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The rewards are incredible for those that do it right, but for those who make enough mistakes it will take everything they have and still not be satisfied. Day trading is the practice of buying and selling securities and other financial options. These transactions are usually completed within the same day. Options that are typically traded include stocks, stock options and currencies. For the most part, day traders focus only on short term trading and can consist of several trades in a single day. Because of the high volume in trades day traders are given large discounts through trading brokerages.

Day trading gained momentum and notoriety during the “Tech Bubble” a period of bull market activity from 1997-2000. During this time even the most inexperienced and casual of traders were making large profits. Usually a day trader would have a certain amount of money and would basically borrow the rest on margin. During this time most day traders didn’t even find it necessary to have a solid strategy. “Buy in the morning and sell in the afternoon” was the basic game plan for many. Reality hit the market in March of 2000. Since most the day traders at the time were inexperienced, they began to lose large sums of money quicker then it was gained. Most of the people relying on day trading as a source of income ended up completely broke and in some cases destitute.

Day trading is so risky that it has been likened to gambling. Compared to the number of day traders, very few are able to make consistent profits. The primary factor that contributes to such high risk is that the funds to trade are borrowed on margin. Due to this fact money management skills are a necessity. An experienced day trader knows that sometimes they can’t afford to wait for the stock to rise again, if the market fails to meet the expectations, quick thinking is needed in order to Read more…

The 4-Year Cycle, it’s a market phenomenon that goes back to the 19th Century. Each 4-Year Cycle has different trends leading into the cycle, and different bottoming periods, but the one thing they have in common is the strong move that follows. Lucky for all of us, 2006 is the year for a new 4-Year Cycle Low and from the looks of the tape since May, we are unmistakably in the thick of it. The best way to forecast what will happen over the next 3-4 months is to look in the past for clues. So, let’s analyze the last two 4-year cycle lows.

2002

In 2002 we saw the Dow make it’s high for the year at 10,673.10 in mid-March. From this high the Dow floated lower into early May and then had a quick bounce into mid-May. This rally was the last sign of bullishness until late July. The sell off from May to July gave the Dow a quick 17% haircut. The key item to note from the 2002 cycle low is that we sold off from the May – July timeframe to then bounce into August. From August, we then proceeded to continue to the downtrend lower into the October bottom, which has set up the current multi-year rally. The market then stormed out of this low to rally into late November producing a 25% rally in under 8 weeks. Interestingly enough, our recent sell off started in May and has seen it’s price low in late July as well.

1998

In 1998 instead of the sell Read more…

There is a lot of money to be made from stocks and shares but the only hitch is nobody knows a sure fire way of a method. Let us now see some of the basics of stocks and shares. You can earn money in two ways by investing in stocks and shares. One is trading and the other is investing.

Buying and selling stocks, shares, futures and options over a short period of time is known as trading. If you buy shares, stocks, futures and options and retain them for a longer period of time then it is known as investing.

Besides the above, there is no get rich quick scheme which works. If such schemes work then almost everybody would be a millionaire. Money can be made by selling stocks and shares but it cannot be done quickly by buying and selling without reason. The patient, careful and intelligent investors definitely make big profits in the stock market when compared to the overeager and reckless speculator.

Stocks and shares should be bought when their prices are low and wait for the price to rise to earn a decent profit over a longer period of time.

A prudent investor should not worry about the downs and ups and look for the long-term cycles. If these simple principals are not followed, there is not going to be any profit for an investor.

Presuming it is going to fetch more money, never buy a stock or share when the price is going up, it is wrong. If the peak price is reached at the time of buying then the investor will be holding a stock or share of which its price will be slowly sliding down and you will ultimately end up with a loss

There are certain golden rules to be followed when investing money in stocks. Never invest more than three percent of the total portfolio in one Read more…

Holding a stock (day or swing) trade into earnings can very often lead to some fairly large profits. However, it can also lead to some very large disasters?so large that it just may be the last trade you ever make.

When I was still an active day trader and now as moderator of Daytraders.com, I have witnessed both sides of this phenomenon from each perspective. I have lost big and was lucky enough to catch a few winners. Yet, after years of experience, observation and unscientific analysis of this practice, it is my opinion that I was just that?lucky.

First of all, holding overnight or even a few hours during the day waiting for an earnings report has removed you from a pure day trader status to a swing trader. There are merits of both methods of trading, which is fodder for a future article. Moreover, I will mention, that as common sense would suggest, that the longer you hold a stock as a trader, the more apt it is to move against you.

Most people, including most analysts, don?t really knows what is going to happen until the company releases their earnings. Sure, there are a lot of folks that will profess to be a genius at predicting such things, but I haven?t seen it. In fact, I have yet to see anyone really much more accurate, if any, than that famous sitcom parrot that used to pick stocks using the Wall Street Journal lining the bottom of his birdcage. Yes, I said parrot, as in, ?Polly wants a cracker!?

When someone asks me if they should buy such and such stock because they are about to release earnings, I always tell them the same thing, ?As a trader, holding onto earnings may be the single most dangerous thing you can do.? I suggest that if you are not willing to hold that stock for the next three to four months and into the next earnings period, then you should avoid the trade. If you hold into earnings and it misses their numbers, you may forced to hold the stock until the next reporting period or selling it a big lost. Or it could mean holding into, yet, another earrings report, and the beat goes on. If that be the case, you are not trading now. You are an investor, and as an investor you should have done your due diligence on the stock or not invested!

Too many traders focus strictly on the numbers, rather than what the company made or lost and how their actual numbers compared to analyst and company estimates. However, very often these numbers will have little of no bearing on how the stock will react to other information that is released at the same time. Guidance, where the company sees the future, may be the bigger item to be considered. Beyond that there is often ?bomb shell? news in the reports that is all too often overlooked in the first few minutes or even hours or days after the release. These might be items like investigations by the SEC or some other law enforcement agency. They could be announcements of lost contracts, lawsuits, patent disputes and on and on. Any number of negative factors can far outweigh how the stock will trade as this information is dissimulated and digested by the street.

Adding to the additional risk of trading stocks on earnings is the somewhat questionable practice of some companies. They try to soften Read more…

Traders, you have to stay positive!

If you are thinking of entering into the ?day trading business?, make sure to check any negative attitude you may have at the door.

Day trading is tough enough even for the most optimistic people, but, I for the life of me, don?t know what some people are thinking of when they enter into trading (or any ?trade? for that matter) with negative thinking.

I see it all the time. We offer a free two-week trial membership, and so many people come into the room with a predetermined mind set that is so negative that I don?t know how they can function in life itself, let alone in investing in or trading the stock markets. The ones with negative mind sets rarely last very long.

Trading is no different than anything else you do; you have to have the proper attitude and stay positive. There are thousands of books on the power of positive thinking, so I?ll not go there. But when it comes to trading specifically, there are a few things to think about.

The first thing to get ingrained in your mind is to forget about the indices! It really does not matter if the Dow Jones Averages or the NASDAQ index is up 200 or down 200. Oh sure, you have to pay some attention to the index just so you know what you may expect as far as what the overall ?tone? of the market. But there is no such thing as an up day or a down day based on the Dow or the NASDAQ as far as a Day Trader is concerned. There is only profit and loss.

No matter whether the markets are going up, down or sideways, there are always stocks to trade both directions! That?s important to remember. A lot of stocks you will be trading are going to be driven by news specific to the individual stocks. That news is going to play a more important role in where the stock is going than the over all market itself.

The Dow can be off 200 points but if news breaks that XYZ stock just discovered a new and exciting treatment of cancer, that stock is more than likely going to move up regardless of what the Dow is doing, even if it is a Dow component.

Trading down markets can actually be quite lucrative. The obvious way to play down markets is to ?go with the flow? as they say, and look for stocks to short. Shorting stocks, contrary to some beliefs, is not a negative or anti-American thing. Those that think so need to readjust their thinking. Shorters have been around since before the meeting under that Buttonwood tree that gave birth to the New York Stock Exchange. (See: ?What Does A Buttonwood Tree Have To Do With the New York Stock Exchange? at this source).

On the other hand, most traders and investors do not short stocks. They are looking for stocks to trade to the upside. If and when good news hits an individual stock in a down market, it is likely to attract a lot more interest. Depending on what stock it is and how good the news is, it may even give a boost to the entire market.

Too many traders let bad news put them into negative frame of mind. I know it is difficult to do, but you have to be able to shake off the negative and focus on the positive.

I see it all the time where there is Read more…

I recently heard from a trader who told me he has been having problems with discipline in his day trading. He knows how to trade, he knows the setups he needs to be looking for in the charts, when to enter, and when to exit. His trouble is in having the discipline to wait for only those setups and not to take half baked trades in the meantime.

This is a very common problem for traders, I imagine everyone goes through it at some stage in their career. In working with student traders over the years, I have noticed a phenomenon that I think explains one of the reasons for this lack of discipline. When I watch student traders trade, they tend to sit very patiently and explain to me what they are seeing on the chart in front of them. When they see a valid setup come along, they can quite happily tell me what the setup is and how they plan to trade it, and subsequently they will execute the trade accordingly. When the same student is trading alone, they start taking all sorts of off-plan trades, setups that aren?t really setups at all. It seems that the difference when trading alone, is that the trader suddenly has no accountability. If they have someone looking over their shoulder keeping them in check, everything is fine. They know that if they take an off-plan trade then they will have to explain to me why they did so when it all goes horribly wrong. Trading at home alone, the trader is accountable only to themself, and they are probably not going to give themself the same hard time I would if they didn?t follow their trading plan to the letter!

So it seems that one of the benefits of trading for a living, that independence from the boss, can actually be a hindrance at times. Short of hiring a manager to stand watch over them, what can a trader do to overcome this lack of accountability in their trading? One method I recommend is to give a running commentary out loud throughout the trading session, as if talking to a mentor. Explain what you are seeing on the chart, where you think a trade is setting up and why, how you will enter, how you will manage the trade, and where you will Read more…

Over trading is one of the biggest causes why traders never make it in the financial markets. With a click of a button, a trader can place a trade anytime he wants. It takes tremendous discipline to hold yourself back from over trading. There are many reasons why one may choose to over trade.

1. Traders without a plan

Traders without a plan are my favorite type of traders because they will always lose. Without a plan, how would one know when to take a trade and when not to? Having a trading plan is a necessity. I can not trade if I do not have a plan for the day. I feel lost without one.

2. Revenge trading

Many new traders become tilted after a loss or a string of losses. This causes them to revenge trade just to break even. This often leads to reckless trading forcing a trade when opportunity is low.

3. Chasing the markets

Alot of new traders feel more pain when they have missed a move than an actual loss. This is why new traders love to chase the markets. If price has moved away from your projected entry point, let it go. There are plenty of more opportunities. Chasing is one of the worst habits a trader can have. Not only does it offer you low rewards, it also gives you a horrible entry and alters your stop loss placement. Always think about the risk before the profits.

When you have a plan to follow, it is easy to filter out Read more…

There are many approaches to initiating trades and selecting stocks for investment purposes, but many of the “experts” who provide advice on getting into a day trading or investment position fall short when it comes to insights into when and at what price to get out. Let’s assume for purposes of this discussion that you have a rational basis for making the investment, or initiating the trade, in the first place, and that you have a reasonably well-disciplined approach to cutting your losses if the price of the stock does the opposite of what you expect or hope. Often the situation that experienced traders, and especially long-term investors, have the most difficulty dealing with is the happy period when the price of the stock has risen well into the profit range. How do you know when and where to get out?

A brief description of the economic concept of “opportunity cost” can help us bring some logic and good judgement to the challenge of deciding when to exit trades. Opportunity cost is the value of the next best thing you can do with your resources. Your resources clearly include your money, but they can also include your time and your comfort. For example, let?s say you bought a ticket to a show or game that you really look forward to seeing, and when you arrive for the big event you discover that fans are offering to buy tickets from scalpers for ten times the price you paid.

Now, you might think that your cost of attending the event is simply the price you originally paid for the ticket. But, in economic terms, your cost is equal to the value of your second highest priority choice about what to do with both the time you have allocated to the event for which you hold a ticket, and the amount of money you could get by selling your ticket at the new, higher free-market price. Your ?opportunity cost? for using your ticket to see the event rather than converting Read more…

Historically, stock trading has been the domain of professional traders. Trading has been in essence a “private club” with restricted access. Day trading has changed that. For the first time, amateur traders have the tools (real time quotes and order execution) to compete with the professionals.
Speed advantage of day trading
The key advantage of day trading is its speed. Now the technology is advanced enough to afford day traders the ability to receive and observe real-time price quotes tick by tick and to send electronically an execution order directly to the NASDAQ market maker. Electronic order execution is fast. Confirmations are received in seconds. Exiting trades is as easy and fast as entering the trade positions.
Control advantage of day trading
The other key advantage of day trading is the control of trading. Day traders are always in control of their own trading. They are their own brokers. They examine the financial data, ascertain the trends, and make their own decisions to buy or sell. Day traders do not have to worry about the price slippage. They monitor market prices tick by tick. During trading, at any point of time the Read more…

One of the most appealing ways to attain wealth is to play the stock market. With the advent of the Internet and on line brokers traders have seemingly unrestricted access to various trading products that just 10 years ago were reserved for big financial institutions. A trading product that has been overlooked by many traders is forex.

Forex is derived from the words FOReign EXchange and involves the trading of currencies. Until relatively recently trading forex has been the preserve of banks and other large financial institutions. In the last 5 years forex trading has literally exploded among ordinary traders. When the advantages of forex trading become apparent this is not surprising. The forex market is the largest financial market in the world with an estimated daily turnover of $1.5 trillion dollars. This is 30 times larger than all the US stock markets combined. Further more the forex market is open 24 hours a day 5 days a week.

The size of the forex market is one of its first benefits. The forex market is very liquid and has high volume. Liquidity is a great asset many traders look for because it means a deal can always be done. Forex is a continuous 24-hour market. This is very desirable if you wish to trade part-time as you can choose what time you trade unlike stock markets that are open only 8 hours a day. This 24-hour market almost removes the problem of gapping. Because most stock markets are only open 8 hours a day often-overnight events can cause stocks to gap up or down. Large gaps can especially cause large losses for people who trade derivative products like futures or options. In the forex market the problem of gapping is very much reduced.

Currencies are always traded in pairs. Usually currencies are traded in pairs against the US dollar. The main pairs are US dollar Vs EURO ( EUR), British Pound (GDP), Swiss Franc (CHF), Japanese yen (JPY), Australian Dollar (AUS), New Zealand Dollar (NZD) and the Canadian dollar(CAD). There are other currencies pairs but most traders prefer to trade the pairs above. These currency pairs are known as the majors. Currency traders have plenty of trading opportunities from these 7 major currency pairs. Compare this against the stock market where more than 8,000 stocks trade on the three primary US stock exchanges and currency traders can focus just on these 7 pairs and still make plenty of money.

Unlike the stock market there is never bullish or bearish market conditions. Currencies go up or down against each other according to how the world financial markets perceive the value of the currencies. You can sell a currency (go short) just as easy as you can buy a currency( go long). Currencies go up and down and you Read more…