Asking day traders to take the emotion out of their trading is like asking an athlete to not be competitive during a sporting event. Anyone that has ever been in either a losing or winning trade knows it’s virtually impossible not to react emotionally when day trading. We have to admit that the emotional rides through the trading day are part of the allure to trade. What we truly should control is our commitment to day trading discipline. Here are 10 rules that can play a positive role in your approach:

1. Have a plan, Trade the plan – The most critical approach to your trading is to have a trading plan and be disciplined to stick to your plan. Your plan should consist of why and when you enter/exit trades, the size of your trades, etc. Stick to what works and repeat it like a machine.

2. Treat your trading as a business – Don’t trade just to make money. Conduct your trading decisions as if you were running a business. Only enter positions when your day trading system tells you to. Don’t just trade for the action. Review your trading everyday – Evaluate why you took trades. Did you follow your rules? Learn from your mistakes.

3. Prepare for the trading day – Setup key support and resistance areas on your charts. Make sure you are aware of pending news that may affect your trading. Don’t trade if you are tired, angry, or distracted.

4. Look at risk before profit when entering positions – It is often said that successful day traders first look at loss potential before profit potential of their trades.

5. Trade what you see, not what you think – You should only trade what your charts are telling you. Avoid directional bias. Don’t continue to trade against a trend because you think “it has to reverse”.

6. Follow strict trade management as soon as you enter a trade – Take small profits as your trade runs positive. Stay focused when you are in a trade and be prepared to move your stop losses as the trades require.

7. ALWAYS use stops – The number one ruin of day traders is trading without stop losses, or moving your stop losses as the price nears. Set them as soon as you enter a trade. If you get stopped out of three consecutive trades you are out of sync with the market. Walk away for 15 minutes and come back for a fresh start.

8. Take losses – Until you can accept stopping out of losing trades, you will not become a consistent, profitable trader. No one wins every single trade. Cut your losing trades according to plan.

9. Take profits – Nothing is more frustrating than watching a winning trade turn into a loser. Small consistent gains will add up. You will fail in the long run if you always swing for the fences.

10. Don’t over trade – One effective way to avoid over trading is to stick to your discipline of only entering highly probable trades. Set a daily goal and quit when you reach it.

Have fun! – Profitable trading will reinforce your discipline and increase your confidence. Enjoy the ride.

Author: Armando Pena
Article Source: EzineArticles.com
Provided by: Canada duty tariff

I am sure that you have seen a news report or two that claims that 90% of all day traders “bust out” and lose all of their money. Further, the report usually depicts some poor fellow who has spent the family savings and is in the process of bankruptcy or losing his home.

Is it true?

Well, in a certain sense the stories are true. As a long-time trader, I have seen more than my share of day traders lose all of their money and been forced to leave the profession. Sometimes these individuals have left high paying jobs to day trade full time and are forced to re-enter the workforce under-employed, or at least at jobs that pay considerably less than the jobs they left to day trade.

Why?

There are many reasons individuals fail trading, and it’s not because the day traders are less-than-intelligent people. There have been several articles written in recent years concerning the failure of day traders, and most point to the emotional aspect of maintaining a proper trading perspective. All to often traders abandon great systems of trading and take unacceptable amounts of risk in hopes of hitting “the big one.” Trading on emotion is the recipe of certain failure in day trading.

Why do rational traders sometimes act irrationally?

One of the toughest tenets of trading to accept is that certain trades are going to be losers. No trading system or methodology can assure that every trade is going to attain success. The market just doesn’t work that way. My personal philosophy is to never risk more than 5% of my money on any given trade and have target profit limits set and stops loss orders in place in case my trade goes sour. I never ride a trade down in hopes of it turning around. I never “double down”. Quite simply, if a trade doesn’t work the way I expected, I cut my losses and move on to look for another trade set up that looks appealing.

Failure is an unpleasant aspect of trading, yet every trader fails in one trade, or more, throughout the course of the trading day. Further, it is common to see traders increase their lot size if they are having a bad day in an effort to “catch up” to their trading expectations.

These are all part of the undisciplined traders emotional make up and are symptoms that doom a trader to failure. There are days when I make two or three clunker trades and decide to turn the computer off. Either the market is acting in a way that is not conducive to my style of trading or I am trading poorly, I never try to over analyze the reasons for my failure. I only know that on a given day my results are unsatisfactory and the best thing I can do is go golfing.

The emotional side of trading is the least studied and most poorly understood aspect of trading. Many traders spend thousands of dollars learning trading technique and complicated systems of trading, yet fail to conquer the emotional side of trade. The emotional side of trading is fairly simple, albeit very difficult to master, and is to simply not allow emotions to enter into your trading psychology. Sounds easy, doesn’t it?

It’s far from easy, and I can tell you that I have fallen victim to my own emotions on numerous trades. I know that any time I feel like I know what the market is going to do and become convinced that a trade “must” work…I am in deep trouble because the maxim “the market is always right” is important to understand. The only variable that can be wrong when you trade is YOU.

The chaotic nature of markets causes many inefficiencies in market pricing that can come into play at random times. If you are in a trade when these market inefficiencies come into play, you lose. It is really that simple and a smart trader exits his trade, takes his losses and moves on.

The study of emotions in trading is fairly new and several books have been written on the topic, I recommend “The Psychology of Trading”, by Laura Sether and Russell Wasendorf. (Note: I have no financial relationship with the authors) as a good starting point. A Google search will also turn up hundred of articles on this topic.

Learn to control your emotions and execute the your trading systems and you will have great results.

Author: David S. Adams
Article Source: EzineArticles.com
Provided by: Canada duty rate

Before you begin trading the currency market you need to decide what your trading style is going to be.Each trader trades differently than the next. Some like to trade a single time a day, some trade the news and others use technical analysis, and some choose to trade multiple times each day in what is known as day trading or scalping (scalping is a trading style in which positions can open and close within minutes).

You will need to decide what your personal style is going to be and master it.

One of the most popular trading styles is Day Trading which, as I said, means making many trades during the day. How many exactly depends on you.

But is day trading right for you or is a different style the one you should choose?

To really find out for sure, you need to answer these 4 questions:

1. Do you have enough free time – Day Trading requires you to spend many hours in front of your computer screen and watch the charts. If you’re busy at work or with other obligations this is not possible for you.

2. Do you suffer from trading anxiety – Traders are subject to a lot of stress. It’s very difficult to watch your trade turn sour. The problem is that the emotions this brings up in you may cause you to make the wrong decisions and lose a lot of money. This is one of the main reasons why over 90% of traders lose money in Forex.

When you day trade, you make more trades and your anxiety is naturally higher. Be honest with yourself. If you have trading anxiety, make fewer trades each day.

3. Do you like Forex – In order to make multiple trades each day, to follow the market, and immerse yourself in charts and prices, you need to love Forex trading. It’s okay if you don’t. You can still make money. But you can’t day trade. It will drive you crazy.

4. Do you have a day trading system – Naturally, you will need a solid trading strategy which is suitable for day trading. If you don’t, you will lose big.

Day Trading can be highly profitable. Answer the 4 questions above. If you answered yes to them all, then you may be the sort of trader who will profit massively with day trading. If not, then a different trading style is better for you.

Author: John J. Drummond
Article Source: EzineArticles.com
Provided by: Mobile device news

Day-trading offers many advantages over short-term trading or long-term investing. Typically a day-trader is out of the market at the end of the day, so there is no overnight risk. The day-trader watches the market in real time, enabling him to adjust his position live as the market develops. The frequent trades develops his skill much faster and will help to maintain it at its peak. Trades typically have lower risk with smaller losses and there is a quicker return when they are profitable.

The disadvantages of day-trading are also many. Over trading is a real problem with most day-traders. Quicker analysis and decisions, along with faster responses, are demanded. Emotion frequently interferes with good judgment and its roller coaster ride can be extreme. A margin account can be drained faster than with any other type of trading. Most day-traders give up regular careers in order to trade during regular business hours and so trading often becomes their only source of income, placing a great financial pressure on them. Still, most would agree that they wouldn’t trade day-trading for any other career.

When I first started day-trading I found it to be very stressful. I chose as my day-trading market the S&P e-mini, a market I knew well and felt comfortable with. The day would start out well, but as mid-day approached I found myself struggling and making trades repeatedly as I tried to keep up with the frequent changes in direction. Afternoon would ease the stress some, but I found myself so exhausted that I could not focus well. I would make some profits, but by the end of the day I would find that I had spent so much in transaction costs that the profits were very meager. After a few weeks I found myself too worn out to get up and trade, particularly if I had just traded the day before. So I started to skip days that I would trade. Eventually, I was reduced to trading at best just every other day. It was clear that the income was far too little for my needs and I knew that any hope of a long term career in day-trading was in serious trouble. At first I thought I had to just force myself to trade more, but when I did so the situation still didn’t improve. In fact, it seemed to get even worse.

When I stepped back and analyzed what was going wrong I realize several issues were standing in my way. First, I was over trading. By the end of the day I would accumulate anywhere between $150.00 to $225.00 just in transaction costs, a huge portion of what I was making in profits those days. Second, I was getting too stressed out and this was impacting my ability to focus as well as eating away at my enthusiasm for trading. I simply didn’t enjoy it anymore. Third, most of the over trading and stress was occurring during the mid-part of the day.

When I reviewed what was actually happening in the market during the day I noticed that typically a trend would develop in the morning and afternoon, which were easier to trade and make a profit off of. But during the mid-part of the day the volume dropped off significantly and the market had a tendency to form a consolidation that was much harder to trade and required more frequent trades. It was during this time that the losses dramatically increased.

After realizing these facts I then decided that I would just eliminate all trading during the mid-part of the day. I would instead only trade the first two hours of the morning and the last two hours in the afternoon.

As soon as I implemented this plan I saw an immediate change in the end results. Trading was less stressful, less frequent and of course, less costly since the number of my transactions had dropped off significantly. I was able to take my time and enjoy a pleasant lunch and even though I was spending less time actually trading, I was still much more profitable. Trading was enjoyable again.

When I first started trading I would have hardly imagined that this simply change would have such a drastic effect. My ideal job turned out to be even more ideal than I originally thought it to be. I really liked the fact that I now had a legitimate reason for taking a two hour lunch, it actually made me more profitable.

My experience highlights the importance of taking into consideration the time you spend actually trading and adjusting your schedule to match what is best for the markets. If this simple change had such an immense bearing on my results, imagine what a similar change could do for you and your trading.

In reflection, there are a number of factors that I learned from this experience. First, it is best to trade when the market has a tendency to trend. Consolidations can be hard work, stressful and very frustrating. Trends are much easier to trade, are easier to read and are more forgiving if you make a mistake. While this depends on the consolidation and the trend, likely you have found these conclusion true for yourself.

The first time that I traded the Forex I had a similar experience just as I did when trading the S&P e-mini. By examining the times that the Forex repeatedly trended I was able to again improve my results by adjusting when I traded.

Additionally, markets have periods of time when they will tend to trend more often. The S&P e-mini will trend more often during the morning and afternoon sessions, the Forex will trend more often when a major international exchange opens and most markets in general will trend more often when their respective floors are open for business.

When the traders are mostly trading then the market will mostly trend.

By taking the usual trending times of a market into consideration and adjusting the time that you trade to match it, you too are likely to improve your results. All it requires is for you to review several days of a market in order to discover which times are best for trading. While a market can trend at any time, trading when it is more likely to do so will make it much easier to trade.

Author: Michael J Parsons
Article Source: EzineArticles.com
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Day trading and swing trades have two things in common. Both styles of trading hope to make money from short moves in the market. They are not for the faint of heart. To offset the risk, of course, there is also the possibility of great returns! There is really nothing that compares to the excitement of completing a very successful trade. Some of these trades will last minutes and some as long as several days. Personally I enjoy day trading, swing trades are used less but still hold great profit potential.

Day trading and swing trades are different in that swing trades are less flexible. Day trading proponents get out at the end of every day but are often doing multiple trades per day. One of the strengths of this is knowing where you stand at the close of each day. Swing trades may finish in a day or longer, but are just as likely to last for a few days and during the course of a trade there are more likely to be more ups and downs in profitability. There is potential to earn more from each swing trade, but there are risks. Day trading and swing trading may well be your ticket to quitting the day job if you so desire.

Day trading has no overnight risks, as long as all trades are closed before the market close, swing trades are more susceptible to news or economic climate during the trading day or at night. This news can have a negative affect on your position, beyond the control of the swing trade system. Day trading or swing trading without a system will most likely be unprofitable.

Day trading or swing trading systems start at $2000 and go up from there. There is a lot of variety in the approach different traders take to develop a winning system. How you create your system for trading can be a real mix of philosophies, but the most important thing is to stick to your system. Up Or down market direction makes no difference there are always big opportunities in day trading and swing trades in a variety of markets.

It is possible to trade a few stocks on a regular basis, as long as they follow your predetermined set of rules for trade signals. Trading the same list of stocks has the added incentive that you begin to get a feel for what a stock is likely to do when different news or economic factors occur. If you have a reliable stock pick resource to start with, it helps you to screen out the bad and find new stocks.

Author: Philip Ramer
Article Source: EzineArticles.com
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In the current financial climate, it has paid virtually no one to hold sizable positions in the markets for more than a few days. Therefore, traders have continually focused on capitalizing on the volatility in the markets through holding shorter term positions. With that in mind, day trading is fast becoming the weapon of choice to profiting in the markets.

Unfortunately, most new traders continue to use old ideas and techniques in an effort to grab profits quickly. In this article, I will provide a few trading tips that professionals use to find the maximize their day trading profits.

First of all, it is important that you determine how you want to trade, and what markets you want to trade. Due to its excellent liquidity, E-Mini S&P futures are a popular trading vehicle for many day traders. The Forex markets are another popular vehicle, as the major currencies provide excellent liquidity, and can be traded around the clock. Some traders like to be diversified and trade stocks, currencies and futures. The key though is to focus only on those markets and stocks that allow sufficient liquidity and volatility. You want to trade a market that moves, but one that allows you to get in and out of your positions with minimal slippage.

Next, you must determine whether you want to be a scalper, making multiple trades throughout the day in an attempt to capture small profits within a few minutes, or more of a position trader looking to capitalize on sizable directional moves. Generally speaking, I think that latter idea is an easier concept, as it does not force you to sit in front of the computer all day long. Once you enter a position, you can adjust your orders on an hourly basis, then decide whether you want to exit at the close or hold overnight.

No matter what style of trading you decide on, it is critical that you pay close attention to the market action leading up to each trading day. You must view the market from multiple time frames to detect any underlying trends. Ultimately, a market will revert to its underlying trend at some point. Therefore, even if you are trading off of a 5 minute chart, you will want to view daily charts and 60 minute charts and even 15 to 30 minute charts, to have a good feel for the trends that may impact market direction for the day.

Once the trading day begins, it really makes no sense to start trading right after the market opens. You want to monitor the price action for a while to determine whether the market will trade in a choppy trading range, or whether it will trade in one direction. For individual stocks and stock index futures, I prefer to let the market trade for at least 30 minutes to get an idea of how the market will trade, and maybe even up to 45 minutes. I want to monitor how a market reacts when it breaks out to new highs or lows for the session, and I want to monitor the volatility of the market during that time frame. If the market trades within a few wild swings during that time frame, it likely will be a range bound day. If it seems to creep higher or lower with little retracement, then it may be a one direction trading day.

For stock index futures and individual stocks, I like to pay close attention to tape indicators such as the Tick, Trin, other market indexes and advances versus declines to get a feel for what the underlying market is doing. For instance, if the tape indicators are weak while the S&P futures are making new highs, I may want to consider taking a short position once the futures start to weaken. If they are strong, I will use an opening range breakout and try to hold the position the entire trading day.

As I mentioned, the Forex markets are very popular for day traders. However, you must remember to trade when these markets are most liquid. For instance, the Japanese Yen will be most liquid when it is evening here in the U.S. Economic news coming out of Japan will greatly influence the direction of that currency, and that news will come out after U.S. trading hours.

I can’t emphasize enough the need to use stop orders in your trading to protect yourself from steep losses. No matter what style of trading you use, you must know when you will exit if the position goes against you. With that in mind, it is a good idea to develop an overall trading plan before you start to trade, rather than just trade by the seat of your pants.

These are just a few common sense tips that you should employ in your day trading. By applying these tips, you will avoid many of the common pitfalls in day trading.

Author: Scott A. Cole
Article Source: EzineArticles.com
Provided by: Cellphone news

What is the 30 Minute Bias Indicator and how can I use it?
What is the Bias Indicator (BI)
The Bias Indicator is basically based on the share price opening range
We will investigate:
How to select stocks to trade
Entry tactics
Stop loss settings

The Bias Indicator is defined in terms of time and price. The time element is simply the first X number of minutes in the trading day. The number of minutes used to define the Bias Indicator is your decision as a trader. I define the Bias Indicator as the first 30 minutes of the trading day. I have found this period to work the best for my strategies that are geared towards day trading.

I will focus on the 30 minute BI because I think that this is the best time frame to use for Day trading. I believe that the market tends to experience a reversal period around 10:30 A.M., as many reports are released between about 9:30 A.M. and 10:30 A.M. Fund managers also seem to start their daily inputs around this time. So the 30 minute BI includes both of these factors.

The price component of the BI is the day’s trading range at the end of the BI time period. This means that the 30 minute BI is defined as the stock’s high and low for the day at 10:30 A.M.

The BI is not the opening price. In fact, the opening price is not a factor in calculating the BI. For example, if BHP were to open at $26.49 and then sell off to $26.06 at 10:15 AM and then reverse and rally to $26.86 at 10:30 A.M. the 30 minute BI would be the day’s range at 10:30 A.M. or $26.06 – $26.86. This is because during the 30 minute BI period $26.06 and $26.86 were BHP’s low and high, respectively.

Note: I said the day’s range at 10:30 A.M., not the range for the whole day.

The easiest way to mark the Bias Indicator Range is to use an intraday candle chart, set at 30 minutes interval. The first complete candle then gives you the Bias Indicator Range. Draw a line on top of the candle and one on the bottom of the candle and you have today’s BI marked on your chart.

As you can see, defining the BI is easy. The 30-minute BI is strictly the high and the low of the first 30 minutes of trading. I find that the BI often reveals the bias of a stock for the day.

Why is the Bias Indicator so powerful?

The fact that the BI is assessing such an informative period means that it can often determine the bias for the day as being bullish, bearish, or neutral. The BI represents how the bulls and bears establish their initial positions for the day. A move away from the BI indicates that one side is stronger than the other. A stock moving above the BI means the prevailing sentiment in the stock is bullish. The manner in which the stock breaks above and trades above the BI will indicate the strength of the bullish sentiment. The same but opposite analysis applies when a stock moves below its BI.

A move below the BI indicates that the stock is weak and the bears are in control.

How can we use the BI to help us in our day or short term trading?

The most basic application of the BI principle is that when a stock is trading above its Bias Indicator you should have a bullish bias, and when it is trading below its Bias Indicator you should have a bearish bias.

Trading any breakout from the BI breakout is a simple concept, but there are some considerations to take care of and a few tactical trading approaches to consider.

As discussed in creating a trading plan, before you enter a trade you must know your stop loss point. This is where you will exit the trade in the event that the stock moves against you. The loss that you expect to incur if you exit at your stop loss point is your “risk”. As discussed in money management, the position size is based on this risk calculation.

We have established a range of prices for a particular stock and have drawn the 2 lines on our chart. Of course you can use any good intraday chart, I find the IG Market charts the easiest to use.

Note: For the purpose of trading, I prefer to use a 5 minute chart.

Let us have a look at two practical trading approaches using the BI.

1. Buy the initial breakout
2. Buy the second breakout after a retracement.

What is a breakout? I define as a breakout when the whole 5 minute candle is above the upper line of the range.

First Approach: Buy initial breakout

Entering the market at this stage is the most aggressive approach because it does not allow for any form of confirmation that the stock’s break above the resistance level will continue. Perhaps this strategy should be reserved for the most promising stocks. However it has the advantage of providing, in many circumstances, the cheapest entry point.

Using this strategy, I would like to see the breakout accompanied with high volume, again on the 5 minute chart. The stop loss should be set at the lower line of the range, as drawn in after 30 minutes. I find it best to use an automatic stop loss, as this eliminates all emotions.

However many times you will find that using the 30-minute lower line will often define risk values which are too high. You may have a range of say one dollar, too high to get a decent risk/reward ratio. I this case I suggest you use a stop based on levels the market has defined for you, say a Moving Average level or a support level. If you can not find a stop level to give u a good enough risk/reward probability, it may be better to miss the trade and look for a better opportunity.

So to summarize the first approach:
Buy at initial breakout
Watch for volume
Set your stop loss
Pass the trade if the risk/reward ratio is not good enough.

Second Approach: Buy the second breakout after a retracement

This tactic may suit the more conservative trader. Here you have the opportunity to evaluate how well the stock broke out. You can see how the stock trades above the BI. When using this approach you are looking for the market to create a new breakout after a retracement. As soon as the market demonstrates that a new breakout occurs, you can buy the stock with a stop below that retracement level.

The advantage of waiting for confirmation and a retracement is that you have more information before you enter the trade. You will not get stopped out of a stock that fails immediately after it breaks out. The disadvantage is that not all breakouts retrace. You may of course miss the best opportunity that a particular stock has to offer that day.

There will be a lot of opportunities everyday. Be patient, and get in at the right time as determined by your risk. Don’t take trades late because you feel as though you are going to miss out.

Many times you will find that the stock retraces or moves along sideways until later in the day, then suddenly breaks out again and gives you a good trading opportunity, maybe during an afternoon rally.

To summarize the second approach:
Wait for initial breakout
Wait for retracement
Buy at second breakout
Be patient, often the second breakout happens later in the day.

If you have any questions so far, please do not hesitate to email me.
Email: ejk@tradingaustralianshares.com

Now we shall expand on this subject by looking at
1. selecting stocks to buy
2. refining the entry points
3. how to set stop losses

Ok, let us explore how to select stocks.

I suggest you create a watch list with all the stocks you may be interested in. You can explore many avenues to find interesting stocks.

Most CFD platforms will show you the most traded stocks for the day. It is always good to select stocks with high turnover. IG Markets has a daily listing of top movers, showing last price, % change and volume. This is a very informative source. If you open an account with IG Markets through my web site, I offer you 1 month free mentoring service to help you to get used to the platform and refine your trading skills.

You should also look out for recent news items. Recently I managed some good trades with Asciano, after reading a series of news about the company.

Select stocks with high volatility as these will give you the best chance to make a profit in day trading, but you must have a good stop loss. We discuss stop loss a little later. How do you define high volatility? Simply divide the daily average Trading Range (ATR) by the share price to get a percentage. The higher the percentage, the more volatility.

For example BHP s/p 26.4, ATR 2.02, volatility 7.65%.
AIO s/p 1.55, ATR .371, volatility 23.94%. A huge volatility, good chance to make profit, but dangerous without a good stop loss.

I made myself an excel table, where I can assess volatility quickly.

We should also look for a bullish signal. I always prefer stocks which trade at the same or slightly above the prior day’s close. The prior day’s high is often a potential area of resistance, so when the stock trades above this high it is a bullish signal.

To summarize selection of stocks:
Create a good watch list and check every day.
Scan news to find stocks in the news.
Use the listing of top movers or similar to check every day what is moving quickly.
Look for stocks which are above the prior day’s high. This is a bullish signal.

We said to buy the initial breakout or buy the second breakout after a retracement. When do we enter the trade?

Volume is one of the most important indicators to look for. A breakout with not much volume does not tell us much. If you wish to buy at the initial breakout, look for high volume to accompany this breakout. I also think it is a good idea to wait until a full 5 minute candle has settled above the top breakout line.

If the volume is not there, I rather wait for a retracement and buy on the second breakout.

Can we buy before the share price reaches the breakout point? In many instances we can, but ONLY if the volume increases. Sometimes you will have a high opening price, followed by a quick retracement. This will sometimes be followed by a quick upsurge with high volume. This can be a buy signal, but once again, we must be sure that the volume is strong.

As with any pattern analysis, you will not always find that all of the criteria are met. You must be able to identify quality trading opportunities based on your criteria and use the correct trading tactic to exploit the opportunity. For example, if a stock shows a bullish picture, has relative high volume and has good volatility, then it may be a candidate for a more aggressive strategy of buying the initial breakout.

If the stock does not show good volume or is below the prior day’s closing price, then you should be more cautious and wait for a second breakout.

Avoid stocks that don’t show an easily identifiable trading opportunity. There will always be other opportunities.

Setting a Stop Loss

Setting a stop loss is a MUST. Before you enter a trade you should know your stop loss point. This is the price at which you will exit the trade in the event that the stock moves against you before you are able to take your profits. The loss that you expect to incur if you exit at your stop loss point is your risk. The risk will define your position size.

The low of the BI range is the most logical area of resistance, therefore the point to set your stop loss. However I often find that this gives me too big a distance and my risk reward ratio is just not there. There are a few ways to raise your stop loss point and therefore reduce the risk and find trades with a better risk reward ratio.

I have on my charts 2 Exponential Moving Average (EMA) lines, one is 15 periods, and the other one is 7 periods. Remember, I use the 5 minute chart for my trading. The 15 EMA line is quite good to use, unless the share price really surges quickly. In that case I would use the 7 EMA. I always use a trailing stop loss to lock in profits, trailing it up every 5 minutes, of course never going backward.

Which method you use to set your stop loss will always depend on your risk tolerance.

Very often if my trade shows good profit after a steep rise, I exit once I see the chart flattening out. This helps me to exit with a decent profit, however many times I found that the share price retraces slightly, and then moves higher.

To summarize stop loss techniques:
The low of the BI range
The 15 EMA
The 7 EMA
Exit when the chart flattens out, if you are in good profit.

Remember, trading is 70 percent science and 30 percent art. You must use experience and intuition at all times. Most of all, you must be able to cope with some small losses.

Experiment with the Bias Indicator, you will find it profitable.

If you wish to subscribe to my fortnightly newsletter, please email me with the subject heading “newletter”.

Email: ejk@tradingaustralianshares.com

An opportunity for you
Are you looking for a good CFD platform? Why not get a demo platform from IG MARKETS?
I invite you to open an account with IG Markets through my web site and offer you a free one month membership of my unique mentoring program.
Go to my IG page, register with IG Markets and ask for a demo platform. Once you have opened the account and funded it, you will be invited to join my mentoring program for one month for free, absolutely no obligations.
Just email me on ejk@tradingaustralianshares.com with your details. Don’t miss this opportunity.

Happy Trading,

Eric

Author: Eric Kratzer
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“How much capital will I need to start day trading for a living?” This is a very common question that we often receive and it is somewhat difficult to answer. That is because each individual is different and has a different set of goals. Each person’s standard of living could be different and what one individual makes with day trading for a living may not be enough for another. The more money you want or need to make will depend on the amount of capital that you have at risk.

Swing Trade for Percentage, Day Trade for Dollars

The answer is that it is different for each person and it is something you must consider for yourself before you start. We can only give some practical guidelines. I personally feel that you should have enough trading capital to purchase between 500 to 1000 shares of any given stock without having to use margin. When we take a swing trade position, we look for gains in terms of percentage points. However, when I day trade, I am looking for dollars to take out of the market that day. I need a dollar figure because this is my salary for my work. It’s how I make my living so I want to make a certain amount of dollars when I day trade.

The price of the stock I’m day trading is critical because when I day trade, I normally buy either 500 or 1000 shares, depending on the price of the stock. Ideally, my target when I take a day trade position is a $1.00 move on the stock. I will let the stock run much more than that if I see the momentum is going to carry it up further. I have had stocks move up 2, 3 4 dollars or more in a single day trade. If I get the move, I will run a trailing stop behind the price to lock in the profit should the stock reverse and fall back. I use the trailing stop because I want to take advantage of any more upside movement the stock might have the rest of the session. If I were to just sell at the $1.00 target, I am really robbing myself of possible further upside in the stock and limiting my potential profit. Remember, when you are trading 1000 shares at a time, you only need a small move in the stock for a worthwhile profit.

Keep Expectations Realistic

If you trade stocks in the $30 to $60 range, this could mean that you need a minimum of $30,000 to start. 1000 shares of a $30 stock or 500 shares of a $60 stock and so on. This of course would be 100% of your capital in any one position, which is very dangerous. If you want to trade 2 or 3 positions at a time, you would need $60K to $90K to start, assuming that you trade the 500 to 1000 share blocks in this $30 – $60 price range and you do not use your margin. If you are using margin, then you could buy more shares or pick higher priced stocks. If your day trading account balance was say $120,000, you could buy 2000 shares of a $20 stock and still have $80,000 left to put to work in 2 or 3 more trades. For example, if you had bought 2000 shares of SOLF on Friday (May 16th) at the opening price of $19.00 and sold at the close, you would have had a one day profit of $7,680. It closed at $22.84 for a $3.84 gain on your trade. $3.84 X 2000 = $7,680. This is just one example and it is not that far fetched to think that you can’t catch these moves because every day there are stocks moving up and there is always a big mover in the market somewhere. We just happened to have had SOLF on our trade Bulletin and in the pre-market update as a stock to watch for a possible day trade.

In this example, we used 2000 shares but you do not need to trade that many shares. Trade what you feel is in your comfort level. Keep in mind, with lesser shares traded, you will need bigger daily moves in the stocks to make a decent living and there are times when stocks just do not move more than $1.00 in a day, especially when the market is suffering from a flat day. Just remember, if you are starting small, keep your expectations realistic. Certainly, someone trading with $30,000 to $50,000 is going to have a much more difficult time generating $1,000 per day than someone using $100,000 or more. Know your limitations with respect to your capital. Keep things in perspective and try not to expect miracles.

In the Big Leagues

When you get into the bigger leagues of day trading, you can then take on (purchase or short) a block or two of a stock, generally defined as 10,000 shares. You can trade 10K shares of a $5.00 stock for only a 10 cent move and you will have profited $1,000 in that trade. Examples of these types of stocks are CPST ($3.48) had a .15 range on Friday and FINL ($6.77) had a .30 range on Friday. You won’t capture the whole move but you can see the potential if you get a decent entry. Remember; never put all your capital in one trade. Only use 25% to 33% of your available day trading capital in each trade.

This is going to require $150,000 to $200,000 or more of trading capital plus some use of margin in limited situations and for a limited time. When you reach this level, it is easy to see how day trading can become quite profitable but also quite risky. A move of a few pennies across 10,000 shares can return quite a bit of money, quite rapidly if you scalp 3 or 4 trades a day in the stock. Just remember it goes both ways; you can quickly lose quite a bit as well. There is no right or wrong answer with regard to how much you need to start. Simply keep your objectives in perspective and be realistic based on the capital in play.

Copyright 2008 StockTradersHQ.com

Author: David Colletti
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Day trading is an art, not a science. Even though artists study techniques of the masters who came before them, ultimately every artist needs to find his or her own way, his or her own style of creating art. So it is with day trading. There is no one correct way to day trade. This article asks you the questions you need to consider in order derive your own trading style.

On days you trade, how much time do you have to completely devote to trading?

Let’s face it, if you are reading this article, most likely you are not a professional day trader. Rather, you are a market enthusiast who trades occasionally and are looking for ways to hone your strategy. I will discuss specific educational tools below, but for now let’s consider how much time in the day you really have to devote to trading. This is the crucial first step toward developing your own effective trading style. If you only wish to devote an hour or two each time you trade, then holding numerous trading positions in any given trading session probably does not make sense. Know your time constraints; know how many open positions you are willing to manage simultaneously. Once you get an idea of how many trades you are willing to manage at once, then you need to hone in on your research. This brings us to the next important question.

How will you research and identify stocks for trading?

Here is where the art of day trading comes into play. There are numerous ways to identify potential winners. Most experienced traders do their own research based on a number of technical analyses. This is not hard to do, but it does require an upfront commitment to educating yourself. There are a variety of study materials available (cd-rom packages, live seminars, webinars, on-line forums, etc.) There are also a number of stock market on-line newsletters and stock research services that can help you identify stocks that are set to move. Whatever method you employ to pick your trades, whether you identify stocks to trade on your own or opt to use a fellow trader’s research, you need to use this research to derive a trading plan for each trading session you undertake. This brings us to the next question.

What elements will you incorporate into your daily trading plan?

An effective trading plan includes much more than stocks identified for trading. For each stock you identify for potential trading, you need 3 parameters which reflect your personal risk to reward ratio: a targeted entry price, a targeted exit price and a stop loss. A targeted entry price helps ensure that you don’t enter a trade without considering the current day’s momentum. A targeted exit price helps ensure that you don’t stay in a trade too long and put your profits at risk. And finally, stop losses help preserve your trading capital in the event a trade goes against you. Incorporating these 3 elements into your daily trading plan will not only add structure to your trading session, but will also help control emotional trading. This leads us to the last big question to ask yourself.

How will you handle the inevitable losing trade?

Every trader has losing trades. Your reaction to losing trades can have a big impact on your overall success as a day trader. Don’t let a losing trade affect how you manage your next trade. Be wary of trying to “win back” lost capital in subsequent trades. Manage each and every trade separately. When you lose, accept it and move on. As noted above, stop losses will help preserve your trading capital, but you also need to remember to stay within your personal trading parameters on each and every trade.

Taking the time to define your personal trading style will pay dividends in the long run. Each trader’s style is different. When you have clearly defined the time you are able to devote to trading, identified your research methods, derived your trading plan and eliminated emotional trading, you will have provided yourself with the necessary structure to carry out successful day trading.

Author: Len Ksobiech
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I was reading an article recently which maintained it is not possible to make money day trading. Naturally this piqued my interest because I day trade for a living and last time I looked I was doing OK.

The article began by making the very valid point that the vast majority of day trading articles are not written by traders at all, but rather they are written by people marketing systems with hypothetical track records created with the benefit of hindsight.

That is absolutely true.

It is equally true of articles about every other trading style in commodity futures, stocks, forex and options. Whether it is covered calls, trend following with our extra special absolutely never seen before new indicator, swing trading, pairs trading, spread trading, or selling naked options, or any other style, it will often have a hypothetical track record. The time period of the method being promoted is absolutely irrelevant.

The article quotes CFTC rule 4.41 which every futures trader has seen many times. It says:

“Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.”

This pertinent warning is not confined to day trading systems. It is applicable to ANY trading system in ANY time frame where hypothetical or simulated track records are provided.

You see, most system developers research historical data to find high probability setup patterns. They develop indicators and trading rules to exploit these patterns. There is nothing wrong with that, so long as it is realized that the resulting system is optimized over this data set. The only valid way to test the system is on a completely different, independent set of data. Often a system that looks spectacular on the data the developer was originally working with will fail miserably when applied over a different period or in a different market.

The article went on to say that all day trading systems lose because “volatility in short term time frames is random and prices can and do go anywhere, meaning that if you try and use support and resistance levels they wont help you with your trading signal or help you get profitable market timing. You therefore cannot get the odds in your favour and will lose over time. This is fairly obvious when you consider that the price in any financial market is made by a vast diverse group of traders”.

Well, that is quite a statement. The fact is “volatility” exists in any time frame and, by definition, it is random in the time frame considered. Indeed, prices can and do go anywhere, whatever time frame you are looking at.

Support and resistance levels are identified from trading charts. If no time scale is displayed it is impossible for any trader to differentiate between a 1 minute chart, a 1 hour chart, a 1 day chart, a weekly chart or a monthly chart if they are not told which market they are looking at. The fact is all charts, in all time frames, exhibit similar characteristics. You will find trends, ranges and most importantly support and resistance levels. It follows that whatever edge you think you can get from identifying support and resistance levels in one time frame is equally applicable in the other time frames too.

Most successful traders use strategies which either (a) sell resistance and buy support, or (b) buy breakouts through resistance and sell breakouts through support. These core strategies are available to any trader working in any time frame.

The distinguishing feature of the day trader is that (s)he always exits trades before the end of the trading session. No positions are held overnight or over weekends. By adopting this approach the trader minimizes “event risk” which is the chance that some dramatic event will so disrupt the markets that you suffer a major loss. (Stop losses are ineffective in this scenario because the market “gaps” through your stop loss level.)

The REAL drawback to day trading is trading costs.

Say that in some hypothetical market, the typical trading costs are commissions (2 points) and slippage on entry and exit (1 point each). So for each trade, trading costs average about 4 points. Now, if a long term trader typically targets 100 points, trading costs would be 4%. For a medium term trader targeting, say, 40 points trading costs are 10%. But for a day trader, targeting 8-10 points, trading costs are 40-50%! Obviously, if a trader is determined to trade this market, then medium to longer term trading is the only sensible option. It would not be surprising for a trader focussed exclusively on this market to form the opinion that day trading does not work.

Clearly, then, not all markets are good for day trading. If the average market movement is just a few points, the trader will be unable to find short term trades which cover the trading costs. Even where the trading costs can be covered, they often turn what looks like a good system into a poor one. This is because, as a rule of thumb, trading costs are nearly always deducted from theoretical profit in successful trades, and added to the theoretical loss in losing trades. This significantly changes the average win to average loss ratio for the system.

To prosper, the day trader seeks out volatile markets where the the projected trading costs are a small percentage of targeted gains. The Expectancy of the system used, allowing for the impact of trading costs on the average win to average loss ratio, must be positive.

Fortunately, many such markets exist. The rather stodgy forex market, with its high trading costs, is NOT a good example. However, there are commodity markets and many individual stocks which exhibit the required volatility.

Author: D Bennett
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