Day Trading

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.

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.

Stock brokers are the folks who bring the BUlls [BUyers] and BEars [SEllers] together. By doing this they earn their fees and commissions.

A free site: http://investopedia.com . It’s recognized by Y! A as a "Featured Knowledge Partner".

As you are doing research about the investments you are interested in, sometimes you'll come across a financial or investment term you never heard before.. You can usually find excellent, easy-to-understand definitions of many financial and investment terms by going to Investopedia’s dictionary.

It probably won’t be long when you’ll feel you’re ready to invest your hard-earned money. Before taking that step, you really should do research about what you are investing in. It also has a free, paper trading platform. You can set up a virtual account and almost trade as though you were trading with real money.

http://finance.yahoo.com is also recognized by Y! A as a "Featured Knowledge Partner".

If you want examples:
A] Go to the yahoo finance site.
B] Under the "HOME" tab is a blank box. Begin typing the symbol or the company's name. As you are typing a drop down menu will appear with symbols.
C] When finished click on the "GET QUOTE" button. The quote for that stock should be displayed.
D] On the left side is a blue box. The 3rd line down is "Options". Click on that.

IF that company has options, the option chains will be displayed. Not all companies have options. In fact I don't think there are too many companies under $5 which have options.

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

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.

The time it takes to settle stock trades is 3 business days.

As soon as the balance goes below $25,000, the trader must fund the account with more money OR a whole new set of trading rules applies. This varies from broker to broker, but the $25K is a hard. fast rule.

Your Q2: In the U.S. this is referred to as "swing" trading.

Broker electronically track every trade by every trader. When the trade is placed, you confirm the trade AND you have the iopportunity to print every trade placed, confirmed and completed. Yuor account also reflects the balances.

Your Q3. Day trading is in and out [entering and exiting] the same shares in the same company on the same trading day - regardless of the price.

Your Q4. You decide your own buying and selling prices through various kinds of orders.

Your Q5. Refer to my remarks.

Your Qs 6 & 7: I DON'T believe they apply to the U.S. exchanges.

You can usually find excellent, easy-to-understand definitions of many financial and investment terms by going to this free site, recognized by Y! A as a "Featured Knowledge Partner":
http://investopedia.com

Investopedia also has a free, paper trading platform. You can set up a virtual account and almost trade as though you were trading with your own hard-earned money.

http://finance.yahoo.com is also recognized by Y! A as a "Featured Knowledge Partner"

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!