It is true that 80% of all day traders eventually lose all their money. Then again, about 60% of the remaining 20% make enough to live off of or at least provide a second income. The remaining 40% steadily lose money.
The keys to success in day trading (% of importance):
1) money management - knowing how much to bet on each stock, when to take profits, and when to cut losses (40%)
2) emotional control - patience, not acting out of greed or fear, never averaging down, only buying high probability set-ups, etc. (35%)
3) a good system - knowing when to enter and when to exit (25%)
You'll notice that the system is the least important factor for success. Almost any system is profitable (although some much more than others), but the real important part is whether you can actually use it correctly or not. It might not match your personality, for example. Also, if you don't manage your money correctly, you can go bankrupt on even the best system in the world.
Unless you have amazing emotional control, have a natural inborn talent for trading (I've never met anyone like this, though), or have a brilliantly flexible mind that adapts quickly, you will most likely steadily lose money day trading for at least the first few months.
The worst part about getting started in day trading is that there's very little way to tell if you'd be successful before you actually start buying stocks and losing (or making) money. Paper trading is not even close to the same as real trading, because there's no emotion involved, or commissions or slippage.
On the other hand, once you have reached the right point, the rewards can be substantial. It took me 15 months of swing trading and staring at computer screens all day long and three months of day trading (losing 50% of my entire equity in the process) before I turned the corner. Now, I can quite conservatively double my money each year (but notice it took me a year to recover from the first year and a half). That's probably a typical story. If you read about Stock Market Wizards by Jack D. Schwager, you'll notice that almost every master trader went bankrupt at one point or another.
Most people quit before they reach this point, and I'd be the first to agree that day trading is not for everyone, or even for most people.
Also, remember this: any person with a truly successful and profitable day trading system would never sell or share it. You can make much more money using a winning system than selling it. Okay, maybe 10% of the systems out there are legitimate, but you'll never know which 10% until you've bought it and lost lots of money on it.
Be careful when looking for winning systems, and always look for a money-back guarantee.
The key to success is not the system the person uses so much as it is the person using the system.
One last word of advice: Unless you're willing to sacrifice thousands of hours in front of the computer and thousands of dollars, and able to stand the emotional and financial pain you will endure, then don't even start.
Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.
Day trading used to be the preserve of financial firms and professional investors and speculators. Many day traders are bank or investment firms employees working as specialists in equity investment and fund management. However, day trading has become increasingly popular among casual traders due to advances in technology, changes in legislation, and the popularity of the Internet.
Trade Frequency
Although collectively called day trading, there are many sub-trading styles within day trading. A day trader is not necessarily very active. Depending on one's trading strategy, the number of trades made in a day may vary from a few to hundreds.
Some day traders focus on very short or short-term trading, in which a trade may last seconds to a few minutes. They buy and sell many times in a day, trading very high volumes daily and therefore receiving big discounts from the brokerage.
Some day traders focus only on momentum or trends. They are more patient and wait for a ride on the strong move which may occur on that day. They make far fewer trades than the aforementioned traders.
Overnight Position
Traditionally it is suggested day traders should always settle their positions before the market close of the trading day to avoid the risk of price gaps (differences between the previous day's close and the next day's open price) at the open. Some day traders consider this to be a golden rule to be obeyed at all times. Some day traders, however, believe they should let the profits run, so it is acceptable to stay with a position after the market closes.
Day traders often borrow money to trade. Since margin interests are typically only charged on overnight balances, the extra costs discourage them from holding positions overnight.
Profit and Risks
Because of the nature of financial leverage and the rapid returns that are possible, day trading can be extremely profitable, and high-risk profile traders can generate huge percentage returns. Some day traders manage to earn millions per year solely by day trading.
Because of the high profits (and losses) that day trading makes possible, these traders are sometimes portrayed as "bandits" or "gamblers" by other investors. Some individuals, however, make a consistent living day trading.
Nevertheless day trading can become very risky, especially if one has poor discipline, risk or money management. The common use of buying on margin (using borrowed funds) amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margins for daytraders. Where overnight margins required to hold a stock position are normally 50% of the stock's value, many brokers allow pattern day trader accounts to use levels as low as 25% for intraday purchases. This means a day trader with the legal minimum $25,000 in his account can buy $100,000 worth of stock during the day, as long as half of those positions are exited before the market close. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than his original investment, or even larger than his total assets.
Even when a position has made a profit, the trader has to offset the transaction costs and the interest on the margin. It is commonly stated that 80-90% of day traders lose money. An analysis of the Taiwanese stock market suggests that "less than 20% of day traders earn profits net of transaction costs".
Day trading is considered a risky trading style, and regulations require brokerage firms to ask whether the clients understand the risks of day trading and whether they have prior trading experience before entering the market.
Another way to make consistent profits in stocks in "swing trading," going for small moves of several days to several weeks in stocks or stock options. I use Japanese candlestick charts to swing trade, and have been averaging 8% to 12% a month, using some leverage. Instead of buying stocks, I buy deep-in-the-money options, going both long and short. Doing this, even a small account of $100,000 can make you $8,000 to $12,000 a month, an amount many people would consider a very comfortable living. Get a book on Japanese candlestick trading, paper-trade for a while (just make "pretend" trades, tracking the results in Yahoo Finance) until you become proficient at recognizing and acting on the signals.
You can refer to Economic Times, Business Standard and other business/economy papers. They publish such data everyday. Particularly , Business Standard is exhaustive. They publish a list of top 200 stocks based on volume and value everyday.
You can also refer to Bombay stock exchange website ( www.bseindia.com) and National Stock exchange website ( www.nseindia.com). These are the most authentic sources of market statistics. Every trading day after market hours you can access these websites for such compiled data.
You can refer to Economic Times, Business Standard and other business/economy papers. They publish such data everyday. Particularly , Business Standard is exhaustive. They publish a list of top 200 stocks based on volume and value everyday.
You can also refer to Bombay stock exchange website ( www.bseindia.com) and National Stock exchange website ( www.nseindia.com). These are the most authentic sources of market statistics. Every trading day after market hours you can access these websites for such compiled data.
Your first dollars should be spent on getting educated on investing. You don't have to train to trade them professionally, but we are talking about your future here. So the more you learn, the more it'll help you! So let's start there.
You ask a very broad question, so be prepared for a pretty long answer. Just take it in chunks!
How to invest depends on what you already know. We'll assume that you're beginning since you say you want some books for beginners!
A good primer is How to Make Money in Stocks by William O'Neil. You can get it cheap just about anywhere. It’s widely available new or used.
Another good one is one of Jim Cramer's books (he’s got a few).
Once you finish those, read Mastering the Trade, by John Carter
But books will only get you so far. At some point, you'll also want to get at least a little training. There are some great education companies if you want to make the investment. Investools.com or optionetics.com are both very good companies as is tmitchell.com
For free, you can start by visiting thestreet.com and investopedia.com. That'll get you a pretty good primer so at least you'll understand what the markets are and what a stock is, etc.
If you get a chance, watch Mad Money on CNBC. Don't trade any of his picks until you track many of them over time. Just use the show to get you to understand some basics and get a feel for the market itself.
Next, subscribe to something like Investorsbusiness daily or something like that that can help you identify good stocks.
Once you understand stocks, go to 888options.com. It's a website that'll help you understand options (what they do, how they work, etc). You don't need to trade them, but the more you know, the more you'll see how options can really be the safest way to invest (once you're educated).
For discipline (which is crucial to successful trading), probably Trading in the Zone by Mark Douglas or Mastering the Trade by John Carter
I know that’s a LOT to absorb. Just take it one step at a time for now. Start with a book or two to give you an idea of where to begin. Take your time, and let it seep in.
As you get up to speed, you should papertrade to practice (highly recommended). This should help reduce your losses in the beginning as you get used to buying/selling.
You can practice for free on almost any reputable broker site (optionsxpress, scottrade, thinkorswim, etc).
Start slow, then as you figure things out, you can buy more shares.
Congrats again on getting started. If you have any questions, please let me know.
Hope this helps!
is it a smart way to start of
http://www.stockmarketresources.blogspot.com
http://www.picktherightbroker.blogspot.com
I have been studying the market for about 2-3 hours a day for maybe 5 months now, and I have developed some guidelines. Just so you know, a few weeks is considered swing trading. But there is no "quick money" and here's why:
Investing in mutual funds should require about 20 hours of research
Investing in stocks - 100 hours
Trading - 250 specialized hours
What I mean by specialized is that if you trade stocks, you need to be studying stock price movement and trading strategies EXCLUSIVELY for 250 hours. Personally, I have, at the least, around 350, and I have spread my knowledge around to stocks, options, general education and investing, futures, financial info — everything. I haven't even started paper trading my strategy, and I expect to be another 150 hours from trading, which I expect to start in July.
The smartest way to start off is to sit on the sidelines and educate yourself until you feel you're ready for whatever you decide to take on. I hate it sometimes, but I know the profits from my learning will be more than worth it. Best of Luck!
Btw, if you cut corners, you will regret it! There are plenty of people who either give up or cut corners and fail. It takes a special kind of person in this field. Email me with any questions if you like.
The books recommended by others here are great. It's hard to advise you further not knowing how much you do/don't know about the market. The paper trading practice sites are an essential. Try those out in earnest and you'll save yourself from unnecessary mistakes later when errors cost real money.
I find that it's important to do a few things:
1. Chart the S&P for uptrends and downtrends - when you see an established trend the market will tend to move that way, and stay within the down slope and up slope "channel" in its daily activity for multiple days. This gives you added confidence as to when to "buy", when to "add to" your position, and when to cash out. When a stock busts out up or down that can be the opportunity to get in or out (depending on direction) of a given index, ETF, or stock. This will also help you stabilize your stock monitoring because you will focus on the stocks at present which are near "support (floor)" or ceiling (resistance)" positions. To help me do this, I've found it is incredibly valuable to have a second computer screen (I use two PCs because I'm mobile when I want to be) with several key screens of data/chart references.
One screen has no more than 6 stocks I'm watching that day, with charts on each screen.
One screen has all major sectors' charts on it - by sector fund (USO, OIH, etc.)
One screen has 52 week uptrending stocks I'm monitoring for pullbacks
Other screens are categoric (e.g., AG companies)
2. Using other resources such as the 52 week high stocks (WSJ, YahooFinance, Google Finance, etc.), and Top 100 (IBD.com) are also opportunities to check for trends, and determine whether to jump on this momentum during a given day, or to wait for a pullback and get in before a multi-day upswing for a multi-day "swing" trade. If you put in the time, you will identify pending breakouts.
3. Listen to Fast Money to pick up on hot trends and expert interviews that can indicate stocks to watch since they have such a wide audience.
4. Keep track of volume levels and beware of low volume days.
5. Track sector movement and rotations. Institutional buyers will dictate what will move, whether it "makes sense" to you or not.
6. Listen to Art Cashen (sp?) - every morning about 9:15 AM EST before the market opens. His insights are usually good indicators to align with or watch for. Good pulse on the market.
7. Know that a margin account can be traded every day with no interest if you don't carry it over night. Non-margin accounts will have a 3 day carry cycle until you can reinvest the funds.
Best wishes for success. Cramer can be a goof on some topics, but knowing what he's tracking can also give you one or two key stocks to watch for the next day if conditions align to support those stocks. His trading rules lists are very good.
But, can the previous day in overseas stock markets, that traded when Wall Street was closes, provide some clues of the next day in the US?
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.