The most important thing in any type of trading is to have a solid set of rules and then to have the self control to follow those rules. Day traders especially need to have rules to follow as emotion can and will have you buying and selling at the wrong time.
Day Trading Rules:
Only enter trades when price is at a support (demand) or resistance (supply) level, no matter what time of day or night.
Two types of entries: Breakouts and first pullbacks (see below).
Each day, identify one demand and supply level in each market, using a larger intra-day time frame. Always know where the market is in the larger picture with regard to supply and demand.
Only trade opportunities that offer at least a 3:1 profit zone to the first target...
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Articles
One day after a particularly spectacular trading debacle, my Uncle Joe took me aside and consoled me with some hard facts about how the stock market works. You see, Uncle Joe owns a very unique company and has an insider's perspective on how stock price movement is managed.
His company, Widgets & Co., is the only company in the States that distributes widgets, and it does so under license from the government. It has been buying and selling its unique widgets for many years. Now imagine also that these widgets have an intrinsic value, they never break, and that the number in circulation at any one time is the same. So, Uncle Joe, being a clever man with many years of experience managing his business, realized early on that just buying...
dis ci pline (n.) 1. Training intended to produce a specified character or pattern of behavior. 2. Controlled behavior resulting from such training. 3. A state of order based upon submission to rules and authority. WEBSTER'S CONCISE DICTIONARY.
How do you react to rules? Do you find them to be a burden, a drudgery to observe and obey? Do you look at them as something negative, a restriction to your freedom perhaps?
Or, do you instead see rules as beneficial, as a protection from possible harm? Do you find that rules are necessary in your trading?
While growing up, we were constantly confronted with rules of one type or another. We received rules in proper hygiene, how to address other people, how to respond to various signs on the...
When traders talk about the 'Positive Expectancy' of a strategy or system, what is it that they mean?
I have been watching as a several people on a forum discuss, argue and lend their ideas about entry techniques. They are going crazy over what the proper entry should be and why one chart pattern is better than the other. One person has even said how they purchased massive amounts of software to help them enter the market. Now don't get me wrong, I always use techniques to get me in the market but I understand that this is the least important factor weighing on an investor's overall success. I use technical analysis every day and I study patterns that allow me to enter with the ideal buy point (what I believe to be the ideal entry) but...
We take a basic look at what Swing Trading is and how to use it in trading.
Trading Categories
In our opinion, there are three broad categories that can be used to classify all trading methods. These categories are based around the amount of time a speculator holds his or her position in the market. These classifications are described below:
Short-term - Traders hold positions from a matter of seconds to several hours but rarely longer than 1 day. Examples: Day Traders: Scalping, momentum breakouts.
Medium-term - Once a position is held for longer than one day it can be classified as a medium term or swing trade. Traders hold positions from several days to weeks. Examples: Technical and fundamental swing traders.
Long-term - Traders...
You've decided to get started as a trader or investor, but where do you start? The answer as always is very simple and the process I will take you through applies to virtually all markets (particularly shares, stocks and derivatives of these i.e. options and spread betting) Once you move into other markets (currency for example) you would have a different set of data and charts.
One important point to note, is that those of you who have full time employment and are just doing this for longer term investment, or to build up experience, all of the following can be done in the evenings or at the weekend. You may remember that I have said before, you do not need live data to start with - end of day data is fine. You also do not have to be...
Have you gone out of your way NOT to take care of your Trading results? Why would some traders deliberately hamper their success - make trading decisions that are doomed to fail?
A video tutorial with chart examples of real trades is illustrated in this tutorial, where traders sabotage their success;
http://www.4x4u.net/review/sabotage/sabotage.html
Self Sabotage behaviour is when there is no logical or rational explanation of your action. It is making the same mistake over and over gain. Self sabotage is not following your rules, or in many cases not having a trading plan.
How do you break free from self-sabotage behavior?
Just think where you could take yourself if you were able to manifest your goals, you are able to take care of...
Have you ever wondered how Warren Buffet made his millions? In this article we look at the concept of compounding.
Some of you know about this, some of you don't. Either way I'm going to give you the basics of compounding, plus a couple of new slants on the concept. I suggest you read The Magic of Compounding not just once, but several times. If you have children, print this write-up and give it to them to read. If they master this concept they will become rich.
The Basics
Compounding describes how numbers, or money, can grow. Numbers can grow in an arithmetic progression, for example 2,4,6,8,10,12 or 3,6,9,12,15,18, where one unit is added on at each step in the progression and that action provides the growth, or, numbers can grow...
As the online Forex trading market becomes increasingly saturated and the choice of brokers becomes wider, the decision of which broker to run with becomes increasingly important for the trader. Although the majority of brokers provide the same basic trading platform, there can be a vast difference in what they offer their clients, both in terms of trading conditions as well as customer support. By simply visiting a company's homepage it may be hard to separate the second-rate firms from the professionals, therefore this article will examine the main parameters that should be taken into consideration before creating an account and depositing.
Account type
The decision of which type of account to open will most likely depend on the...
The eagerly watched for retest (of the prior lows) finally came to fruition on Wednesday of last week. Although, the ER2 (Russell 2000) didn't quite make it down far enough to touch the recent nadir. This was not the case for the S&P and the Dow. These two benchmarks actually exceeded their prior low points before the Bears finally decided that - enough was enough - and began covering or buying back their short positions. In addition, the market sell-off had gone far enough that the Bulls found a perceived "value area" in which they could put new money to work. This chain of events created a massive order imbalance that precipitated the violent reaction that is the rebound. Much like a rubber band that is stretched to its limit, the...
Welcome to the wonderful world of equity options. You may have heard that option trading is high risk, and indeed it is, for much the same reasons that spread betting is high risk. The instruments themselves are derivatives from the cash markets, and are highly geared, but options themselves were originally introduced to the US markets in the mid 1970s as a tool for hedging risk. In other words they were a form of insurance. You paid a premium, a bit like car insurance, which covered you in the case of an accident. In the financial markets you bought some protection in case the market went in the opposite direction. In this article we look at equity options, which are those derived from the cash market share or stock.
In the early...
Here we take a brief look at how the forex market began and how it has evolved over the years.
The foreign exchange, FX or forex market, as we know it has been evolving for hundreds of years. It is believed that the concept of banking first arose in ancient Mesopotamian times. Royal palaces and temples were used to store harvested commodities which in turn created the need for receipts. These receipts were used for transfers to those who made the deposits and to third parties. The very same banking and receipt business was also used in ancient Egypt. Receipts were often used to settle debts with priests, tax collectors and exchanged with traders. It wasn't until the early forms of coinage came about that we saw the first real currency...
What does it mean to short a stock?
This means that you borrow the stock from your broker to sell to a third party. The idea is to buy back the stock at a lower price, returning the shares to your broker while leaving the remaining cash in your account as a profit. Put another way, a short seller does not own the stock before they sell it. Instead, they borrow it from another investor who already owns it. At a later date, the short seller buys back the stock they shorted and returns the stock to close out the loan. If the stock has fallen in price since they sold short, they can buy the stock back for less than they received for selling it. The difference is your profit.
Short selling is a transaction made on margin. This means that...
Introduction
This article refers to financial spread betting. This means that we are talking about stock, index, future, forex, treasury, commodity and market sector spread bets. If you are looking for information about sporting spread bets then unfortunately this article will be of no use to you.
Depending on your geographical location and the legal jurisdiction you fall under, spread betting may or may not be available to you. For example, gambling laws in the US may prohibit spread betting as it is classified in the same bracket as visiting a casino.
Spread betting has evolved in, and is dominated by, specialist UK firms. The concept was first introduced over 30 years ago when a bookmaker devised a way of betting on futures...
Why do people trade? For most, their primary motivation is to make money. Sure, there are secondary reasons however they all stem from the undeniable urge to make money.
Ironically, this would have to be the main reason why people fail. With most of our trading decisions, it is only natural that we focus on making money because this is the main reason we consider trading in the first place.
Whilst I concede the idea of making money is important, it is not as important as protecting the money that you have to trade with. I think Paul Tudor Jones says it best when he said, "Don't focus on making money, focus on protecting what you have."
Stephen Waugh is a former Australian cricketer and was the captain of the Australian Test...
Introduction
The importance of well-placed stop orders to a FOREX trader cannot be over emphasized. The margin percentage required in a typical FOREX account is so small that a fully leveraged trader could easily lose a substantial amount of their net worth from a single position if it moves too far in the wrong direction. The name of the game is risk control and the key tool for protecting your account from substantial losses is the stop order.
That being said however, I do know some traders who claim never to place stops. Usually the rationale for this is that their trades are very short term (on the order of just a few minutes) and they are watching the market during the entire trade, finger twitching on the exit trigger ready to...
Charles H. Dow
It is interesting and amazing to note that not until Charles Dow started compiling the Dow Jones Industrial and Dow Jones Rail Index and started writing about the stock market a little over a hundred years ago, stock speculation was regarded merely as a game for the rich or as gambling for the brave. Sure, there were the tape readers, but the majority of the public regarded Wall Street as a source of excitement - the entertainment provided freely (unless you were on the wrong side) by figures such as Cornelius Vanderbilt, Jay Gould, and the infamous Daniel Drew.
In a series of stunning editorials for the Wall Street Journal at the turn of the century, Dow laid out the foundation of his own theory on the stock market...
I love to collect quotes as they concisely promote a philosophy which is readily understandable.
In my 25+ years of investing I have collected hundreds of quotes related to Wisdom, Wall Street and Success. I submit this small selection with the hopes that it will enlighten the forces required for your future financial success. Enjoy!
1) ?Money really isn't that important. Is a guy with fifty million dollars happier than a guy with forty eight million dollars?? - Milton Berle
2) ?With money in your pocket, you are wise and you are handsome and you sing well too.? -Yiddish Proverb
3) ?Money is always there, but the pockets change.? - Gertrude Stein
4) ?Spend at least as much time researching a stock as you would choosing a...
Risk management isn't just about having your 'stop-loss' in place. So what else is it about?
Any trader who knows his salt will tell you that Risk Management is the single most important aspect in trading, regardless of style or technical strategy. Yet, most traders are really not able to define what "Risk Management" really is. Let's pause for a moment, and think: can we define, in one brief sentence, what Risk Management is? "Loss control" would probably be the best broad definition, but to me this is a little more precise: In the business of trading the financial markets, Risk Management is the constant modulation of Risk Exposure to a constantly changing market. What is this exactly?
Most participants will relegate their entire...
Wise trade selection can be a key good trading. So how do you start to select those all important trades?
Your trading week can bear witness to the fulfillment of a lot of long range planning, and the big payoffs that such planning brings to those who are wise and patient-those who want the best of the best. Many times it really pays to be patiently waiting for a trade to burst forth and make some nice gains.
A number of the spreads we do are the result of patient waiting for the two sides to come into proper alignment. We plan these trades days or even weeks in advance.When a major entry signal such as the breakout of a Ross hook are being made, every effort within reason should be made to be aboard, even if only for a couple of...
You've probably seen it mentioned in various trading forums. It may have even happened to you a few times. It's enough to make your head explode. What is it? It's called Stop Hunting.
Here's a typical trading situation. You're convinced that the USD/JPY is heading up. You've entered a long position at 123.40 and you've set your stop at 123.05, slightly below an obvious double bottom. You set your initial target at 124.50, giving you more than a 3:1 ratio of reward to risk. Unfortunately, the trade begins to go against you and breaks down through the support. Your stop is hit and you're out of the trade. You're sure glad you had that stop in place! Who knows how far it could drop now that it's broken that support, right?
Wrong. Guess...
Stick With The Plan
This may seem like a common sense statement, but the reality of market timing is that the majority of timers "think" they can stick to a timing strategy, however when the market moves against them, as it always does as some point, they are swayed by financial news stories, the desire to be "with" the crowd, and their own emotions, often exiting the strategy at exactly the wrong time.
Think about it. Let's use a fictional market timer named Mark for this example.
Mark has a strategy he knows has, over many years, outperformed the stock market. Mark knows going in there will be times when the strategy will lose. He sees this in the historical trades. He accepts this or at least he thinks he does.
But then, the...
Here we take a beginners look at what the Stock Market is and how it works.
Introduction
Apart from the glitz and panache of Hollywood or the iconic World of the pop star the stock market is probably seen as the most glamorous way of making a living (and a very healthy living at that!). Over recent times advances in technology have made the Stock Market far more accessible to the general public. This has made the possibility of becoming rich from stocks far more realistic than obtaining a record deal or a landing a role in a Hollywood production.
Unfortunately involvement in the Stock Market is not a one-way street. It is commonly acknowledged that losing a fortune in Stocks is much easier than gaining one. You will constantly see...
Today there are many scams involving forex and a great number of us will have seen emails or websites promising untold riches. So what are the main points to look for in spotting a scam?
In recent years, investors have witnessed increased number of investment opportunities and offerings. While the complexity and success of these investment products vary, technological innovation has made the Forex market one of the fastest growth areas. Many of the leading Forex brokers reported up to 500% rise in the number of new retail customers. However, the growth of the Forex market has been accompanied by a sharp rise in foreign currency trading scams.
Many of these Forex scams are promoted on the radio, television, newspapers and the Internet...
Introduction
The key to successful trading is having a methodical approach and not being emotional about your trading decisions. Never forget that it is always best to accept when you are wrong and cut your losses where appropriate.
Technical analysis, also referred to as "charting", involves the use of charts or graphs to present historical performance and price changes at a glance and the ability to use this information in order to make investment decisions.
The first golden rule of technical trading is, where possible, to keep charts as simple as possible.
Technical Analysis and Charting
Even those new to trading will be familiar with the image of a chart in relation to the financial markets. They appear on City Traders? screens...
Does your ego get in the way of your trading? After a couple of wins do you think you can't fail and go on to lose all your days gains? Here we look at ego and how to control it when trading.
Imagine a stage populated by the main characters that comprise your inner "trading decision making committee". It's a short odds bet that the loudest shout for leading man / woman will come from the ego. Brushing aside rationality and requests for inclusion alike, the ego will pronounce his / her pre-eminence and sieze control.
Trading is a magnet for ego. It is full of promise and challenge and all egos relish a good scrap,especially when the odds are stacked against them and they have a sniff of heroism in the sweetened air. Statistics that...
Introduction
The Holy Grail is quite possibly the most famous piece of Christian mythology. Almost every archaeologist, historian, Christian and capitalist would love to find it, and many dedicate their lives towards its pursuit. It is said that those who drink from The Grail will be blessed with eternal life, whether that is spiritual or physical is open for debate (unless you have read "The Da Vinci Code" where the last thing you would do is drink from it!). Perhaps that explains why Indiana Jones may appear in a fourth film despite his increasing age.
When we talk about the Market Holy Grail we don't mean a cup that promises ever lasting life, more a cup that you can dip into the markets and pull out a never ending supply of money...
Jack is a trader, but not the cool, calm, collected sort of trader you would think. Yet he stills manages to be profitable by tailoring a trading strategy to suit his mindset. So how does he do it?
Our Jack is a trader. Not that you'd employ him because he is not the cool, calm, non-emotional, confident and steady-under-fire character of the job description. A highly emotional chap is our Jack. He is always scared stiff and sure every trade is going to go wrong. He hates losing and any loss wounds him deeply and stays with him for weeks. He is as greedy as hell and absolutely hates giving money back and watching his profit deteriorate. On top of all that, he's frozen fingered and can always be relied upon to come up with some reason...
What are the major pitfalls that every new trader faces? And how can you avoid them?
So you want to trade, eh? Or have you already started? What drew you to it? Was it the huge profit potential? Maybe it was the excitement. Or perhaps you love the challenge of solving a big, multi-dimensional puzzle.
Trading can be rewarding. You can make lots of money. You can have tons of fun. You can have something to brag about to your friends. Unfortunately, trading can also just as easily lead to financial distress and high blood pressure if you don't go about it the right way.
Whatever the case, there's certainly a number of things that make trading the financial markets worthwhile. At the same time, however, there are some huge obstacles...
Having been trading stocks and options in the capital markets professionally over the years, I have seen many ups and downs.
One story told to me by my mentor is still etched in my mind:
"Once, there were two Wall Street stock market multi-millionaires. Both were extremely successful and decided to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 savings to buy both their opinions. His friends were naturally excited about what the two masters had to say about the stock market's direction. When they asked their friend, he was fuming mad. Confused, they asked their friend...