Day trading is not for everyone. Yes, there are many advantages, but there are also some “negative” factors. One of them is that you WILL face losses. As a trader, losses are part of our business. If you can’t accept that fact, you simply shouldn’t trade. Stock market can make people rich and it can make you poor also. Stock market is like Ocean. It looks beautiful and it’s scary too. Day trading may not be suitable for everyone, but some people have the right set of skills and are able to succeed. I have seen many examples for some people who started from $40K to millions dollars in a year, but I have also seen many failures. You need to have money to make money. Without big capital and have a big leverage, it’s a bit hard to make money.
Having a trading strategy is probably the single most important thing you can do in order to succeed with trading. Having a trading strategy means having a pre-defined set of rules that you have developed for your day trading.
It means knowing what you’re doing instead of just gambling. Too many people start off day trading without a strategy, which means that they’re completely unprepared. With a day trading strategy, you’re way ahead of the crowd, and you’ve dramatically increased your chances of making money with trading.
I used to work with financial institutions where personal trading activity’s restricted and full discloser is required. I started trading as long term investment, then studied Swing trading over period of times. I learned a combination of company financial history, fundamental and technical analysis. Later on, I fell in love with the markets and took it as serious business. The journey is long and tedious to become one. It was an expensive education for me as well. I paid my tuition for studying this market with many losses for few years. But then gradually I became better over period times and finally ended up being profitable in 2018.
Share some highlights of real trading examples to show some mistakes and achievements we can learn. It’s ok to make mistakes. Everybody does, although no one admits it. I have made enough and seen enough to know that it is a regular occurrence for everyone, and it is nothing to be embarrassed or ashamed about.
Stress is part of trading experiences, you need to turn this experience to positive aspect. Use stress as the motivator to get better. Use stress as adrenaline. If you let it suffocate you, it will defeat you.
Stop worrying about being perfect. In reality, nothing is. You lose some, you gain some. It’s just part of the process. There will always be something that did not go quite to plan.
I made money most from trading option. With Option, it costs less and it has a limited risk. There are so many ways to make money with option. You can use it to hedge the stock or you can use many complex options strategy to beat the market. You can even make money when the stock does not move much. You can profit from just earning commission from selling option. Unlike selling short for the stock that has a potential risk when the stock goes up, selling option has many strategy to limit the losses from selling option. You have flexibility to manage your risk. You can adjust your profit expectation and the risk you are willing to take. It’s Risks and Rewards. The less risks you take the less rewards you have. But the probability of winning is higher.
Active traders often group themselves into two camps: the day traders and the swing traders. Both seek to profit from short-term stock movements (versus long-term investments).
The act of buying and selling securities intra-day with the expectation of making fast profits within minutes to hours in a single day, based on news, technical analysis and sophisticated charting systems. Can make or losing money in a matter of seconds and minutes
Swing trading is much similar to Day trading, but with longer holding position that take place over a period of days. A swing trade may take a few days to a few weeks to work out. Constant monitoring not required. The swing trader can set stop losses.
Here are the pros and cons of day trading versus swing trading
Traders consist of speculators and long term investors. They can be Institutional and Retailers. Institutional day traders work for financial institutions and have certain advantages over retail traders due to their access to more resources, tools, equipment, large amounts of capital and leverage, large availability of fresh fund inflows to trade continuously on the markets, dedicated and direct lines to data centers and exchanges, expensive and high-end trading and analytical software, support teams to help and more. They might even use computer programs and other tools to enter trading orders automatically. Because this all happens with the help of a computer algorithm, it is also called algorithmic trading. They are also called high-frequency trading (HFT). Complex algorithmic trading by to analyzing multiple markets and executing orders based on market conditions in which large numbers of orders are executed within seconds.
There are a number of day trading styles that make money in the market. This article provides an overview of multiple day trading strategies that professionals use to make money on a consistent basis. This article will contain the pros and cons of the following day trading styles: (1) Breakouts, (2) Scalp trading, (3) Counter trading, and (4) Trend following.
Breakouts is the most common form of day trading styles. It involves identifying the pivot points for a stock and then buying or selling short those pivots in hopes of reaping quick rewards as the stock exceeds a new price level.
Breakouts is generally the starting place for newbie traders as it provides a clear entry level and it is a trend following system. Breakout trading has the potential for quick gains. When key price levels are exceeded it will trigger stop order which gives that initial burst. The key component of a valid breakout is that volume and price accompany the move. This will increase the odds of the trade continuing in the desired direction. Breakouts are also easy to identify. Most trading platforms provide methods for tracking volatile stocks and how close they are to their daily highs or lows.
Breakout trading is by far the most challenging form of day trading. For starters, the levels where trades are placed are the most obvious to everyone regardless of their trading style. Think about it, no matter what system you use on a daily basis, every day trading system factors in the highs and lows of the day. Secondly, the vast majority of intraday breakouts fail. This doesn’t mean they don’t head higher a day or two later, but if your day trading and there is no instant follow through, odds are you are in a losing trade. Day trading breakouts requires the most discipline as you have very little time to make the call as to whether you are wrong or right. The inability to pull the trigger fast and consistently will mount in to huge losses.
Scalp trading is a day trading style where a trader looks to make small gains throughout the trading day. This day trading style suits people who love “action” in the market. The obvious benefit of scalp trading is the fact you are looking for very little from the market. Another plus is that stop losses are very tight. This will allow the day trader to avoid the monthly “blunder” trade that we all have put on one time or another. Scalp trading like any other form of trading requires discipline, but due to the large number of trades one will put on during the day, it requires an enormous amount of focus. This “all day focus” can make the trading day a tense situation and can lead to high anxiety for the trader. Also, people go into the business of trading for unlimited earning potential and the idea that you do not have to slave away at a desk all day. Well if you plan on scalp trading, keep a bottle next to your desk, because bathroom breaks are considered a luxury.
Counter trading is when a trader looks for a pivot point, waits for that pivot point to be tested and trades in the opposite direction. This type of trader has a personality where he or she enjoys going against the grain.
Counter trading has a high success rate for day trading. Ask any seasoned trader and they will tell you that intraday trading is nothing more than constant zig zags and head fakes. So, the counter trader is already up in the odds department, because they are going against what the market is telling them. Another plus for counter trading is that when the market fails it often fails hard. Day traders who are able to play morning reversals can make a great living only trading the first hour of the day.
While counter trading has a high win percentage, the losers can bring destruction to an account. Even if you win on 4 counter trades, if you do not cut the loser fast, a breakout could run away from you in a hurry. Another downside to trading counter is the next pivot level is too far from your entry, so you will have to set some arbitrary stop limit. Since your stop is not based on an actual price point on the stock, it could get hit quite often. Lastly, setting your price target is also a challenge. Stocks will often appear to make a double top, only to change course just as fast and reclaim the recent highs.
When most people think of trend following, the first thing that comes to mind is a long-term hold buy and hold strategy like the Turtle System. Believe it or not, there are day traders who utilize trend trading systems. The basic method is to look for stocks that are up big in the news and then buy the pullback on these stocks after the first reaction in the morning. Lastly, the trader will place a longer moving average (i.e. 20) and sell the stock if it breaks the line.
Trend trading allows the trader to ride a stock for big gains. The day trader will have a limited number of stocks to trade per day, so the commissions are low for this kind of day trading style.
If every trader was able to determine which stocks are going to trend all day, there would be a new millionaire created every 30 minutes. No one knows at 10 am, which stocks are going to trend all day long. This means that at best, a trend following day trader can hope to be right 20% of the time. While this trader could still make a killing with such a low win rate there are very few traders that can stick to their trading plan with such a low win
Personally, I trade about 11:00 am to 11:30 am. The volatility in the morning fits my trading style. That is key; you need to understand who you are as a trader and trade accordingly.
Remember, day trading is not absolute; it is a game of odds. Your job is to put the odds in your favor and by utilizing the different day trading time zones that we have discussed, your trading will become more consistent.
9:30am to 9:50am – The opening bell
The first 20 minutes of the day are the most volatile of the trading day. While this is the most dangerous day trading time zone, it can also provide to be the most lucrative if you understand how to trade in this time frame. It is usually recommended that novice traders stay out of this zone and wait for the imbalances created from overnight news or earnings releases to settle down. Many technical indicators do not work well in this time frame as the volatility is too strong. In most cases, volume will also be the highest of the day during this time.
9:50am to 10:10am – The Morning Reversal
The first reversal zone of the day begins at around 9:50am and lasts for 20 minutes. This is a very important period of the day for day traders. I look for this time zone to put on continuation trades. For example, a stock may gap down by 10% on the open and then bounce for 10 to 15 minutes coming into this time zone. However, this is where day traders will look for a reversal of the bounce and a continuation in the primary trend. Once the dust has settled from the opening bell, you will be able to more clearly see what the traders in this security will want to do. Volume will drop off a little bit compared to the open but will still be very high during this day trading time zone. This time period is my favorite for trading as the price stability returns to the market but volatility is still present for profitable trading. In strongly trending markets, reversals may be small or non-existent
10:10am to 10:25am – Low Risk Trading
During this day trading time zone, volatility shrinks again and you want to look for clues in the Dow, S&P, and Nasdaq as to the direction that the market wants to take. This is an opportune time for bigger traders to move the market the way they choose. Watch the tape of the stocks that you track for any indications of direction.
10:25am to 10:30am – Decision Time
The market will be settled for the most part and most of the days volatility will have passed. There may have been a few reversals in the first hour but during this small zone, many traders will cash out of profitable positions and finish the day while others will position themselves for the next move in the market. I look at this period as a time for consolidation and preparation. The move following this day trading time zone can last
10:30am to 11:15am – Final Move
This time zone will be the final major time zone as far as morning trading is concerned. It is safer in relation to the other zones in that technical indicators such as the slow stochastic or RSI will have a more pronounced effect than some of the earlier time zones. Be careful near the end of this range as it leads right into the lunch time hour which can start early or start late. A rule of thumb is that the more volatile the preceding day trading time zones are, the greater the chance that this move will extend further into the 11 o’clock hour.
11:15am to 2:15pm – Lunch time
Lunchtime trading or I call it dead-zone hours can be brutal. False breakouts and choppy sideways moves characterize this time period. If you must trade, trade lightly until you have a good track record of putting on winning trades in this time zone. Also, please let me know how you do it! The risk to reward is very high here. Volume will fall out of the market as floor traders and other institutional traders will take their lunches. Don’t let this time zone turn profitable morning trading into a loss.
2:15pm to 3:00pm – Back to Business
Traders will work their way back into the market during this time frame. For the most part, trends have been established and trading during this timeframe will provide you with opportunities where the use of technical indicators is applicable. Remember, the CME closes at 3pm so you will see a pickup in volume due to some of the bond traders coming into the equity and futures markets.
3:00pm to 3:10pm – GO Time
Bond market closes and bond traders will flood the equities markets; watch for sharp moves in either direction. Moves can be fast and large.
3:10pm to 3:25pm – Caution & Stay with the Trend
During this day trading time zone, use caution as you are approaching the 3:30pm timeframe which tends to produce a reversal or a stall of the prior trend. During this zone, you want to stay with the trend that has been established from the 2:15pm and even 3:00pm timeframe but don’t get attached to the positions.
3:30pm to 4:00pm – Portfolio Re-balancing
I tend to recommend traders not trade during the last half hour of the day. There are many funds and institutions rebalancing their portfolios and it can get a bit tricky. If your day trading, you only have 30 minutes max to get out of your trade and I don’t like working under that type of pressure.
CUP and HANDLE Chart
Understand the chart, candlestick, head and shoulders, cup and handle pattern, RSI (Relative Strength Index )and MACD (Moving Average Convergence Divergence).
This is the best tool to know when is the best entry. When you chase the stock, basically you trade with Market order. Most likely you end it up paying the highest price if you chase the stock that move up and paying the lowest price when you short the stock. you’re increasing the risk that it’ll move against you and move against you
1. Making $25,500 a day
TSLA – September 28, 2018
The Securities and Exchange Commission charged Elon Musk, CEO and Chairman of Silicon Valley-based Tesla Inc., with securities fraud for a series of false and misleading tweets about a potential transaction to take Tesla private.
I continued buying PUT to average down the cost until Thursday (9/27/2018) before the PUT expired on the next day (Friday) for $0.05. After hour, the news came out, CEO Elon Musk rejected SEC generous offer for settlement. The stock tanked big time after hour. On Friday morning I sold my PUT with huge profit.
Lesson to learn: timing is everything. I considered myself very lucky to be in and out on perfect time.
Opening Position TSLA 12 contracts with market value of $120
Closing Position TSLA 12 contracts with market value of $25,500
2. Bad Trade On New IPO
SXTC – Jan 16, 2018
New IPO, a tiny Chinese company with the price range from $8 to $23.35 in one day. The price went down to $6, I thought it was the best opportunity to get in and start with small. Average down daily but the stock kept on going down on the average of 10% every day for straight 10 days. I had no choice to sell on January 30. After I cut the losses, the next day the stock jumped back to $8.
Lesson to learn: “Know how to cut the losses”. That’s what the text book says. However, “If only I held it bit longer” also should be considered.
3. Biggest missed opportunity
PCG – January 24, 2018
PCG announced to file for bankruptcy. The stock traded from $25 to $6 and stayed at $6 to $8 for few days. Most analysts upgraded the stock. I decided to buy cheap Call for 200 contracts for $0.10.
At 14:51 pm, I stepped out for quick drink and I set limit to close the contract for $0.20. I came back in less than 2 minutes at 14:52, my contract was closed at $0.20. The stock price jumped from $7.90 to $14.50 and option price jumped to over $16. I just missed the biggest opportunity of making over $300,000 in just less than 2 minutes!
Lesson to learn: Avoid setting limit order on volatile stock.
Opening and close position in 5 minutes
Am I comfortable with being wrong? As my real trading example indicated, in a fractions of minutes, I could missed a big opportunity. In trading, we must know that we will be wrong, and we will lose money. Attempt to be comfortable being wrong and accept the fact. Holding ourselves accountable for our trading decisions brings the power of rules to the forefront. Here are some things I’d like to impress upon the trader:
Preparation will slay many of your fears.
Know thyself. Take the time to really answer those questions in our “gut check” exercise.
This shifting entity is filled with competition, and it is fierce. Every trade is won or lost by an opponent.
Lastly, your position size is more important than your entry and exit strategy when day trading stocks. You can have the best trader in the world, but if you cannot manage your trade size, your trading strategy will be failed.
Day trading is better suited for individuals who are passionate about trading full time and possess the three Ds: decisiveness, discipline, and diligence (prerequisites for successful day trading). The success that a trader achieves in the markets is directly correlated to one’s trading discipline or lack thereof. Trading discipline is 90 percent of the game.
Keep trading size at minimum as possible.
Example keep cash position at least 75%. Do not use margin. To qualify for day trading, you need at least $25k. Buying power can be as 4 times as your cash portfolio. You are probably tempted to use purchasing power. When used properly, margin can leverage, or increase, potential returns. The problem is that if a trade goes against you, margin will increase losses. When you have a margin call, then you have to liquidate your position.
Do not over trading
Many traders think that “quantity” is better than “quality.” They believe that if you just throw enough punches, one will eventually hit. They trade like maniacs and make their broker rich. My trade average per day was 20 and the price $6.95 per trade. In a year I spent at least $33,360 just for commission. Ideally, I should have only traded maximum of 5 trades a day.
Know the earning date of the stock.
Most stocks are volatile after the hour after the earning announced. The best way to trade on the earning with Long straddle option. Regardless which direction the market’s price moves, most likely you make money on volatility.
Not too greedy.
There’s no need to be greedy. There always another opportunity to get make money. Take the profit whenever the opportunity is presented to you.
Managing losing trades is the key to surviving as a day trader. Know how to set loss limit. When I’m wrong I get out immediately, cut small losses. No matter what your time frame is, it’s extremely important to know “when to sell.” Trading is certainly difficult enough without knowing when to sell or how to set price objectives, especially when intraday day trading, but just as important on all time frames with all trading objectives in mind. There are several methods traders have historically tended to use, including percent gain targets or percent loss stops, price projections based on fundamental values such as price earnings ratios, and so on. However, I have found over my nearly 50 years of trading experience that using my technical analytical methods of determining exit points or sell objectives works very well for the active trader.
Determining how or where to set targets even before you enter an order is not only key in enhancing trading profitably, but also a major factor in gaining confidence in your trading ability. Be sure to write down your targets when you have determined where to set them. Then enter your exit or sell points immediately after you get confirmation of your trade entry.
Having best trading platform.
In order to scalp the markets effectively, we must have the most sophisticated trading platform with at least dual monitors. Without instantaneous time and price information, we would be trading in the dark.
Keep a trade journal
Keeping a record of previous trades is an invaluable tip. Software now enables you to quickly and easily store all your trade history, from entry and exit to price and volume. You can use the information to identify problems and amend your strategy, enabling you to make intelligent decisions in future. You never meet a trader who regrets keeping a trading journal.
Do your DD and read lots of news.
See the sources I used on “Source links I used” section.
People ask me often what the “secret” is to my trading system. Answer: patience and attention to detail.