Day Trading

The website below has software that scans the news feeds for you specifically for day traders. It is programmed to look for the key words that causes big moves in stock prices. If there is any advice you could give me before I get started I would love to hear it.

You're probably wanting to do it for the money, not for the process of trading. Or maybe you're good at analyzing the markets and setting up the computer to analyze and evaluate, but that doesn't make a trader.

If you're just doing it for the money, you will not approach the market properly, you will be impatient, and you will tire easily. Really, there are lots of better ways to make money. You probably already expect to earn an income from such a small investment of $2,500. If these are true, you have unrealistic expectations, and you will not succeed.

PremiereTrade is one of the best trading platforms for the Forex beginner, because they have such a great community of others to help you get going. It costs $3,000. But they will tell you up front to paper trade in the Demo Account for a year before you actually commit money.

Neither does a brain surgeon walk out of school and pick up a scapel and begin operating, or an engineer walk out of class and begin building skyscrapers. And you have not even begun to learn, let alone apply the rules of trading, or to master your fears and emotions, or even know what they are.

I think most people come to trading expecting to "Get rich quick." Doctors and lawyers are the worst traders in existence, because they are used to being in control. Almost all professionals do poorly at first, because they have succeeded elsewhere, and expect it to be easy.

Trading is the most difficult challenge you will ever face. If it were easy, we would all be rich. But instead, 80% of all traders blow out their account within the first year.

Personally, I have lost everything three times, trading the stock market index futures. Now I have finally settled on Forex, and am doing quite well after 17 years of learning.

If you buy PremiereTrade, they will charge you $100/mo for the data feed. For one year, that is another $1,200. You can trade a simulator for free here and learn as you go:

http://www.expertworx.com/pm/Forex%20Market%20Educational%20Game.htm

Here is the broker I use:

http://fxdd.com/

Depending on what you invested in, you could have to register with the SEC. Additionally, you would be signing up for double taxation! You would have to pay additional legal and accounting fees, and could have your quarterlies audited by the IRS.

There are absolutely no advantages to this scheme. Never mind that if you tried to become a trader for a living, you would become homeless, as more than 90% of "day traders" lose more than 2/3 of their capital in the first year.

Not to mention that this would look a hell of a lot like money laundering to an outsider (someone who creates a shell holding corporation to avoid having his name attached to the movement of significant amounts of cash moving across state lines is a pretty good way to meet some kind agents from the FBI).

It's never a good idea to try to outsmart the federal government – sure, they might not be the smartest bunch in the room, but they sure know how to hold a grudge.

Also without a margin account you won't be able to daytrade more then 3 times in 5 days of the market being open or you'll get afoul the SEC rule of Pattern Day Trader rule. (PDT)

All that being said … if you're not gonna be broke by losing that 5k go ahead and give it a shot IMO.

My one word of warning is that you will get caught and something will drop, so try to limit your portfolio % to a lower amount as soon as you can.

A long term investment often starts out as a daytrade ;p For that reason I'd suggest only trading in a stock that you're comfortable owning for awhile.

ps I started out the same way in 1998 and I'm now doing this for a living, so it can be done.

1) Get cash up front.
2) Will make money beyond the cash you get up front if the option is actually excercised (assuming the strike price of the option you sell is greater than the current price of the stock your selling.)
3) Aren't taking any big risks that you wouldn't be taking anyway by holding the stock.

Of course you risk making less money that you'd otherwise make if you simply held the stock and it goes well above the strike price. But most options expire worthless, and quite a few of the ones that don't probably still don't make enough to cover the contract price (ie your still better off).

How much you can make doing this depends on the stocks you invest in and the manner in which you do it. Not shockingly people are willing to pay more for options on a hot growth stock like Apple (a Sept 140 call contract trades for $420, slightly more than a 3% yield) than they are for a value stock like Walmart (a Sept 45 trades at $45, a 1% yield). Also the closer the strike price is to the stock's current price the more its worth but the more likely it is that the contract will be excercised (an Apple Sept 140 contract is worth $420, a 150 is worth $140, a 160 $45, etc). I generally sell contracts that are short term and fairly far out of the money (as far as I can go while still making a decent return).

Okay, that was a lot…

Buying calls or puts is obviously far riskier. My advice would be that you should only buy options rarely, if at all, and look for options that don't expire for at least a year (more time is relatively cheap when buying options–the first month is the most expensive, as is the first year, etc).

And to answer your originial question– unless you are VERY lucky (and have taken a huge amount of risk) I doubt you could make a living in the short term off of options. But you should be able to augment your returns by selling calls and over the long term that can help the 20k grow.

Good luck.

Back to your example. Please consider another theory. You didn't capture the 5 point "discrepancy". You might have been profitable because there was a big follow thru when the primary market opened and you caught some of that move. I have done this, and when it works, it works well, but sometimes there is no follow thru, or worse, there is a backlash, so being ready to exit promptly when the trade is not forming is crucial to success.