
and virtually everyone experiences it. While senior traders are not as likely to
experience as many losses as new traders, they do still experience losses that
cut into their bottom line. This is natural, especially when you are trading on
something as volatile as the stock market. With day trading, in particular, you
never know exactly how that day is going to go, nor do you know whether or
not sudden shifts in news and rumors could completely change the direction
of the stock. As such, you are certainly exposed to risks that can be
completely beyond your control. While you can protect yourself against them
as much as possible, there is no real way to avoid risks completely and so
they are always a possibility.
This arrogance can lead to new traders exposing themselves to massive risks
and losses because they stop taking their trades as seriously and reduce the
amount of researching and risk management they conduct before every trade.
As a result, they may experience a massive setback due to this arrogance.
In either scenario, creating a personal attachment to what your trades “mean”
about who you are as a person is not healthy. Both can lead to self-doubt or
arrogance which has the capacity to destroy your trade deals and reduce your
effectiveness as a trader.
Instead, you need to go into every single trade deal knowing that your level
of results in the trades is not reflective of you as a person. You are neither
good nor bad for participating in trades that earn profits or losses. You are
just a trader, trading. Keeping your personal attachment out of the trades will
help you stay objective and continually practice logic and rational reasoning
in every single trade you make.
Always Stay Hungry for Knowledge
Trading is not a one and done skill that can be learned and then executed the
same way over and over again without ever requiring further education on
what you are doing. If you want to be a great trader and earn massive profits,
you need to stay hungry for knowledge so that you can continually improve
your trading skills over time.
Despite the fact that the general rules of trading have always remained the
same throughout history, there are several different factors that influence the
market and how trades are being made. Over time you will learn more about
technical indicators, how certain types of news tend to affect the market, and
where the best sources of information are for you to learn more about your
specific trades.
Chances are, you will take what you learn here in this book and apply them,
and over time you will find new information that helps you improve your
trades even further.
It is important to understand that you should always be hungry and on the
lookout for new information. Keeping your eyes and ears open ensures that
you are always refining your practice and increasing your profitability in the
market, which will, in turn, maximize your passive income. Every single
person will have a different way of understanding the market, identifying
important pieces of information, and preparing themselves for trades.
The best way to create your own method for doing all of this is to keep
practicing and applying new strategies that you learn about as you go and
seeing how they fit for you. When you find ones you like and that work for
you, continue using them and refining them so that they work even better
over time.
Keep Up with Stress Management
Stress can play a huge role in your ability to make strong trade deals. If you
are attempting to trade with an incredibly stressed out and overwhelmed
mind, you are going to find yourself making poor decisions that may
ultimately cost you a significant amount in the end.
One example that proves the impact of emotions on traders lies in a
phenomenon that happens every single time the market hits a recession.
When a recession strikes, many traders develop an intense fear at the rapidly
dropping prices of various stocks and jump out of their trade deals as fast as
they can, regardless of how much they are losing.
Their fear of experiencing a complete loss leaves them reacting instead of
responding to the situation at hand. As a result, many people inevitably lose
out on massive amounts of income and some even find themselves amidst
devastating losses.
Alternatively, those who respond to the situation quickly recognize that a
recession is in the works and, based on the history of what tends to happen
during recessions, they maintain their positions. In fact, they often leverage
their positions and invest in the plummeting stocks once they begin to hit all-
time lows because they know that historically, every single time the stock
market drops it always corrects itself eventually.
These individuals end up coming out of recessions far wealthier than they
went into because they leveraged what was happening in the market, rather
than acting impulsively based on their stress levels.
If instead, you were to slow down and follow the plan you had already set in
place, you would continue to see increases in the value of your stock, or at
the very least you could minimize the number of losses that you experience.
Understand that when we talk about stress management, we are not talking
about eliminating stress entirely. Even the most senior traders in the industry
will tell you that they continue to experience massive amounts of stress
around the stock market on a consistent basis.
The difference is, they do not let their stress alter or rule their decision-
making skills. Instead, they let their stress exist in the background yet they
continue to behave according to the plans expertly they have already
designed at the beginning of every trade deal they have ever entered. As a
result, they maximize their profits and their stress and emotions no longer
pose such a massive threat to their bottom line.
Improve Your Emotional Intelligence
In addition to managing your stress, it is helpful to learn how to improve your
emotional intelligence overall when it comes to trading. Emotional
intelligence will help you not only manage your stress but also manage all of
the emotions that contribute to stress, such as fear, anger, frustration, worry,
regret, disappointment, sadness, and uncertainty.
Improving your emotional intelligence as a trader will have a huge impact on
your ability to decrease your emotional involvement in trades and trade with
an objective approach in every single deal.
Aside from supporting you with the emotions, you have gained directly from
the market, emotional intelligence will also help you manage the emotions
that you experience from elsewhere in your life.
Managing your emotions all around will have a significant impact on helping
you trade more rationally, intentionally, and effectively. Ensure that you are
practicing emotional intelligence in all areas of your life and continually
improving your emotional intelligence each day so that you are minimizing
the risk that your emotions may pose on your trade deals.
Maintain a Healthy Respect for the Market
This particular mindset, strategy is incredibly important, and it can be one of
the most challenging ones to maintain. As a trader, you can easily become
complacent by losing focus, becoming arrogant about a winning streak, or
becoming doubtful from a losing streak. If you are not careful, you will
quickly find your respect for the market shifting away from healthy respect
and it could drastically impact your trade deals.
You must always remember that the market is volatile, that it is not
guaranteed, and that anything can happen at any given time. No matter how
much research you do, and no matter how much effort you put into
guarantees your success, you are never guaranteed anything in the stock
market. No amount of preparation can completely prevent you against losses,
no matter what. Although options are certainly less risky than other trade
styles and can help you create predictable loss amounts, you still do not want
to be exposing yourself to these risks.
The single best way that you can protect yourself mentally and practically
from being exposed to threats in the market is through maintaining a healthy
respect for it. In exercising this healthy respect, you should always seek to
educate yourself as much as possible around a trade deal you are going to
make and execute that trade deal with confidence.
You should also seek to continually educate yourself on the market so that
you can improve your confidence and respect in the market. Never allow
yourself to grow complacent or ignorant of how powerful the market can be,
as this can lead to you exposing yourself to unnecessary risks and incurring
massive losses.
 CHAPTER 24:

What Strategies Do Not Follow

If You Are Expert Trader

A n expert counselor can be portrayed as a definitive trading robot,

which consistently screens markets and settles on an arrangement
of trading choices for the trader. A genuine Forex EA will yield a
great deal of money for the trader, while counterfeit EAs will plunge him/her
into monetary ruin. There are numerous strategists who are building their
unique EAs that perform uncommon trading stunts to yield results that may
look great when they are really phony. There are different methods for
spotting counterfeit expert consultants. This book will broadly take a gander
at them.
Instructions to spot Expert Advisor tricks:
Check most extreme drawdown detailed in the back-test report
of the mechanized trading framework;
Check if the part measures are expanding. There is a probability
the strategists are utilizing martingale trading style to recuperate
from misfortunes.
Check if the Forex robot utilizes the matrix style of trading,
whereby there is a great deal of purchasing and selling
simultaneously. Such a strategy uncovered the record into a lot
of risks and ought to be dodged.
Check if Forex EA closes the exchanges merely seconds. Such
trading bots are utilizing scalping strategies and they, for the
most part, don't deal with some other trading account since they
are delicate to spread changes;
Check if EA utilizes stop misfortune. Expert guides that don't
utilize stop misfortune can't shield traders from misfortunes and
are in this manner not worth looking at.
Check if exchanges are held open for quite a while. EAs that
hold strategies for quite a while or those that nearby exchange
seconds (scalping strategies) regularly produce incredible value
bends, yet have no genuine pertinence in genuine trading.
Which Sorts of Expert Advisors You Ought to Keep Away
from?
In the first place, we should discuss the sorts of Expert Advisors and trading
strategies that you ought to stay away from. Expert Advisors are significant
with regards to robotized trading. Numerous individuals have been directed
to budgetary ruin just on the grounds that an EA came up short on a little
piece of detail. Everything about right now significant and ought to be taken
into key thought.
Avoid Strategies with Very High Drawdown Figures.
Think about this backtests:
The outline speaks to a strategy report
For a great many people, this is a phenomenal trading strategy. Be that as it
may, regardless of having an upward value bend and a 99% displaying
quality (a great many people judge strategies by these two coincidentally), the
outcomes are a long way from great. This is shown by the drawdown, which
is at around 31% – a high adds up to lose. Much more terrible, the relative
drawdown is at 93%. In live trading, this strategy would not make due, as
demonstrated by the relative drawdown.
Numerous traders are tricked by backtests basically on the grounds that they
don't have the foggiest idea where or what numbers to take a gander at.
The value bend may trick apprentice traders or expert traders who have
recently set out on an excursion to extreme trading utilizing expert counsels;
however, for an expert, this backtest has not been progressed admirably.
Let us take a gander at the parcel sizes to clarify the imperfect idea of this
backtest appropriately.
Avoid Strategies with Unthinkably Large Parcel Sizes.
The exchanges start with 0.44 part sizes, and afterward, they keep on 8
parcels. When the strategy gets its first effective exchange, the part measures
move again to an extremely modest number and afterward moves to parcel
size 8. At that point, they hop to estimate 43. It is stunning that the parts
continue expanding they go to 200, to 900, and afterward, they settle in
thousands. No normal agent would permit his/her customers to exchange with
1000 parcel sizes.
For it to be even conceivable, the trading record ought to be incredibly large
for it to have the option to execute such trading positions. More or less, these
back tests glance great in its value bend, yet in all actuality, it is finished
rubbish.
In this way, additional safety measures ought to be taken when managing
strategies that twofold their parcel sizes. The motivation behind why
swindlers utilize enormous parcel sizes is to endure the strategy tests and to
make their strategies look great on the screen.
Avoid Strategies That Long Open Exchanges for Madly
Extensive Stretches.
Moreover, strategies that hold exchanges for significant stretches of time are
bad. There are traders anyway who contend that they exchange for the since
quite a while ago run, which is excellent.
Long haul exchanges stop to bode well when they keep going for quite a long
while. They should keep going for half a month or months all things
considered before they are shut.
From the model underneath, one trading strategy goes on for 1287 days,
which is around three and a half years. Sensibly, who might ever hold a
solitary exchange for over three years?
Precisely, no rational individual would show restraint enough to hold an
exchange for a long time when there are such a large number of exchanges
that could be made over a similar period.
It could be accepted that the proprietor of the strategy wouldn't like to lose
any exchanges and needs to have the same number of wins as he/she can
have, regardless of whether they are ludicrous.

There are other extraordinary exchanges that last between 300 to 900 days.
Before receiving such a strategy, you ought to ask yourself: why clutch a
strategy that guarantees yearly returns when you can have the same number
of exchanges as you need in the equivalent time period?
The figure outlines a strategy that holds exchanges for a significant stretch of
time.
To additionally feature the issue of long haul exchanges let us take a gander
at a trading report beneath:
The figure outlines a value bend with numerous drawdowns.
At the point when you appropriately take a gander at the value bend, you see
that there are numerous drawdowns (pointed by the red bolts). The
drawdowns speak to exchange places that have been held for an extensive
stretch and afterward wound up in misfortunes. As much as the strategy picks
up benefits, the quantity of drawdowns is high.
Besides, the reputation of the record isn't checked. This could imply that the
strategy is created. Truly, OK, sit tight for that long and hold your losing
position when you realize that they may wind up in misfortunes?
Avoid Scalping Strategies Since They Are Touchy to Spread
Changes.
Shouldn't something be said about scalping strategies? Is it accurate to say
that they aren't among the most mainstream expert counsels?
The facts demonstrate that they are famous as prove by the number of
individuals who use them to scout for well-known markets. The issue with
scalping strategies is that the greater part of them don't work.
You might be tricked by the attractive exchange results. However, like
different strategies, they can be effortlessly created to deliver results that may
tempt traders.
Moreover, scalping strategies are delicate to value changes. Along these
lines, they, for the most part, don't chip away at most merchants.
On the off chance that a scalping strategy figures out how to chip away at one
intermediary, at that point, there is a high probability that it will neglect to
take a shot at another dealer. Truth be told, if the strategy was to be utilized
again by a similar specialist, there is a high possibility that it will likewise
fizzle.

Investigate the length of the exchanges the model given underneath:

The figure speaks to a scalping strategy
The length of most exchanges is zero seconds. The Pips are running in the
hundreds in only zero seconds, and the average holding time is somewhere in
the range of zero and three seconds. This is totally crazy. It is dubious that
this strategy works in any genuine trading other than the demo account that it
began from.
Avoid Strategies with A Massively Enormous Stop Misfortune
Strategies with immense stop misfortune should likewise be maintained a
strategic distance from except if you ensure your MetaTrader 4 record (MT4)
with Equity Sentry Expert Advisor. Stop misfortune is fundamentally the
capacity of a trading strategy to end trading positions when they begin
making misfortunes totally. Along these lines, envision a strategy that doesn't
utilize stop misfortune and the money related ruin that anticipates a trader
that utilizations such a strategy.
A few people may contend that they don't utilize stop misfortune since they
utilize shrouded stops. In the event that that is the situation, at that point, for
what reason don't they utilize hard stops too?
Hard stops may be set to be two or multiple times greater than concealed stop
misfortune, yet for a situation Internet association issue, you would not lose
in excess of a hard stop misfortune. Along these lines, you have a higher
possibility of controlling losing exchanges while utilizing shrouded stops and
hand stops simultaneously.
For what reason would anybody consider utilizing strategies with no stop
misfortune on the off chance that they posture such a substantial hazard to
his/her benefits? There ought to be some degree of assurance at any rate
against misfortunes, regardless of whether it is only half of it.
So if an EA doesn't offer hard stop arrangements like an assurance of the
record's value, debilitating Autotrading, and shutting the exchanges, at that
point, it ought to be disposed of.
Avoid Framework Trading Expert Advisors.
In conclusion, there are those strategies that utilization matrix trading style –
this style includes making loads of purchasing and selling exchanges
simultaneously with the point of making immense benefits. Making various
purchase stops and sell stops simultaneously opens the record to high hazard
and a bit nearer to catastrophe.
Protecting Your MT4 Account with The Equity Sentry EA
Value Sentry EA (or ESEA for short) is an extra for the MT4 account. It
secures trading accounts by observing record value/parity and open
exchanges.
Value Sentry EA will initiate 'security trigger' if:
• Equity/balance reaches or drops to a specific level;

• Open exchanges (skimming misfortune/benefit) arrive at a specific level;

• Closed exchanges + open exchanges arrive at a specific level. ESEA can
likewise investigate the history of the exchanges and figure aggregate
benefits up to the finish of the end exchanges;
To spare your record capital, EA will:
• Close all exchanges/orders (Hard Stop);
• Disable all EA to keep them from trading (Close and Stop);
• Close MT4 terminal totally;
• Send email cautions and MT4 Mobile notices. This permits the client to get
moment alarms of what's going on in his/her record.
 CHAPTER 25:

Power Principles to Ensure a Strong Entry into Day

Trading Options

I cannot stress this enough - you need to have a plan if you want to be
successful at day trading options. You are putting your money on the
line every day. I am sure squandering those hard-earned funds are not
the plan but that is exactly what will happen without a proper plan in place.
Power Principle #1 – Ensure Good Money Management
Money is the tool that keeps the engine of the financial industry performing
in good working order. It is essential that you learn to manage your money in
a way that works for you instead of against you as an options day trader. It is
an intricate part of managing your risk and increasing your profit.
Money management is the process whereby monies are allocated for
spending, budgeting, saving, investing and other processes. Money
management is a term that any person with a career in the financial industry,
and particularly in the options trading industry, is intimately familiar with
because this allocation of funds is the difference between a winning options
trader and a struggling options trader.
Below you will find tips for managing your money so that you have
maximum control of your options day trading career.
Money Management Tips for Options Traders
Define money goals for the short term and the long term so
that you can envision what you would like to save, invest,
etc. Ensure that these are recorded and easily accessed.
Your trading plan will help you define your money goals.
Develop an accounting system. There are a wide range of
software that can help with this but it does not matter which
one you use as long as you are able to establish records and
easily track the flow of your money.
Use the position sizing to manage your money. Position
sizing is the process of determining how much money will
be allocated to entering an options position. To do this
effectively, allocated a smart percentage of your investment
fund toward individual options. For example, it would be
unwise to use 50% of your investment fund on one option.
That is 50% of your capital that can potentially go down the
drain if you make a loss in that position. A good percentage
is using no more than 10% of your investment fund toward
individual option positions. This percentage allocation will
help you get through tough periods, which eventually
happen, without having all your funds being lost.
Never, ever invest money that you cannot afford to lose. Do
not let emotion override this principle and cloud your
judgement.
Spread your risks by diversifying your portfolio. You
diversify your portfolio by spreading your wealth by
investing in different areas, add to your investments
regularly, being aware of commissions at all times and
knowing when to close a position.
Power Principle #2 – Ensure that Risks and Rewards Are
Balanced
To ensure that losses are kept to a minimum and that returns are as great as
they can be, options day traders should use the risk/reward ratio to determine
each and to make adjustments as necessary. The risk/reward ratio is an
assessment used to show profit potential in relation to potential losses. This
requires knowing the potential risks and profits associated with an options
trade. Potential risks are managed by using a stop-loss order. A stop-loss
order is a command that allows you to exit a position in an options trade once
a certain price threshold has been reached.
Profit is targeted using an established plan. Potential profit is calculated by
finding the difference between the entry price and the target profit. This is
calculated by dividing the expected return on the options investment by the
standard deviation.
Another way to manage risks and rewards is by diversifying your portfolio.
Always spread your money across different assets, financial sectors and
geographies.
Power Principle #3 – Develop a Consistent Monthly Options
Trading System
The aim of doing options trading daily is to have an overall winning options
trading month. That will not happen if you trade options here and there. You
cannot expect to see a huge profit at the end of the month if you only
performed 2 or 3 transactions.
You need to have a high options trading frequency to up the chances of
coming out winning every month. The only way to do that is to develop a
system where you perform options trades at least 5 days a week.
To have consistently good months, you need to develop strong daily systems
that keep your overall monthly average high. Therefore, creating a daily
options trading schedule is key. Here is an example of an efficient options
day trading schedule:
Perform market analysis. This needs to be done before the
markets open in the morning. That means that the options day
trader needs to get an early start on the day. This entails
checking the news to scan for any major events that might affect
the markets that day, checking the economic calendar and
assessing the actions of other day traders to assess volume and
competition.
Manage your portfolio. The way that an options day trader does
this is dependent on the strategies that he or she implements but
overall, it is about assessing positions that you already have or
are contemplating for efficient management of entry and exits
that day. It also allows for good money management.
Enter new positions. After assessing the market and fine tuning
your portfolio, the next step is to enter new trades that day.
Research and efficient decision-making go into this step. The
options trader who has already determined how the market was
doing and forecasted for performance that day, would have
noticed relevant patterns. The key here is to enter trades
frequently via a sound strategy. To narrow done which positions
you would like to pursue, keep an eye on the bullish, bearish,
neutral and volatile watch lists and run technical scans.
Incorporate learning during the day. Continual learning is
something that an options trader needs to pursue but this does
not always have to be in the way of formal classes or courses.
You can up your knowledge of options and day trading by
following mentors, reading books, listening to podcasts, reading
blogs and watching videos online. Such activities are easy to
incorporate into your daily routine. Even just a few minutes of
study a day can considerably up your options day trading game
in addition to stimulating your mind. Being in regular contact
with other options day traders is also a great way of increasing
your information well.
Power Principle #4 – Consider a Brokerage Firm That is Right
for Your Level of Options Expertise
There are four important factors that you need to consider when choosing a
broker and they are:
The requirements for opening a cash and margin account.
The unique services and features that the broker offers.
The commission fees and other fees charged by the broker.
The reputation and level of options expertise of the broker.
Let’s take a look at these individual components to see how you can use them
to power up your options day trading experience.
Broker Cash and Margin Accounts
Every options trader needs to open a cash account and margin account to be
able to perform transactions. They are simply tools of the trade. A cash
account is one that allows an options day trader to perform transactions via
being loaded with cash. Margin account facilitates transactions by allowing
that to borrow money against the value of security in his or her account. Both
of these types of accounts require that a minimum amount be deposited. This
can be as few as a few thousand dollars to tens of thousands of dollars
depending on the broker of choice. You need to be aware of the requirements
when deliberating which brokerage firm is right for you.
Broker Services and Features
There are different types of services and features available from different
brokerage firms. For example, if an options trader would like to have an
individual broker assigned to him or her to handle his or her own account
personally, then he or she will have to look for a full-service broker. In this
instance, there minimum account requirements that need to be met. Also,
commission fees and other fees are generally higher with these types of
brokerage firms. While the fees are higher, this might be better for a beginner
trader to have that full service dedicated to their needs and the learning curve.
On the other hand, if an options trader does not have the capital needed to
meet the minimum requirements of a full-service broker or would prefer to be
more in charge of his or her own option trades, then there is the choice of
going with a discount brokerage firm. The advantage to discount brokerage
firms is that they tend to have lower commissions and fees. Most internet
brokerage firms are discount brokers.
Other features that you need to consider when choosing a brokerage firm
include:
Whether or not the broker streams real-time quotes.
The speed of execution for claims.
The availability of bank wire services.
The availability of monthly statements.
How confirmations are done, whether written or electronic.
Commissions and Other Fees
Commission fees are paid when an options trader enters and exits positions.
Every brokerage firm has its own commission fees set up. These are typically
developed around the level of account activity and account size of the options
trader.
Broker Reputation and Options Expertise
You do not want to be scammed out of your money because you chose the
wrong brokerage firm. Therefore, it is important that you choose a broker that
has an established and long-standing reputation for trading options. You also
want to deal with a brokerage firm that has great customer service, that can
aid in laying the groundwork for negotiating reduced commissions and
allows for flexibility. Options trading is a complex service and your
brokerage firm needs to be able to provide support when you are handling
difficult transactions.
A list of reputable online brokerage firms includes:
E*Trade
OptionsXpress
Scottrade
Ameritrade
Train Station
Power Principle #5 – Ensure That Exits Are Automated
Even though I have stated that emotions should be set aside when trading
options, we are all human and emotions are bound to come into the equation
at some point. Knowing this, it is imperative that systems be developed to
minimize the impact of emotions. Having your exits automated is one such
step that you can take to ensure that emotions are left out when dealing with
options day trading. Using bracket orders facilitates this.
A bracket order is an instruction given when an options trader enters a new
position that specifies a target or exit and stop-loss order that aligns with that.
This order ensures that a system is set up to record two points – the target for
profit and the maximum loss point that will be tolerated before the stop-loss
comes into effect. The execution of either order cancels the other.
 Conclusion

D ay trading is a demanding profession and requires significant

time. Any market session runs for at least 6 hours a day, and you
will have to spend that much time watching and observing
markets; even if not reading. Apart from trading hours, a day trader needs to
research, create trading plans, and keep learning new things. All these require
time and effort.
Therefore; to succeed in day trading, you will need to manage your time
effectively. Usually, people want to adopt a day trading career so they will
have working flexibility. This means freedom from getting up early and
rushing to get caught in the morning traffic, freedom from having a boss, and
of course, financial freedom. Nothing comes easy in this world. A dream life
also requires putting in lots of effort. Many day traders find it difficult to
complete their trading routines; such as after-hours research and planning.
Part-time traders who are already busy with some other work also struggle to
prepare for day trading in their spare time.
All over the world, stock markets open in the morning. Those day traders
who think they can start trading while munching on their breakfast, with no
preparation, are among those who make losses. All businesses open in the
morning. No successful business person just gets up, yawns and starts his
business activities. Successful professionals arrive in their office with a clear
idea of how they will tackle the work and related challenges. Likewise, to
succeed in day trading, one must prepare beforehand. These preparations
include many aspects; such as mental, physical, emotional, and financial.
Professional traders have clear advice for day traders; never trade if you are
tired or stressed; never trade if you are feeling highly emotional, and trade
with clear money management concepts. Day trading is a sophisticated
business activity, where people try to earn money by using their intelligence.
Therefore, physical or emotional stress can cause harm to your trading
business. You will not be able to make rational decisions if you are tired or
feeling stressed.
Before you start the day’s trading, you should be physically, mentally and
emotionally alert. A good night’s sleep is necessary for traders to tackle the
roller coaster ride of stock markets. Here are a few steps that will help you
prepare for day trading with a cool temperament and calm mind.
Before going to sleep, keep your trading plan ready. Check the stock chart,
make notes on the chart what big patterns the price created in the previous
session. Note down the important support and resistance levels. Then
mentally go over this chart and imagine how you will trade in the next
session, in different trend conditions.
Do not spend too much time watching news about stock markets or anything
else. Watching the news may create doubts in your mind about stock trends
and influence your decision-making power for the next session. If possible,
do some breathing exercises or meditation before going to sleep, which will
sharpen your focusing power and reduce stress.
Also, prepare your money-plans for the next trading session. How much you
will invest? What will be your loss tolerance level? And, what will be your
profit booking point? During the trading hours, these decisions have to be
made in a split second, and if you are already prepared, you will not hesitate
to make the right decision. These will also help you set your goals for
intraday trading. Just stick to your goals and you will not face any decision-
making problems during the trading hours.
The final stage of your preparation will be an hour before the markets open in
the morning. This is the time when you check the news reports about the
business and financial world, and the economic calendar. By doing so, you
will know what events could influence that day’s trading pattern in the stock
market. You can also check how the world markets are trading in that
session. Sometimes all markets trade in one direction, which will be
beneficial to know before your local stock markets open.