Day Trading Articles and Ideas

How Super Traders Confidently Pull the Trigger and Win

2007-09-29T13:59:00.000-07:00

As a trader, have you had occasions when you just could not pull the trigger and afterward you were mad at yourself?

Have there been times when, as soon as you pulled the trigger, you started doubting yourself?

You are not alone. There are a lot of traders who go through this.

Studies have shown that when traders consistently do not succeed, it's not because they aren't smart, don't work hard or aren't lucky. It's because they simply don't understand how successful trading works.

There are different factors contributing to not being as successful as you want to be.

One factor might be that it is a new market for you and you do not have enough experience in how to deal with this market.

Another reason might be that at one point, you lost a great deal of money. You might be afraid of making the same mistakes.

Thirdly, it might be that your personality traits are not a match for the markets, systems or mentors that you are following.

The fourth reason is that you might be afraid of losing money, period. If you are in this category, then trading is not the right business for you. In trading, you will lose money. The challenge is how to cut losses faster and how to let winners run longer.

If you are in the first three categories, there are 8 steps that you can take to enable you to confidently pull the trigger and have more wins.

1. Be prepared. When selecting a market, select one that matches your personality.

You all have heard the saying that “people do not change.” The fact is that it is very tough for us to change. Instead of trying to change who you are, why don’t you adopt a market that fits your personality traits?

You really have to prepare yourself technically and emotionally. Learn the skills that you need to trade the markets. Select the systems that match who you are.

2. Limit your input. Whatever markets you are watching or news you are listening to, you’ve got to limit your input. You cannot listen to all of the information and do everything. Your brain cannot absorb it all. It overloads and just shuts down. You may have heard the saying “a confused mind does not make a decision.” You’ve got to limit your input.

3. Trust Yourself. Once you have done your research, chosen the trading methodology, trading system and trading mentors that match your personality, and you have a gut feeling, trust it.

When in a study asking top CEO’s what had made them successful, do you know what their responses were? It was their gut feeling. They followed what they believed was the right thing to do.

4. Take Action. I know this sounds obvious. However, I have seen people who have studied and paper traded for about 18 months. They have headed investment clubs and talked about strategies, yet they still have not pulled the trigger.

You just have to do it. Nothing replaces the actual experience. You can start very small. Only invest the money that you can afford to lose. Think about it as the cost of education.

We are not defined by our abilities. We are defined by our choices. What are you willing to choose?

5. Be Present. What do you do when a trade goes against you? How do you react? Do you get angry? Do you blame yourself? Do you go into denial? What happens to you?

Are you missing opportunities? Are you overtrading?

This is the time to use the pause method. Take a break. Do not make any decisions. Step back. Change your focus. Where you focus, you’ll spend your energy and that will create results.

Look at the market objectively and concentrate on the next deal. Think of each trade as an individual deal. Evaluate it by using your system and make a decision based on your rules.

Think about basketball players. They cannot concentrate on the shot they did or did not make. They have to look ahead to their next game and next opportunity.

6. Be Resilient. At the end of each day, look at what worked and what did not work.

* Did you follow your system?

* Were you self-disciplined?

* Were you reactive or proactive?

* Did you play to lose, or play to win?

This is a good time to set your strategy for the next day. What can you do differently tomorrow? Forget the losses, but not the lessons. Create contingency plans.

7. Celebrate for taking action. If you had an up day, that’s great! If you did not, celebrate even harder.

When you get mad at yourself, you tend to retreat into your shell. When you celebrate, you acknowledge taking action. You give yourself permission to go forward.

Have you seen babies when they start walking? When they stand up and fall down, what do their parents do? They encourage the baby, because they want the baby to try again.

8. Create an Environment that accelerates your success. Who are the people surrounding you? Are they encouraging you in your business? Are they successful themselves? Are they telling you what you need to hear or just what you want to hear?

Albert Einstein said, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them”.

We need to surround ourselves with the people who encourage us in our business, tell us what we need to hear and who have been successful themselves.

In summary, the rules of pulling the trigger confidently are:

1. Be prepared.

2. Limit your input.

3. Trust yourself.

4. Take action.

5. Be present.

6. Be resilient.

7. Celebrate.

8. Create an environment that accelerates your success.

By following these simple steps, your career as a trader could potentially become more effective, more rewarding and ultimately, more successful.

Don’t be afraid to pull the trigger!

Here is to making success your habit™,

Nazy Massoud

PS. For more mental Edge tips and reports on how to have more profitable trades, go to http://www.MentalEdgeTrading.com

Nazy Massoud, a Wall Street Insider, shows traders, investors and hedge fund managers how to develop the mental edge to execute trades more profitably. For more tips and a FREE report on "The 3 Biggest Psychological Triggers That Can Make or Break a Trader," go to http://www.MentalEdgeTrading.com

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Things Not To Do And Use When Daytrading

2007-09-15T13:27:00.000-07:00

By Larry Swing

Daytrading is a very difficult endeavor for anyone who's tried it. Those who go through it day after day will agree that everyday is different and that each day requires maximum attention. The end of each trading day leaves the daytraders exhausted. But not only does it take stamina, endurance, high degree of concentration and focus, there are other factors that make a daytrader a special breed apart from other types of traders. Every tick or second counts. Precision and personal discipline makes the difference between a loss and a profit. Not everyone is cut out to be a successful trader. In fact, 95% of daytraders fail eventually. But here are a summary of what NOT to do that can help further enhance his chances of surviving the daytrading jungle.

1.Do not discard or discount money management. This is the single most important rule. Using sound money management can lengthen the trading career. The longer his trading longevity, the higher his chances of becoming successful. Success requires experience and experience requires time. Using money management is buying time to become profitable in the long run.

2.Do not start trading without a trading plan or a well-tested profitable strategy. A well-thought, well-researched trading discipline helps maintain control and focus to trader properly and not panic.

3.Ego is NOT money. Using ego to trade is tossing money the window. Ego and money cannot co-existence in the markets. Never have, never will.

4.Do not be distracted with news. News creates emotional states: hysteria, euphoria, panic. These states of mind will not help trading. News does move the market but trading the markets is more profitable than trading the news.

5.Do not be distracted by the surroundings. Absolute focus is a must. Outside distractions and interruptions will negate the trader from receiving the steady flow of market information.

6.Do not count the money before the trade is closed. This is a newbie mistake where money is the reason he becomes a trader. Money is the least important factor in becoming successful. Focus on the market and not the money, market will reward accordingly.

7.Do not be tempted in entering trades that look too good to be true. There are days when the markets seem so easy to take money from the market. Those are the days that ego and feeling of invincibility that will precede the next losing streak.

8.Do not let the market dictate the mood. Gap ups and gap downs and quick moves up or down can create a false sense of who's in control and direction. Careful with these sentiments because the opposite direction may just be around the corner. Professionals wait for confirmation before joining in the euphoria or panic.

9.Do not be bored or angry if there are no setups. There are days when the biggest accounts dry up are those trendless, low volume days. Watch for them and stay away from them.

10.Do not think that today is the same as yesterday or any other day. No day is alike. If he believes it is, then the bias has been sucked into his mind, creating a setup for a losing day.

11.Do not forget to use the stop loss orders immediately upon entry. Stops are the life jackets to save the trader from himself and the markets. Stops will help him stay safe to trade another, the one that may take his equity higher. No single trade should be a show stopper.

12.Do not think the market is an easy place to make money, even when it does look like it. Take everyday as a new day without remembering the previous days. Complacency is the enemy of profitability down the road.

13.Do not follow opinions and calls in newsrooms, chat rooms or forums without doing your own research. These are biases that will lead to losses or worse, the trader paid and learned nothing from them.

There are countless important rules but these are the most pertinent in getting the trader started in thinking and preparing for the world of daytrading. This type of trading is probably one of the most difficult anyone has ever tried, even more stressful than being a CEO of a big corporation because personal defects and shortcomings will be exposed immediately and the process of becoming successful is a road full of self development and self examination that will be painful. Finding self, a successful strategy and physical and mental stamina will be a long journey. But the reward carries an enormous satisfaction when the objective is finally within reach.

Larry Swing CEO & Head Swing Trader swing trading with mrswing.com theboss@mrswing.com +1 (281) 968-2718 Yahoo & Skype ID: larry_swing

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Which Stocks Do Day Traders Trade The Most?

2007-09-14T12:39:00.001-07:00

By Frank Muller

Which stocks do day traders trade the most? Well this is not an easy question to answer however I will give you some incites as to the constituent components that determine whether I consider a stock for day trading and, more importantly, why. As you know daytrading is an activity that you must constantly adapt yourself to and let me just say at the outset that it is not suited to all personalities. Daytrading is a speculative, high risk activity and is not suitable for many investors however if the correct strategy, selection criteria and mental attitude is applied it is a beast that can be tamed.

We daytrade to make money and, without pointing out the obvious, you can’t make money on a stock, whether it is registered on NYSE or NASDAQ, if it does not move. Therefore the first criteria that I apply to stock selection are that a stock must be volatile.

Volatility and the Average True Range

Volatility refers to the degree of unpredictable change over time of a certain variable, the bigger the risk or stock volatility is, the bigger is the return on investments for that stock. The volatility of a stock is measured by its average true range (ATR) which is simply an average of the true range values over a period of time. The timeframe that I am interested in is 5 minutes and 1 minute therefore on my 1 minute and 5 minute charts I will have the ATR for that particular stock on both timeframes. I will not consider trading a stock that has an ATR of less than 0.10 on the 5 minute chart this is because it’s not moving enough (what this means is that the stock moves an average of 10 cents in a 5 minute timeframe). Typically I will be looking for an ATR of between 0.20 and 0.30.

Stock Volume - Liquidity

It is no good buying (or shorting) a stock that you cannot sell once it reaches your target price or sell signal. It may have an ATR that is acceptable to you and you may have made a $1.00 gain (per stock) in less than 5 minutes but what happens when you come to sell and there are no buyers? A stock has to show some liquidity to enable you to offload when you want to and at the price you want to and for this reason I will not consider trading a stock that has an average daily volume of less than 800,000.

Morning Gappers

I trade 2 time periods intra-day and never trade during the midday doldrums when most traders are out at lunch and stocks just move sideways for 2 hours. When I trade the opening hour I look for stocks that have gapped up more than 3% in price from their previous closing price as this means that the stock has shown some early volatility. However they must have good pre-market volume, that is to say that they must have had enough buying and selling activity before the session opens, and they have not gapped too far. Gappers that have gapped up over 10% tend to just move sideways at the open. The reason I trade morning gappers is down to the fact that they have a degree of volatility and I want to feed off that volatility, remember volatility = interest and interest = movement.

Day Runners – Afternoon Breakouts

The second part of the day that I trade is the last 2 hours when I am looking for stocks that have good volume and have either gained or lost more than 4% on the opening price. I am looking for a steady increase in the stock’s price in the morning session followed by a sideways move during the midday and then for the stock to “breakout” of its daily highs (or lows) that were established in the morning session. The stock must show an increase in volume as it breaks through the daily high or low, this can be clearly seen if you have moving average volume shown on your 5 minute chart for a particular stock. It can also indicate that there is some institutional investment in that particular stock.

It is difficult to illustrate a trading style and strategy in a single article and I have not attempted to do that in this article however what I have shown is the basic criteria that I use in order to determine which stocks to daytrade and why. In my experience many of the successful individuals that trade momentum stocks on a daily basis tend to focus on volume (liquidity), ATR, morning gapers and afternoon breakout stocks.

For a free trading tips NEWSLETTER and further information on how to develop a winning daytrading strategy go to. http://www.daytraderstocks.info/

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Trading Commodity Futures - Intuitively Day Trading The S&P 500 and E-Mini - PART 1

2007-09-13T21:14:00.001-07:00

By Thomas Cathey

Every trading market has its own special patterns and oddities that will communicate its intentions. Patterns don't always work every time of course, but even that can be a clue of underlying extreme weakness or strength. Just like knowing a spouse well, learning to read your special market can pay dividends. Read on to learn more...

More Observations From My Trading Notes:

"Each day is different – don’t expect scenarios. One exception is to watch when the previous day had big buying or selling at a stalled out area. The old tops are sometimes spiked the next day and then a long decline occurs. Also watch for signs of a pattern I call 'stilting'. This is a bearish formation where the futures market chops in big swings within a rectangle. It forms below a spiked high panic area. A big, long decline to the end of the day usually follows this type action with little chance to get on board after the last anemic volatility rally."

Yes, each day IS different. We get accustomed to the previous session or trend. Then when the change comes, it takes us time to change gears. The problem is that when the trend turns, it is sharp and catches the majority off guard. Being wrong at these sharp turning points is expensive compared to being wrong in the middle of a trend. Try to come into each day of trading with a blank mind. Carry over no “pre-programming” from the last session about what worked and what didn’t. The only information to bring over from the previous day concerns major highs or bottoms tested with active price action and volatility.

Back to "stilting." This formation is the FIRST correction in a new downtrend. Usually, legitimate subsequent trending corrections are more orderly and quieter affairs. But the nasty, swinging stilting formations more often than not break into new lows and become all-day one-way streets. This is where many of the counter-trend pit commodity traders have a bad day as they buy all the way down.

The signal to get on board after these stilting formations is when price breaks the rectangle lows and then has an anemic, dull rally back into these same stilting lows. The market can be sold here with confidence for a long ride down. Of course, be ready to bail out if wrong. It’s all about taking these high probability commodity trades and letting the odds work for you over time.

Observation:

"Trade in the direction of the A-D line only. Over time the odds favor it." Absolutely. It’s a losing battle always going against the A-D line. It can be done in certain situations, but you had better be nimble to get out with a fast profit. There are so many other good trades going with the trend and A-D line. Remember that you only need one or two carefully picked trades each day to do well.

Observation:

"No overnight futures day trades." This is an important commodity futures day-trader’s rule. Of course, day-trading means daytime-only trades, but it doesn't always work out that way. I made this rule for my futures trading after being “sure” of the market’s direction on the close and then holding overnight. But the next morning I'd often find the market 6-10 points against me. It’s happened too many times. I feel that I can make forecasts for up to an hour or two, but overnight is way out of my comfort zone.

If you follow various time cycles like I do, you will find the short ones for day trading futures will have come and gone many times overnight. So, why hold a position when time is totally out of your control? Time is one-half of the total equation. The other half is price. The only control you have overnight is using a fixed stop loss order. Much of your control edge is gone, unless you stay up all night. (no, thanks)

Part Two of Four Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. View his TimeLine Trading market predictions and get his complete 44+ lesson, "Thomas Commodity Trading Course" - they're all free. http://www.thomascapitalmanagement.com/commodity/welcome.htm Main site: http://www.ThomasCapitalManagement.com

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Trading Commodity Futures - Intuitively Day Trading The S&P 500 and E-Mini - PART 2

2007-09-13T21:12:00.001-07:00

By Thomas Cathey

More Observations From My Trading Notes:

“No chasing – buy only into panics or corrections and with the main trend.”

I find if I cannot get in within one-half point of the high or low, I should let it go. I'm talking about a retracement back to the high or low. Too often I have regretted chasing the market, even for less than a full point. These expenses add up when getting in and out. Most good moves with the trend last about three to four points or so before a minor correction.

If you give up a point getting in and a point getting out and add in commissions for e-minis future contracts [which are high for contract size anyway] then you are left with a little under two points net profit. Factor in the losing trades and you are going to be a break-even trader. There are many break-even e-mini futures traders out there. You must learn to stick your hand in the fire at the price extremes to get an edge on the competition.

Observation:

"Day trade only while watching the action.” There was a time in the mid 90's when I couldn’t take the pressure of watching the futures market after I got in. I would sometimes do emotional things that sabotaged the trade, even if it was a winner. The first correction, even when still profitable would get me out often at break-even after expenses. Of course, the market would continue on favorably without me.

I then tried putting in a stop below my entry by 2-3 points and take a walk in the woods for the expected duration of the trend. I would come back 45 minutes later and sometimes see tremendous profits. And other times I would see that I had a great profit, but the market had reversed and came all the way back down to entry. Bottom line is that I decided I needed to find a way to sit on my hands and take the heat in real time.

Having TIME objectives helps a lot here. Price action is what everyone watches and it will make you crazy. E-mini price action is only “accurate” and means something at the tops and bottoms. During the move there are many fake outs. Probability will reward you over time if you can milk the trend for it’s maximum potential.

Try not to trade in and out too often. It's difficult to enter the market with low risk. Once in, you might as well as make it count. When thinking about taking a profit, make sure the market shows definite signals that the trend is about to turn. A futures price panic is one of the most reliable indications that the move is over. Heavy volume and banging into major support/ resistance helps too.

At one time I used Fibonacci retracements, but have discarded them in favor of simpler, horizontal lines from recent price action. The only Fibonacci retracement that seems to be reliable these days is the 78% retracement. This almost takes out the complete previous move. This is a good thing, since you want a clean-out. The 61.8% retracement seems too pat for me and gets cleaned out as often as not. But this changes over time. You just have to see what’s currently working and use it.

Part Three of Four Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

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Trading Commodity Futures - Intuitively Day Trading The S&P 500 And E-Mini - PART 3

2007-09-13T21:10:00.000-07:00

By Thomas Cathey

More Observations From My Trading Notes:

“When entering with the main trend, have patience for the move to occur. Average in a second lot if needed and don’t get faked out easily.”

Amen. S&P 500 futures contract price action will do everything it can to get you out. Remember that. Averaging down ONE time, once in a while, works for me when I’m confident of a turning point. I might even do it twice, but that's it. Doing it all the time, to feel good, hoping for a turn, is the eventual road to big losses. When they carry traders out by their feet, it's high probability he averaged himself there.

Observation:

“When holding a position with the trend, use patience to let the move climax for profit.” Amen and Praise the Lord! As someone once said, "Don't sell your wheat until it boils!" This applies to all markets.

Observation:

“Remember that doing the right thing over a large number of trades is what makes money long-term and consistently in commodity futures trading.” The same principle applies to owning a casino. You don’t see the casino owners worrying. They may lose in the short-term, but over a long series of events they must do well. They have the odds in their favor. You can do this in commodity trading with a decent method too, as long as you keep the losses from getting out of hand and you keep control of yourself.

There’s so many ways to blow it. We get a few winners and get cocky. We take marginal futures trades and give back a good portion of our profits. Or we have a bad day and try to make it all back on one trade. Run for the hills after you have 2-3 bad trades. There is always a reason for losers, and sometimes yours is not to know the reason why. Just accept it and test the waters carefully the next day.

Observation:

“You can handle any market.” This is a confidence building statement. What I mean here is that it doesn’t matter if the e-mini futures market trends up, trends down, chops, goes quiet or whatever, I can handle any market with confidence. I have a plan for each market activity. If it’s dull, I do nothing but wait. If it’s trending up with a positive A-D line, I buy only. If it’s trending down with a negative A-D line, I sell short only. If it’s swinging wildly and I can’t figure out what’s happening, I watch and wait. If the e-mini is chopping and my "chop system" is working well, I toggle it on and take the signals.

When things get tough, it pays to have faith that the market will start talking to us again. Meanwhile, our competition is in there slugging it out, giving back their cash. We must learn to conserve our mental as well as financial energy during uncertain times.

Part Four of Four Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

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Trading Commodity Futures - Intuitively Day Trading The S&P 500 And E-Mini - PART 4

2007-09-13T21:08:00.001-07:00

By Thomas Cathey

More Observations From My Trading Notes:

"After a BIG, major e-mini decline, wait for the secondary test – the first spike is TOO EARLY – the second test pays off faster and may even be a better buy. It’s also a chance to see if the ticks confirm a higher bottom, volume comes in and price action looks like the market is going much lower to scare the sheep. If this scary secondary low does not hold, then something is definitely wrong and the market is likely going MUCH lower afterwards."

Yes, the old panic and double bottom. “Scaring the sheep” is one of my favorite sayings with the e-mini market. The sheep usually herd themselves into the middle ranges. They love to buy and sell there to feel comfortable.

The middle is a nice place to enter at first, but actually, the risk is higher later. When the e-mini market swings hard to the rails, it always dumps some of the sheep out of the truck onto the road for the wolves to get. The other sheep are watching and hoping it won't happen to them, also. They hold on tighter but some of them jump to their deaths anyway. That’s what you want to see. If you train yourself to be an extreme range commodity futures buyer and seller despite feeling this fear, then you are progressing. It's an unnatural thing to do. That's a good thing.

This fear is a good indication of an intermediate pivot point. It's nice to be on the sidelines ready to enter. This is a great position in itself. You want to feel scared without even having your money in yet - that’s what you're looking for. Feeling comfortable about entering an e-mini futures trade is a red flag, believe me. You want a “shaky hand” on the mouse when it clicks. No one is so good and confident in their forecast not to feel fear, unless they are a market psychic (unlikely) or have nothing personal to lose. (more likely)

Observation:

“Much patience is needed for a move to evolve, once entered.”

We’ve talked about this before. I guess I kept writing it down throughout my notes because I often violate it. In fact, if I read over the full fifty-five pages, I see themes that emerge. To become a better e-mini futures trader than you are now, you need to write this stuff down and constantly review it. I’m always amazed at how much I forget, even after reading it over and over.

But after a long time of reviewing, it becomes second nature and part of your instinctive intuition. That’s your goal. You want the lessons and rules you have observed over time to trigger something inside your body whenever an e-mini turning point is taking place. When it happens with me I feel this funny swinging of my head, like I’m getting into balance. I also get a fearful feeling knowing that I soon need to put myself at risk. Your own trading trigger will probably be different.

Effective, intuitive, discretionary, e-mini commodity futures trading is acting on your own internal signals when they occur in real time. (read that again) It's not easy. If it was easy for everyone to learn, the market would not pay much for this skill now, would it?

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

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Commodity Futures Day Trading The S&P 500 and E-Mini - Observations PART 1

2007-09-13T21:05:00.001-07:00

By Thomas Cathey

Not all conventional commodity trading folklore is correct. Some is and some isn't. Much is anecdotal. Most of it is designed to make you feel comfortable in a trade. Feeling "comfortable" is the fastest way to the poorhouse in commodity trading. We are paid to provide liquidity and take on risk. Read on to see if you adhere to this basic and important market law.

More S&P 500 and E-Mini Futures Contract Observations:

“When the e-mini futures price trend matches the A-D line, (advance-decline line) always wait to liquidate a position into a climax with big volume.“The e-mini futures market has the strongest move (impulse wave) with the main trend. Watching the A-D line bias can usually identify the main trend. The e-mini futures market has a tendency to make higher highs and higher bottoms in this same direction.

The key here is to expect the move to end in fireworks with the same magnitude as the clean-out before. In other words, if a previous move down was slow and sluggish with a single bottom, don’t expect too much for the climax move up. But what if the previous sell off took out a weekly low with a big panic sell off, and formed a triple bottom that took all-day to build? In this case, you have good reason to expect the following up move to end with a bang.

It’s a matter of keeping the context of the move in mind. You can be in a choppy e-mini futures market for a day that goes nowhere, but maybe the previous day had a huge clean-out. So somewhere along the line expect an up move that continues. It’s all about keeping in mind what previous top or bottom the e-mini market is working against and what kind of move it can support.

Always be ready to bail out if your scenario does not work out. But there's a danger in bailing out too quickly. Looking back at some of my S&P 500 futures trading notes from the mid-90’s makes me laugh. The theme throughout is, “If I only held my original position!” “Stopped out again at the exact low because I moved the stop up too soon.”

"Over-managing" a good trade is a symptom of fear. Some fear is healthy to keep us out of serious trouble. But when an e-mini trade is working out, by moving stops up too quickly, or simply starting out with too close a stop is a big mistake. We think we are smart because we can trade with such close stops and small risks, but this is a false sense of security that massages our ego.

To prove this to myself, I once did an e-mini futures contract computer study on averaging down four times. You would buy every spike that went one full point lower, until you had four lots. Then you liquidated everything if the e-mini went two more points after that. The worst scenario loss was six full points from the start. The win/loss ratio was very high, like in the 80% area. It almost seemed workable until I modeled a few one-way days. Then the method got slammed. If we could side-step those days by using say, a 2:1 or greater A-D line filter, then it might be a workable method.

By the way, the e-mini trading exits were a scale out affair too, similar to the entries. I eventually tossed out the idea after coming to the conclusion that I could not handle the pressure of adding to a loser more than once, plus I thought more highly of my ability to call a turn on the first or second try.

My e-mini futures trading method has evolved to averaging down only once during exceptional set ups and that is it. In fact, if it breaks the second low, the move is probably evolving into a "snuff" and all hell is about to break loose, so why hang around? ("Snuffs" are covered in this series of articles.

Part Two of Five Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Article Source: http://EzineArticles.com/?expert=Thomas_Cathey
http://EzineArticles.com/?Commodity-Futures-Day-Trading-The-SandP-500-and-E-Mini---Observations--PART-1&id=506859

Commodity Futures Day Trading The S&P 500 and E-Mini - Observations - PART 2

2007-09-13T21:03:00.000-07:00

By Thomas Cathey

More S&P 500 and E-Mini Futures Contract Observations: PART 2

"The one minute e-mini futures chart will sometimes magically touch or spike the outer band channel."

When you set up a pair of moving upper and lower price bands to contain e-mini price action, set them so the price breaks out of the band only on climax tops or bottoms. It’s amazing how well this signal works. It appears that when an e-mini climax takes place, all the cycles are in synchronization and burn themselves out at the same time. This united power spikes out of the normal band boundaries. Since most of the cycles are rolling over after the climax, this backing off can be quick for a few bars and leaves the spike area isolated like an island top.

Next, the e-mini futures market may erode slowly down like a normal bull correction, fooling the majority. This is a situation when a quiet decline is NOT bullish, but bearish. Know the difference. Price may anemically try for the top again, but usually fails. This is where the real decline starts. As usual, selling the first and exact high is a mistake. Wait for the secondary try while you are looking at other indications of failure.

This is one of the few times the e-mini futures market is kind. It actually rewards you for getting in later than the traders who have the nerve to sell the first panic high. But if you are a big gun, the first panic gives you the liquidity needed to put on a big line. The contract volume at these spikes can sometimes be tremendous.

Observation:

"If trading against the A-D line, have good reasons and always take quick profits. This will usually occur on the downside, only."

Over time, e-mini futures trades against the A-D line are losers when viewed with long-term probability eyes. The time it works is when the e-mini market makes a daily reversal. These reversals occur maybe every 3-5 days. So, if you are always looking for them, you will make only about one out of twenty trades with the trend.

These are poor odds, for sure. Even if you catch a big reversal, the chances that you will hold on for the big move are slim. This is because big e-mini moves require lots of time to put in a top or bottom, sometimes even spiking the first panic pivot point a few times. The market doesn’t pin medals on the heroes who catch the exact top.

I’m not sure why so many of us get lured into selling a day that is a one-way up market and buying big bear days. I think we want to outsmart the market and be proud if we catch a “major” top. But, to be more humble and simply buy dips and sell rallies with the main trend is the way to make money over the long haul. It appears that if you MUST trade against the A-D line, then do it on the short side because of the fast corrective declines in a normal e-mini bull market.

Buying when anticipating a bear rally can be quick affair too. But when the market turns back down, the move is usually fast and it’s easy to give back what little profit you made scalping.

Part Three of Five Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Article Source: http://EzineArticles.com/?expert=Thomas_Cathey
http://EzineArticles.com/?Commodity-Futures-Day-Trading-The-SandP-500-and-E-Mini---Observations---PART-2&id=506865

Commodity Futures Day Trading The S&P 500 and E-Mini - Observations - PART 3

2007-09-13T21:02:00.001-07:00

By Thomas Cathey

More S&P 500 and E-Mini Futures Contract Observations: PART 3

“The side which gives you the least opportunity to get in is usually correct.”

It’s funny how this works. An extreme example would be a one-way bull day when the e-mini futures corrections are running just two points. The market stair-steps and keeps finding support on the previous highs and then goes higher. The shorts continue to bid the price up to get out.

On these days many traders are stuck short and think the big correction will come at any time. These are the days when you often get sharp up-moves in the last 30 minutes of the session when the frustrated bears throw in the towel and cover. Looking at the market in hindsight, you can see how difficult it was to buy a dip. The dips are often too shallow to be convincing.

Another version of this is a creeping, struggling e-mini up-market. The dips are also small, but so are the rallies. The selling keeps coming in, holding the rallies down. The price action looks bearish, but somehow it keeps working itself higher all day until the climax panic at day's end. There have been times when I’ve been fooled and got caught in these moves on the wrong side. I now have a rule to never sell a creeping futures market. It’s a classic Gann rule.

The way to tell the difference between a bullish creeper and an anemic bear rally is the creeper’s price action looks bearish - it's a fooler. In contrast, a real bear rally can be strong and sharp, looking like a new bull move and many times follows a perfect bullish trendline - it's also a fooler. What tricksters, huh?

But sometimes there is no real way to tell and you need other indications to put the whole e-mini market in context. Where has price been recently? A real bullish creeper will come off a big bottom. Whereas, a bear rally will come after a previous climax top and secondary top try. But sometimes the real answer is to stand aside and just let the e-mini futures market lead the way.

No position is sometimes a great position. It can make you smile when you sit it out and then look back at the last two hours. Everyone’s slugged it out while the market is where it was from the start. Another Jaws V chop day with lots of blood in the pit and on the computer mice.

Part Four of Five Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Article Source: http://EzineArticles.com/?expert=Thomas_Cathey
http://EzineArticles.com/?Commodity-Futures-Day-Trading-The-SandP-500-and-E-Mini---Observations---PART-3&id=506868

Commodity Futures Day Trading The S&P 500 and E-Mini - Observations - PART 4

2007-09-13T21:00:00.000-07:00

By Thomas Cathey

More S&P 500 and E-Mini Futures Contract Observations: PART4

"The following e-mini futures action turned into a big chop, then a big rally the next day: After a clean out decline, wait for a series of bottoms with big volume buying activity. Wait for the sell-off to a bottom and sharp rally and then the volume dies. This is the safest place to buy. This was the forth bottom and the previous three bottoms had bearish volume patterns. The forth bottom changed - it had bullish volume patterns and then price rallied to the close."

It pays to step back and view the e-mini futures market in context. My notes keep repeating it's a mistake to buy the first panic spike. I'd gotten good at buying spikes and wondered why I always broke even or even lost doing it. Most of the time a huge e-mini futures climax is followed by several tries to test the bottom. It's easy to get chewed up in these bottom tests since they can last for several hours before a big turn.

The single spike low that holds and supports a big move was popular in the 90’s, but it seems to have been replaced by a series of double, triple and quadruple bottoms. Throughout the bottoming area, you will see a bearish volume pattern until near the end where it turns bullish within the formation. It’s often profitable to stay bearish and continue to sell rallies and cover at the bottom area. In fact, EXPECT big bottoms to be tested.

If you are early buying a bottom, don’t let these tests fake you out. If you are positioning long, expect them and even average in some more as long as the bottom area reasonably holds. The e-mini market may even spike the original low by one-half to a full point, but any more usually means a major break down and you want to be gone.

Remember that “major” e-mini day-trading lows occur only every 3-5 days or longer, so be selective when positioning for them. Personally, I have found big turning point positioning to be a waste of time and money from a day-trading point of view. It often leads to overnight holds and a bad next-day gap surprise. It’s better to let the longer term futures traders beat themselves up and get the occasional rewards. Playing these large, range-bound formations from the short side until they finally end is the best advice.

When the e-mini futures market starts trending, use this larger frame of reference (the recent bottom) to pick up a bias in a certain direction. Then simply buy the dips and exit at the climaxes over and over. After identifying a big turnaround, don’t try to outsmart the market by shorting or reversing your position against the trend.

This is a difficult idea to adhere to, because the e-mini market will always be having minor corrections and try to fool you into believing it’s turned back down. But after the minor correction is done, the market will move to new highs in line with the accumulation that took place in the last couple days.

Part Five of Five Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Article Source: http://EzineArticles.com/?expert=Thomas_Cathey
http://EzineArticles.com/?Commodity-Futures-Day-Trading-The-SandP-500-and-E-Mini---Observations---PART-4&id=506872

Commodity Futures Day Trading The S&P 500 and E-Mini - Observations - PART 5

2007-09-13T20:59:00.001-07:00

By Thomas Cathey

More S&P 500 and E-Mini Futures Contract Observations: PART 5

"Don’t get use to big swings or chops, bear or bull trends. Expect anything, anytime.”

Yes, keep a clear, open mind every day you trade. Come into the new day with no biases or expectations. Your mind should be a clean slate. Otherwise you are peering through colored glasses based on old information. In addition, all of us have a tendency to expect what happened previously.

We love to fit the world into rigid, repeating patterns. That's how the brain is wired. Expectations can put us in a rut if the e-mini futures market has been in a long, repetitive chop that we’ve been trading successfully. The first time the market breaks out and starts trending, many of us will keep bucking the trend and give back much of our profits. Be flexible and expect nothing at all.

There’s nothing like studying what’s happening right now to get an edge on the futures traders who trade “remotely.” By remotely I mean the day-traders who figure out their buy and sell pivot points the night before - where to enter and exit, etc. without regard to current action. They calculate e-mini retracements, support and resistance points from the past and then put in resting orders based on an end-of-day system. But I feel getting current, live and changing information “RIGHT NOW” can greatly enhance this EOD method. (end-of-day price data)

Observation:

"Once e-mini futures break above an important point, consider it strong and a buy on a test back down to this point. The market might take its time and make a double bottom to scare the sheep. But usually expect a fast turn-around spike and rally scenario. This is likely if the A-D line is neutral or slightly bullish. Sometimes a too-bullish A-D line with a big run-up is exhaustion and time for a turn. It's the same thing for big negative A-D line openings with a gap. Look for a big rally after a series of e-mini bottoms and heavy futures contracts buying.” ‘Nuff said.

Observation:

"Use the line tool to check the A-D line histogram to see if A-D is improving while the price is lower than yesterday, etc. This is a non-confirmation."

Since the general stock advance-decline line is an important trend indicator, you might as well use trend lines and other tools to look for confirmations and non-confirmations. An A-D line that has drastically changed from one day to the next is usually a major indication of a turning point lasting at least for the full trading day, and possibly longer. More commodity S&P 500 and e-mini futures contract articles soon!

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Article Source: http://EzineArticles.com/?expert=Thomas_Cathey
http://EzineArticles.com/?Commodity-Futures-Day-Trading-The-SandP-500-and-E-Mini---Observations---PART-5&id=506875

How to Make $100-$200 a Day Trading

2007-09-13T20:54:00.001-07:00

By Jea Yu

Does making $100-200 a day within a two hour time window sound appealing to you? Of course it does, who wouldn’t?

The real question is… are you willing to put in the time, effort and money to learn to do this? We might lose a few people with that question.

The final question is… do you have $30,000 of risk capital to make this money and are you willing to lose that? Ok, that eliminates most of you, so you can hit the BACK button here. Sorry, but better you know now, than later. Bye.

Still here?
If so, you probably did the math and figured even at $100 profit a day times 20 trading days is $2000 a month which equates to $24,000 a year in profits which is an 80% return on investment. That’s an amazing return. Good thinking. The only problem is if you are just starting out, cut that figure by 80% if you are lucky. That’s the time, money and effort part. But that doesn’t mean you won’t get there, it just means you have to work your way there, slowly. You can hit the BACK button now…

Still here?
If you are still reading, then there is hope, but it’s a long journey. Let us not fool anyone here. Trading is a skill that has to be taught but only to those who truly desire to learn. We call this hunger. The most costly way to gain hunger is to blow out your account and lose a ton of money in the process. We call this the learning curve. You get so deprived of effective trading methods that the process of elimination and contrast draws you to what eventually works and doesn’t work. From here, the trader seeks out to fill in the void in his understanding of the markets and methods (if he lasts that long), unfortunately, he has no more access to capital. That is the tragedy of trading.

For all intents and purposes, we want to trim the learning curve as much as possible. Yes, it is POSSIBLE. Just like the markets, we like to let others test the support and resistance levels and then step in on confirmed breakouts. This way we avoid the risk ourselves. When learning how to trade profitably, you can also avoid the pitfalls by learning from the experience of others.

First, let me start off by saying, making money trading the market is not hard (if you know what you are doing). The hard part is keeping it. These are two separate statements. In order to even relate, you must have already ‘earned’ your way in the form of experience and effort with learning the methods. Let’s also get something straight. There are no shortcuts in this game. This isn’t a cheeseball infomercial and there are no twelve part video/dvd series to buy.

How these statements pertain to you as a trader depends on which side of line you are standing. Are you on the inside or the outside? The inside simply means you have already built a solid foundation in regards to knowing and executing the methods effectively. The outside is … everything else.

Here’s a quick test to see where you stand:

Answer yes or no:
1) Can you identify a pup and mini pup pattern?
2) Can you identify a prime setup and perfect storm?
3) Can you identify the four parts of trend?
4) Can you explain a channel widening and tightening?
5) Can you spot a consolidation?
6) Can you identify a ‘tradeable’ market environment as opposed to a flat and choppy ‘untradeable’ market environment?
7) Can you walk away from the computer screens at any given moment?
8) Can you take a stop loss and reenter the same trade minutes later and explain why?
9) Can you determine when your premises are fading and keep stops?
10) Can you enter a trade long and reverse it short based on premise changes?
11) Do you believe a stock can be uptrending and downtrending at the same time?
12) Can you accept losses on a trading day?
13) Do you have to make money every trading day?

If you answered YES to all the above and NO to the last question, then you are already at the stage where you should be making $100-200 a day, so good trading!

If you didn’t get all the answers right, then keep reading.
The first part is being able to make the money. In order to do that, you need to learn an effective trading method or system. This can take years to develop or you can learn a system someone else spent years to develop (namely me). I make my methods public so anyone who truly desires to learn it can. Naturally, being able to learn it and apply it can be separate things all together. The connecting of the two can be resolved by spending time in our interactive trading chatroom. We offer a free 10 day trial. Full membership allows the trader access to over 3,000 pages of materials and interactive privileges.

Changing your oil is not hard, if you know what you are doing. You can either figure it out yourself through trial and error or pay to have a mechanic teach you. With that thinking, the goal of UndergroundTrader.com is to put our experience to your use so that you can fend for yourself in the markets. Learning trading should be a dynamic real time experience just like the markets. This is what we do every day. Here is a sample log of a day in the trading pit http://www.undergroundtrader.com/samplelog.html and a sample trade alert http://www.undergroundtrader.com/graphics/jay/

Apply for a free trial and you will have access to the trial trader training slide slow which has all the answers to the above questions and much more. This will serve as a good starting point to building up your foundation. In addition, you will also be able to view the analysis and alerts in real time so that you can gauge the results for yourself to see if it is actually worth pursuing the effort. Hey if the results are sucking, then why even bother? Seeing is believing and first hand experience is the only true way to form an opinion.

Before this sounds too much like a pitch, let me show you a trade we played on a stock called HOKU on 7/9/2007. If this goes over your head, don’t sweat it. The goal is to be able to eventually understand it.

At 12:19pm est, we alerted our members to consider buying shares of HOKU up to $11.85 based on the multi lane perfect storm setup which comprised of a 8/13 minute dual pup and mini pups along with a daily and 60 minute pup breakout. The 3 minute chart formed a nice consolidation breakout. The beauty of the perfect storm setup was the layered support levels at 12.70. Members were alerted to trim the heavier size shares up to 12.10 coil resistance at 12:24 pm est. At 12:57pm, members were alerts to trim out more shares in the 12.40 x 12.50 levels (stinky 2.50s call option strikes). We finally LOCKED the rest of the profits out in the 12.60 to 12.70s range at 1:20 pm est as it was forming a gap fill of prior daily highs, where we anticipated heavier selling. The trade played out beautifully and our members made money.

Is every trade this good? Hell no. Does my method work all the time? NO. Does it have to work all the time? NO. It only needs to work when we use it under the RIGHT circumstances--- that’s all that matters. The key is to know when the method is most effective and use it ONLY in those situations. This is what the real time trading pit is for. Learn and move on to sustain yourself.

Making the money is not hard, once you learn how to do it. Keeping it is the tough part. This is addressed in the pacing article. Remember, this is a long road, but if you choose to take it, the end game can be lucrative and fun. Good trading.

Here’s the free trial application:
http://www.undergroundtrader.com/disclaimer.html

Jea Yu is a co-founder of Undergroundtrader, an interactive active trader chatroom and training site that has served over 8,000 traders, fund managers and investors worldwide since 1998. His brainchild was voted Forbes Best of the Web for four consecutive years under the active trader category. Mr. Yu has published two best sellers through McGraw Hill "Undergroundtrader Guide to Electronic Trading" ,2001 and "Secrets of the Undergroundtrader",2003 as well as two popular trading videos titled "Level 2 Warfare" and "Beating the Bear" published through Traders Library. He has been a featured speaker all over the country at various expos and seminars who enjoys a standing-room-only reception in the largest convention halls. Jay’s energetic presentation style, along with his obvious mastery of the materials being covered makes him an audience favorite. He has been quoted in USA Today, WallStreet Journal, and the Financial Times. Mr. Yu is an active contributing writer for TradingMarkets

Article Source: http://EzineArticles.com/?expert=Jea_Yu
http://EzineArticles.com/?How-to-Make-$100-$200-a-Day-Trading&id=648503

How Not to Blow Out Your Day Trading Account, Again!

2007-09-13T20:51:00.000-07:00

By Jea Yu

While traders constantly search for new and improved methods on their quest for the ‘holy grail’ trading system, they often overlook the most significant element that dictates their success. This inherent element is pacing. Proper pacing means you flow with the market. When the market is running fast out of the gate, so should you. When the market slows to a crawl, so should you.

In a nutshell, have you ever made nice profits in the first hour of the trading day only to give it all back gradually throughout the day? Uh huh.

Before I delve too far into this, let’s first start off understanding why pacing is overlooked. Traders tend to believe that a method should be working in all market conditions at all times. When the method doesn’t produce consistent results, the blame usually falls on the method or on the trader (in most cases, the trader blames the method). From there, comes the whole back testing and tweaking process in a tireless attempt to perfect/optimize the method. With each tweak comes a success period and subsequent failure, the trader eventually will conclude the invalidity of the method and move onto another method. This continues until the trader eventually blows out or gives up. This should sound familiar to you because it happens to everyone.

A new approach has to be used. With this approach, a few premises must be inserted into one’s mindset. Write these down:
1) A method doesn’t have to always work, just under the right circumstances
2) Not every trading day will be profitable, so don’t push it
3) If it don’t fit, you must a quit, for that market period
4) You can’t control the market, only your actions
5) The market sets the pace, you need to adapt
6) No method works in a flat market, so stay out of them

I’ve run UndegroundTrader since 1998 and my trading method has evolved from a simple one minute stochastics chart to a full arsenal of multiple time frame convergence charts and patterns. The evolution of the methods was completed years ago. Does that mean the methods are perfect? No. Can they be more optimized? Perhaps. However, I learned years ago that inconsistency often times is not the fault of the method or the trader. It’s the fault of the market.

What? But the market is always right, isn’t it? Yes. But we gotta blame someone other than the trader this time. Lol.

Let me explain. Let’s say we play a stock set up on an 8/13 min dual pup breakout with a 3 min consolidation breakout at 10:20am which results in a nice profit. This exact same set up forms again at 1:10pm. We jump in and play it again, but this time, it erodes away and then reverses down triggering a stop loss. Grrr. Not trusting this set up, we see it again at 3:20pm, but decide to stay out. Well, what do you think happens that time? Yes, the set up plays out beautifully just as it did in the morning, without us this time. In this simplified example, one could say that the method is inconsistent. However, my experience has been that the problem was not the method but the pacing. We played a set up that was successful during a fast market period and made profits. We took that same set up during a deadzone period and resulted in a loss. We didn’t adapt to the proper pacing of the market. If we understood this, then we would have stayed away from the deadzone setup and played the setup in the last hour where the market once again resumes it’s fast pace into the close.

The market starts off like a 40 yard dash form 9:30-10:30 am est. It then proceeds to slow down but maintains a steady pace until 11:45-12:30pm est. The markets then slow down into a sleep period which I call Dead zone until 2:30-3pm est for the final dash into the close. This is how the market pretty much paces itself every day.

Most traders can bang it out with the fast pace in the first hour but then continue to keep that 40 yard dash pace clear through the deadzone period. If a trader achieves their daily goal early, they will just ‘play’ here and there until the quantity of small stops grows, which then forces the traders to make back the losses and trade harder. If the losses mount up, they keep pushing harder racking up huge commissions in a dead market. If they finally can’t take the pain anymore, they finally call it quits ahead of the last 30 minutes where the pace picks up again, only to see the prior setups play out. Usually, by then, if the trader doesn’t stop, they he will up the size beyond comfort levels and drive himself straight into the abyss. Repeat this pattern three times or more a week and you have the classic blueprint of a blowout.

The fact that a trader can make profits with the method should prove that it is somewhat valid. The next step is to examine when the method is most effective. A ha! There’s the key word, effective.

Proper pacing with the market breaks down like this:
9:30-10:30am est – Fast pace market - trader can play hard here
10:30am-12pm – Market slows down - trending forms, trader should tighten his method filters and slow down
12:-2:30pm – Market in Dead Zone - trader needs to leave the screens physically
2:30pm-3:30pm – Market starts to speed up - trader can start to look for prime setups again
3:30-4pm – Market fast pace dash into the close - trader lower share size and look for final trades for the day

That is the market day in a nutshelll. There will always be exceptions, but don’t focus on those. Exceptions are illusions meant to suck traders into a false paradigm. People play the lottery to be the ‘exception’ even though the odds of winning are ridiculously against them. Exceptions are for losers. When they happen, you accept them for what they are and revert right back to the norm.

I personally feel it’s easier to pace oneself when it’s done as a group. This is one of the key benefits of having membership in our trading pit. Every day, I constantly reinforce the pacing element by physically calling breaks through deadzone and instilling some ‘tough love’ on members that aren’t pacing. We practice what we preach. The biggest enemy is usually boredom, but that’s a cheap trade off compared to the abyss and a blown out account.

Remember that making the profits are not the hard part, keeping them is. Proper pacing will help you keep the green!

Jea Yu is a co-founder of http://www.Undergroundtrader.com an interactive active trader chatroom and training site that has served over 8,000 traders, fund managers and investors worldwide since 1998. His brainchild was voted Forbes Best of the Web for four consecutive years under the active trader category. Mr. Yu has published two best sellers through McGraw Hill "Undergroundtrader.com Guide to Electronic Trading" ,2001 and "Secrets of the Undergroundtrader",2003 as well as two popular trading videos titled "Level 2 Warfare" and "Beating the Bear" published through Traders Library. He has been a featured speaker all over the country at various expos and seminars who enjoys a standing-room-only reception in the largest convention halls. Jay’s energetic presentation style, along with his obvious mastery of the materials being covered makes him an audience favorite. He has been quoted in USA Today, WallStreet Journal, and the Financial Times. Mr. Yu is an active contributing writer for http://www.TradingMarkets.com

Article Source: http://EzineArticles.com/?expert=Jea_Yu
http://EzineArticles.com/?How-Not-to-Blow-Out-Your-Day-Trading-Account,-Again!&id=648515

The Ins and Outs of Day Trading

2007-09-13T20:47:00.000-07:00

By Markus Heitkoetter

Day trading is one of the most popular forms of trading because the only components you need are a computer and an Internet connection. You can trade from almost any location you wish: your home, your office, the park, wherever suits you best. Because of this flexibility, day trading has the potential to be a very lucrative career for committed traders, but it’s definitely not something you should jump into without a little planning and forethought. To succeed at day trading, you must be willing to work hard, stay focused, and learn as many new strategies and techniques as possible, just like the pros.

What Exactly IS Day Trading?
Day trading is the practice of buying and selling financial instruments throughout the day. As the day progresses, prices will rise and fall in value, creating both the opportunity for gain and the possibility of loss. When traded strategically, the trends and fluctuations in the markets allow for quick profits to be made in brief periods of time. Keep in mind, however, that day trading is specifically designed to result in smaller earnings on a regular basis; it is NOT designed to result in huge fortunes through a single trade.

Day trading can be very profitable, but it is not a get-rich-quick scheme (though many seminars convincingly sell it as such). Nor is day trading a sure road to immeasurable wealth and success (as some hyped-up websites would have you believe). Quite simply, day trading is just like any other business venture: in order to be successful at it, you need to have a PLAN. It would be very risky to dive in head-first without looking. However, with the right tools – and with the knowledge of how to use these tools efficiently and effectively – the risks of day trading can be greatly reduced.

How to Succeed With Day Trading
Traders who enjoy the most success in day trading, regardless of whether they’re in it for a living or for some extra income on the side, generally have solid trading strategies and the discipline to stick to their trading plan. Keep in mind that day trading is a very competitive field, and, in order to succeed, you need to maintain focus on a set of simple strategies which you can implement immediately, without hesitation. Remember, a proven, strategic trading plan can give you an edge over the rest of the market.

Now, devising a trading strategy is all well and good, but you may be wondering how to determine whether or not YOUR strategy is a SUCCESSFUL strategy. There are a few ways to determine this. Most traders rely on back-testing. Back-testing allows you to take a closer look at a certain strategy and see how it would have performed in the past, thereby allowing you to predict with more accuracy how it will perform in the future.

(NOTE: Although back-testing is an effective technique, be aware that past performance is not always indicative of future results).

Unfortunately, even with a tested, proven trading strategy, you are not guaranteed trading success. It takes something else. It takes discipline. A profitable strategy is useless without discipline. Successful day traders must have the discipline to follow their system rigorously, because they know that only trades which are indicated by that system have the highest probability of resulting in a profit.

Whether you’re new to trading or have been trading for years, it’s all too tempting to place the entirety of your trust in graphs, charts, and software. If only trading was as easy as that! Simply purchasing trading templates and computer programs does not guarantee your success as a trader. Too many hobby traders have tried that, and, unsurprisingly, they’ve failed. They bought the tools, but they didn’t have the knowledge they needed to succeed. As in all things, education will do wonders for the aspiring – and experienced – trader.

Of course, this is not to say that software programs and markers are not helpful when it comes to day trading. On the contrary, many traders use technical indicators which are instrumental to their success – a few examples of these are the MACD, moving averages, and Stochastics. However, though profitable day traders DO follow their indicators, they are also aware that nothing is 100% foolproof.

You will not get rich on just a single day trade. Successful traders know that trying to hit a lucrative home run on just one trade is a sure way to get burned. The key is consistency. You need to devise a solid strategy that produces consistent trading profits, and you need to learn and adapt as your experience with day trading grows and evolves.

In Conclusion…
There’s no doubt about it: day trading can be a profitable and exciting way to earn money. And, with the right knowledge, you can radically reduce the risk, which will create even more opportunities for achieving trading success.

If you are not willing to spend the time learning the techniques of trading, reading about new and improved trading strategies, and working wholeheartedly in a fast-paced trading environment, then day trading is probably not for you. However, if you have the drive, dedication, and discipline, day trading could seriously impact the shape and success of your financial future!

Markus Heitkoetter is a 19 year veteran of the markets and the CEO of Rockwell Trading. For more free information and tips and trick how to make consistent profits with online daytrading, visit his website http://www.rockwelltrading.com

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http://EzineArticles.com/?The-Ins-and-Outs-of-Day-Trading&id=667501

How to Develop a Profitable Day Trading System

2007-09-13T20:45:00.000-07:00

By Markus Heitkoetter

In this article I will explain to you how to develop a profitable day trading system in five steps:
Step 1: Select a market and a timeframe
Step 2: Define entry rules
Step 3: Define exit rules
Step 4: Evaluate your day trading system
Step 5: Improving the day trading system

Let’s take a closer look at these steps.

Step 1: Select a market and a timeframe
Every market and every timeframe can be traded with a day trading system. But if you want to look at 50 different futures markets and 6 major timeframes (e.g. 5min, 10min, 15min, 30min, 60min and daily), then you need to evaluate 300 possible options. Here are some hints on how to limit your choices:

• Though you can trade every futures markets, we recommend that you stick to the electronic markets (e.g. e-mini S&P and other indices, Treasury Bonds and Notes, Currencies, etc). Usually these markets are very liquid, and you won’t have a problem entering and exiting a trade. Another advantage of electronic markets is lower commissions: Expect to pay at least half the commissions you pay on non-electronic markets. Sometimes the difference can be as high as 75%.
• When you select a smaller timeframes (less than 60min) your average profit per trade is usually comparably low. On the other hand you get more trading opportunities. When trading on a larger timeframe your profits per trade will be bigger, but you will have less trading opportunities. It’s up to you to decide which timeframe suits you best.
• Smaller timeframes mean smaller profits, but usually smaller risk, too. When you are starting with a small trading account, then you might want to select a small timeframe to make sure that you are not overtrading your account.

Most profitable day trading systems use larger timeframes like daily and weekly. These systems work, too, but, be prepared for less trading action and bigger drawdowns.

Step 2: Define entry rules
Let’s simplify the myths of “entry rules”:
Basically there are 2 different kinds of entry setups:

• Trend-following
When prices are moving up, you buy, and when prices are going down, you sell.

• Trend-fading
When prices are trading at an extreme (e.g. upper band of a channel), you sell, and you try to catch the small move while prices are moving back into “normalcy”. The same applies for selling. In my opinion swing trading is actually one of the best trading strategies for the beginning trader to get his or her feet wet. By contrast, trend trading offers greater profit potential if a trader is able to catch a major market trend of weeks or months, but few are the traders with sufficient discipline to hold a position for that period of time without getting distracted.

Most indicators that you will find in your charting software belong to one of these two categories: You have either indicators for identifying trends (e.g. Moving Averages) or indicators that define overbought or oversold situations and therefore offer you a trade setup for a short term swing trade.

So don’t become confused by all the possibilities of entering a trade. Just make sure that you understand why you are using a certain indicator or what the indicator is measuring. An example of a simple swing daytrading strategy can be found in the next chapter.

Step 3: Define exit rules
Let’s keep it simple here, too: There are two different exit rules you want to apply:

• Stop Loss Rules to protect your capital and
• Profit Taking Exits to realize your profits

Both exit rules can be expressed in four ways:
• A fixed dollar amount (e.g. $1,000)
• A percentage of the current price (e.g. 1% of the entry price)
• A percentage of the volatility (e.g. 50% of the average daily movement) or
• A time stop (e.g. exit after 3 days)

We don’t recommend using a fixed dollar amount, because markets are too different. For example, natural gas changes an average of a few thousand dollars per day per contract; however, Eurodollars change an average of a few hundred dollars a day per contract. You need to balance and normalize this difference when developing a day trading system and testing it on different markets. That’s why you should always use percentages for stops and profit targets (e.g. 1% stop) or a volatility stop instead of a fixed dollar amount.

A time stop gets you out of a trade if it is not moving in any direction, therefore freeing your capital for other trades.

Step 4: Evaluate your day trading system
The first figure to look for is the net profit. Obviously you want your system to generate profits. But don’t be frustrated when during the development stage your day trading system shows a loss; try to reverse your entry signals. On our website www.rockwelltrading.com you already learned that trading is a zero sum game: So if you are going long at a certain price level, and you lose, then try to go short instead. Many times this is the easiest way to turn a losing system into a winning one.

The next figure you want to look at is the average profit per trade. Make sure this number is greater than slippage and commissions, and that it makes your day trading worthwhile. Day trading is all about risk and reward, and you want to make sure you get a decent reward for your risk.

Take a look at the Profit Factor (Gross Profit / Gross Loss). This will tell you how many dollars you are likely to win for every dollar you lose. The higher the profit factor the better the day trading system. A system should have a profit factor of 1.5 or more, but watch out when you see profit factors above 3.0, because it might be that you over-optimized the system.

Here are some more characteristics you might want to consider besides the net profit of a system:
• Winning percentage
Many profitable day trading systems achieve a nice net profit with a rather small winning percentage, sometimes even below 30%. These systems follow the principle “Cut your losses short and let your profits run”. However, YOU need to decide whether you can stand 7 losers and only 3 winners in 10 trades. If you want to be “right” most of the time, then you should pick a system with a high winning percentage.

• Number of Trades per Month
Do you need daily action? If you want to see something happening every day, then you should pick a day trading system with a high number of trades per month. Many profitable day trading systems generate only 2-3 trades per month, but if you are not patient enough to wait for it, then you should select a day trading system with a higher trading frequency.

• Average Time in Trade
Some people get really nervous when they are in a trade. I have heard of people who can’t even sleep at night when they have an open position. If that’s you, then you should make sure that the average time in a trade is as short as possible. You might want to choose a system that does not hold any positions overnight.

• Maximum Drawdown
A famous trader once said: “If you want your system to double or triple your account, you should expect a drawdown of up to 30% on your way to trading riches.” Not every trader can stand a 30% drawdown. Look at the maximum drawdown the system produced so far, and double it. If you can stand this drawdown, then you found the right day trading system. Why doubling? Remember: your worst drawdown is always ahead of you.

• Most consecutive losses
The amount of most consecutive losses has a huge impact on your trading, especially when you are using certain types of money management techniques. Five or six consecutive losses can cause you a lot of trouble when using an aggressive money management.

In addition this number will help you to determine whether you have enough discipline to trade the system: Will you still trade the system after you have experienced 10 losses in a row? It’s not unusual for a profitable trading system to have 10-12 losses in a row.

Step 5: Improving your system
There is a difference between “improving” and “curve-fitting” a system. You can improve your day trading system by testing different exit methods: If you are using a fixed stop, try a trailing stop instead. Add a time stop and evaluate the results again. Don’t look at the net profit only; look also at the profit factor, average profit per trade and maximum drawdown. Many times you will see that the net profit slightly decreases when you add different stops, but the other figures might improve dramatically.

Don’t fall into the trap of over-optimizing: You can eliminate almost all losers by adding enough rules. Simple example: If you see that on Tuesdays you had more losers than on the other weekdays, you might be tempted to add a “filter” that prevents your day trading system from entering trades on Tuesdays. Next you find that in January you had much worse results than in other months, so you add a filter that enters trades only from February – December. You add more and more filters to avoid losses, and eventually you end up with a trading rule that I saw recently: IF FVE > -1 And Regression Slope (Close , 35) / Close.35 * 100 > -.35 And Regression Slope (Close , 35) / Close.35 * 100 < .4 And Regression Slope (Close , 70) / Close.70 * 100 > -.4 And Regression Slope (Close , 70) / Close.70 * 100 < .4 And Regression Slope (Close , 170) / Close.170 * 100 > -.2 And MACD Diff (Close , 12 , 26 , 9) > -.003 And Not Tuesday And Not DayOfMonth = 12 and not Month = August and Time > 9:30 ...

Though you eliminated all possibilities of losing (in the past) and this trading system is now producing fantastic profits, it’s very unlikely that it will continue to do so when it hits reality.

Markus Heitkoetter is a 19 year veteran of the markets and the CEO of Rockwell Trading. For more free information and tips and trick how to make consistent profits with online daytrading visit his website http://www.rockwelltrading.com

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Day Trading Stocks - Why So Many Day Traders Lose?

2007-09-13T20:38:00.000-07:00

By John McLaughlin

Most trading is done emotionally charged where traders find themselves overwhelmed with information from all directions.

In this mood, you can feel out of control - not knowing where the markets and stocks will take you or do to you next.

Unlike the tech rally days, where winning was virtually effortless and all you needed to do was get on the bus for the ride, winning in the current market is rare. Rather than winning a lot, you now experience losing a lot - for many, losing over and over, it seams, without end.

Or, if you are one of those who choose to stand aside, not really knowing what or when to trade, you find yourself bored, trying not to fall asleep at the switch. And, at the center of all this, as you try for any bit of success, you often feel drained - stressed, too frequently getting upset then angry.

Over the long run you begin to feel demoralized and deenergized - with a sense of embarrassment (as you think about how you will explain your plight to others), feeling like you are a failure as you reflect on the past months/years - you frequently think, your dream of success may never be realized. Not a pretty picture.

The Old School Trading Game:

Listen carefully to what I want you to hear: the old trading Game, as you and I know it, has gone the way of the Model A (Model A Ford, that is).

The old school, obsolete trading game is still used by most. Did I say over 90% of the traders out there? It's offered in all the day trading courses, seminars, and Web sites - you name it.

Yet losers (innocently, stubbornly, and arrogantly) persist in playing an obsolete trading game - thinking, hopefully (as usual), that somehow they will be able to win again. Losers are completely unaware that their old trading game, has changed to their guaranteed disadvantage.

You need evidence, proof? You don't need proof. Just look carefully at your bottom line results—after overhead, after paying yourself, of course.

The old school trading game, as you and I know it, is dead. The difference between winners and losers? Losers are blindly refusing to accept their fate.

It's time (actually, long overdue time) for losers to move on to the new day trading game, a new trading system, trading approach and perspective, and the trading tactics winners use to play to consistently win. But, losers have no where to turn for help. Not any more. Hedge Funds, the Winners, & all the Losers:

OK, I’ll tell you why you lose so much.

Those who know first hand about the game winners play are those who in fact invented it -the hedge fund managers.

“Quant funds run by top names (Goldman, Renaissance Technologies, D. E. Shaw, to name a few).” “Some of the biggest names in hedge fund investing — Renaissance Technologies, D. E. Shaw, AQR Capital Management — practice what is called quantitative investing, using computer models to buy and sell thousands of stocks (and bonds and derivatives and commodities and currencies and country indexes and just about anything else that can be traded).”

“These funds use these quant models to run what are called in the business “market neutral” hedge funds, meaning that their gains (or losses) are not dependent on whether the market goes up or down. “

Big money, billion dollar hedge funds, at the top of the trading food chain, hire brilliant scientists, “quants”, to design quantitative software (using mathematical models) to take out the little guys, the crowd of losers, like you and, at one time, all the traders here at Day Traders Win, especially me.

The real fun happens when these hedge funds go at it head to head, feeding off each other, causing highly volatile markets and wild swings in stock prices.How can they do this, you ask? I just told you. Let me go into more detail. Big money uses what all of what losers know—against them.

“Huh?”

Hedge funds, knowing what you know, knowing even what other hedge fund managers know, design their software for the kill.

What they do is quite simple. They design their software to take out those who continue rely everything taught in all the books, courses, and workshops - all the so-called valuable knowledge being offered and digested from a myriad of sources.

Hedge fund software designers use this knowledge base of information and experience to take out the crowd of losers, over and over again. Their advantage has little to do with fundamentals and all to do with the technicals, or should I say, taking advantage of the technicals every one commonly relies on to win - but mostly lose.

Losers don’t have a chance of winning against this new hedge fund trading game. While losers go on trying to figure out why they lose so much, the big money traders go on winning. Hedge fund software designers have them in their sights for their next kill.

Most losers appear blind to this "software is king" phenomenon, without a clue about how the hedge funds’ software Kings have change all forms trading (extremely short term day trading to long term investing). In just the past few years the trading game has been turned on it’s head.

The trading game has been changed - forever.

Losers push on, relying on their obsolete trading game (their biased trading perspective, their sick trading systems, and execute their trades with dreadful outcomes) - yet continue to be killed by the big boys.

Losers refuse to accept the fact that their game is a trap for more boredom, frustration, losing, and both personal and financial suffering.

For those blind to this phenomenon, losing goes on unabated. For those who wake up to what’s really going on, they need to learn to trade to win all over again.

The question for losers - what can I do about all this.

Day Trader - Consultant/Coach

Over 20 years expertise: banking, real estate, senior executive, and now working with Day Traders who are not at all satisfied with their trading confidence, competence, and financial performance.

Article Source: http://EzineArticles.com/?expert=John_McLaughlin
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3 Simple Steps To Becoming A Successful Emini Trader

2007-09-13T20:29:00.001-07:00

By Rockford Tapscott

Trading the Emini futures market can be the ultimate lifestyle business. No employees, no boss, time freedom, you can run your business from anywhere, and enjoy potentially very good earnings.

If only it wasn't so difficult to make it all work...

You know what I mean. You do your analysis, see a trade, and hit the order button. And then you start to worry. What if I'm wrong. What if that reporter on the finance show was right about the jobs number coming in higher than expected. And the Fed could raise rates this afternoon.

Your mind starts racing with all sorts of 'What would happen if?' thoughts, so you decide you'll wait until tomorrow, just in case these demons combine to knock you out of your trade with a loss.

You hit the shops, or the beach, or the woods...anything to take your mind off trading for today. Tomorrow will be better you assure yourself, and you bask in the feeling of relief that your precious capital is no longer at risk today.

But tomorrow is the same. There's a different set of risk factors for sure, but they are still there, haunting you and your trading. You become paralyzed and can't function. And your confidence and your account balance start to suffer. If this sounds familiar, here is a simple three-step solution to your Emini trading problems.

Step 1 - Decide that trading is a business just like any other. Traders who are successful over a long period of time treat their trading as a business, not a hobby.

Traders who stick around for a while, blow their accounts and give up are usually trading for the excitement the action gives them or for the rush of being in the market.

If that sounds like your current trading style, beware. You are due for a lot of emotional and financial pain before your trading days are over (which could be sooner than you think). Treat trading as a business, learn and test different approaches, and you'll massively increase your chances of long-term success.

Step 2 - Don't try to forecast where the market is going - trade reality. I spent years studying WD Gann's work and all it did was blind me to the facts - if you think you can forecast where the market is heading consistently, you are deluding yourself. The bottom line to whether you can forecast will be your account balance, and for most people who try, it's not a pleasant experience.

Sure you'll get it right sometimes, and that's the most dangerous thing about forecasting. By tossing a coin you'll be right half the time, so you tend to get random rewards when you trade. You win some, and think your forecasting ability is great. Then you lose some after doing the exact same analysis, and you start to question yourself and your abilities.

Eventually this lack of consistency forces you to either change your strategy or give trading away to protect your sanity...

Step 3 - Learn how to trade from somebody who is prepared to coach, guide and mentor you until you are proficient and making money on your own.

To succeed long-term at trading you must think and act like a competent business person in any other market. You will need to study and learn your craft by taking courses, you will need to develop a business plan, and you certainly need sufficient capital to ride out your learning curve and become a successful trader.

You will need a certain amount of on-the-job training, but learning this way from scratch can be terribly expensive compared to finding somebody who will coach you until you are ready.

You'll learn how to trade the Emini much more quickly if you have somebody who's done it professionally watch over your shoulder and guide you as you trade. You simply can't learn this stuff from books and courses. You need to be shown how to do it...

If you were mining for gold, what would you prefer; somebody to sell you a map, a shovel and a compass and tell you where to go, or somebody to actually take you down deep into the mine, physically show you to where to dig for the gold, and then help you carry it up to the surface?

The answer is obvious isn't it?

Bottom line: If you can find somebody who has been where you are now and succeeded who is prepared to coach and mentor you, your chances of becoming a wildly successful Emini trader will become a whole lot better.

Rocky Tapscott works with Emini Trading Coach Sam Goldberg who has written a Free 5 day Mini Course called 'The Futures Trading Mastery Course' which shows how to become a professional Emini trader. Drop by http://www.futurestradingcoach.com/speminicourse.html for a Free copy.

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http://EzineArticles.com/?3-Simple-Steps-To-Becoming-A-Successful-Emini-Trader&id=398296

Using Technical Analysis For Trading The Emini-How To Shortcut The 3 Year Learning Curve

2007-09-13T20:26:00.001-07:00

By Rockford Tapscott

Understanding technical analysis and candlestick chart patterns on the Emini can give us very reliable signals for trade entries and exits, and take a lot of the guess work out of trading the Emini futures market. It is very hard to argue which way the trend is heading if the index is making a series of higher tops and bottoms on our chart and the candles are all green. Buying the index in these circumstances is like getting carried up an escalator...it's an easy trade when you go with the flow.

Unfortunately, many people fight the trend and sell (or worse, go short) at every small down tick, thinking they have picked the top, only to see the Emini rise further immediately. By the time the buyers are finished, these traders have spent their monetary and psychological capital in a futile attempt to pick the top of the market.

Another common mistake traders often make is ignoring all of their technical analysis indicators and being long in a downtrend, and then buying extra Emini contracts as the price falls, or averaging a loss. You can see how dangerous this strategy can be (at least in the short term) in a situation like we've experienced several times over the last five years. Always remember - the trend is your friend, don't ever buck it.

Becoming proficient at technical analysis and determining the trend of the market can give us the inside running as traders, but it can take years of study and trial and error to become good enough at it to become successful. Does TA work all the time? Of course not, nothing does. Losses on some trades are inevitable, as we cannot know for sure what the market will do. All our analysis can do is alert us to probabilities - there are no certainties in financial markets.

This is the hardest thing for most traders to accept. We all hate to be wrong, but that is the nature of the business. All we can do is take every trade our system gives us and see what happens. The better our analysis and our system, the more likely our trades will produce profits. And in addition to TA skills, you need patience, discipline and emotional control to become a successful Emini trader.

Typically, as traders we must find or develop and perfect a trading system or set of analysis tools that we are comfortable with, based on what we learn from other traders, learning from our (often expensive) mistakes, taking courses and other forms of study.

But what if you could short-cut the learning curve and become a profitable Emini trader as soon as today? What if you could 'borrow' a successful trader's system and immediately implement it for yourself? Instead of spending your time learning to trade, you could actually be trading profitably almost immediately.

The solution is to find an advisory or trading alert service that tells you when to buy, where to put your stop loss order, and when to sell. Now the signals the service gives you have to be reliable of course, but when you find one that helps you to make consistent profits trading the Emini, all you have to do is stick with it and you have saved yourself countless hours of study and analysis (and probably years of painful, expensive trial and error). This is time you can better spend enjoying the lifestyle that becoming a profitable trader gives you.

Let's face it; most of us don't trade the market just because we enjoy the rush. We want the money, the lifestyle and the time freedom it gives us. Working from home (or anywhere else for that matter) for a few hours a day, taking days off when we want to, no boss to answer to. Trading the Emini market for a living is the ultimate lifestyle business. Well as long as you are making money it is... If you're not, it's a nightmare. You can see the potential, but the learning curve and time it sucks up can take a huge chunk of your life.

For my money, it makes sense to let somebody else spend the hundreds of hours and thousands of dollars required to learn to trade profitably, and then hitch a ride on their coat tails. All I have to do is invest a small percentage of my ongoing profits to access the service, and I get to keep ALL the rest. This is something you should consider testing if you are not making the kind of returns you know are possible trading the Emini S&P, the Emini Dow, the Emini Russell or Emini Nasdaq markets.

Joining a profitable Emini trading advisory service that gives you reliable technical analysis entry and exit signals will save you countless hours of study (and many sleepless nights) as you grapple with learning to trade profitably yourself. Why go through that when for a small monthly fee you can access the system of somebody who has already worked it out, and can hand you profitable Emini trades on a silver platter. Something to think about?

Rocky Tapscott is a trader and investor who works with Professional Emini Trading Coach Sam Goldberg helping traders profit from trading the market. Sam has introduced a new Trading Alert Service that identifies regular, high probability trade setups in the Emini S&P, the Emini Dow, the Emini Russell or Emini Nasdaq markets.

Drop by http://www.futurestradingcoach.com/tradingalerts.htm for a Free 7 Day Trial of the service and see just how profitable your Emini trading can be.

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The 3 Biggest Road Blocks To Emini Trading Success

2007-09-13T20:24:00.001-07:00

By Rockford Tapscott

Imagine the perfect business…time freedom, you control your own destiny because you have no boss to answer to, you can work anywhere you have a laptop computer and an Internet connection, and potentially lucrative earnings…Emini futures trading has all this and more.

So why is it that so many people who trade the Emini market, probably at least 80% of those who try, fail to become consistent, profitable traders? There are many reasons, but here are three major road blocks that stand out among the traders I know that tend to limit a traders' career to weeks or months instead of years…

Road Block 1 - Not taking responsibility for your own actions.

Taking responsibility for ones own actions brings up a huge divide between good traders and those who fail to make it long-term. Any time you hear a trader blaming his Broker, the Fed, the TV journalist, other traders running stops or anyone else, you just know they probably aren't going to make it as a professional trader.

Professional traders never blame anyone or anything else. They make the decisions based on their analysis and live with the consequences. These outcomes can range anywhere from profits and losses, but the good trader knows that if he sticks with his winning system he will make money over the long term.

You cannot blame other people's actions for your results. Stick to focusing on the things you can control, take responsibility for your actions, even when they result in a loss, and your trading results will improve over time.

Road Block 2 - Become risk averse instead of going for the big profits on every trade

If you take big risks in the Emini market you'll most likely have a very short trading career. The huge leverage futures trading gives you means that your gains and losses are magnified, so overtrading, or taking a position that is too large for your account can create catastrophic losses and force you out of the game.

Profitable traders tend to be risk averse, taking many smaller profits (and fewer, even smaller losses) over a long period of time. They build their accounts steadily rather than plunging a large chunk of their capital on one position and hoping for the best.

No matter how good your system and analysis, you will have losses trading the Emini. By keeping them under control you can gradually build your wealth, grow your account and stay in the business long term.

But one catastrophic loss can shake your confidence (not to mention your account balance) to the point where you will eventually give it away and stop trading. Professional traders always consider the risk return ration of any trade and use prudent position sizing to minimize risk while maximizing their potential profits.

Road Block 3 - A lack of trading knowledge and experience

Many traders read a couple of technical analysis books, glance through a book on Candlestick charting, and set off with high hopes of becoming a professional Emini trader. Unfortunately there's a bit more involved in trading success than that.

The problem with reading books and most training courses about trading is that they usually only give you part (and often a very small part) of the big picture. All professional athletes, business owners and entrepreneurs have coaches, advisors, mentors or boards of experienced directors to guide them as they build their businesses.

To become a professional trader, you too need a coach or guide to show you the ropes, test and challenge you, and help you to succeed at the very highest level. The best coaches are people who have been there, done it, and have the experience to show you the short-cuts to success.

Find somebody who can share this knowledge with you and you will increase your chances of becoming a successful Emini trader immensely. Try to do it on your own and you'll waste years of valuable time and money trying to work out the best system for yourself.

Rocky Tapscott is a trader who works with Professional Emini Trading Coach Sam Goldberg. Sam has written a Free 5 day Mini Course called 'The Futures Trading Mastery Course' that shows you step by step how to become a professional trader by finding a mentor who will coach you to success. Drop by http://www.futurestradingcoach.com/speminicourse.html for a Free copy.

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http://EzineArticles.com/?The-3-Biggest-Road-Blocks-To-Emini-Trading-Success&id=398301

Following The Trend

2007-09-13T14:20:00.001-07:00

By Frank Kollar

Market timers following trends generate great returns over time because their buy and sell decisions are based on the one piece of information that counts the most. Price.

We are barraged with fundamental analysis, price earnings ratios, economic projections, news events, and a steady stream of TV and news analysts who tell us where they think the market is going.

But the simple truth is... no one knows where the market is going next.

The only absolute truth... is price. If prices are trending higher, the market is going higher. Lower, and we are trending lower.

Two Kinds Of Traders

News events especially cause traders to make incorrect decisions, because they play on emotions. The urge to follow the crowd is normal. It is comforting. And in a strong bull market, it may just be correct.

But in most circumstances, letting emotions push you into making trading decisions costs traders money.

There are two kinds of traders.

1. Those who make emotional decisions based on any of the above.

2. And those who make money off of those who make emotional decisions.

Price Is Always Right

It is hard to accept that one aspect of the markets, price, could be the one thing that is guaranteed to make you a successful market timer or trader.

There are so many indicators, so much available analysis, but "price" is always right. It is "never" wrong.

The thousands of investors and traders who owned Enron at $90 felt confident in their positions. Many "averaged down" when the price started dropping. But we wonder, after all the billions of dollars were lost in the Enron collapse, how many felt that way when shares hit 50 cents.

Trend trading market timers "may" have bought shares at $90. But they were short most of the way down because they made their trading decisions based on "price."

When the price started to drop, they reversed their small losses and changed to short positions. Many made huge profits as they rode this stock down.

Losses, such as the billions lost by investors who held shares in Enron, are always reported by the media. But have you ever heard the media mention the other side of those losses?

All those losses went into someone's pockets!

How about the 80% decline in the Nasdaq in the 2000-2002 bear market? The losses were all over the financial press. But were the gains on the other side of those losses mentioned. Our Bull & Bear Timer was up close to 70% during that bear market.

Losses are news, gains apparently are not.

Market timers following price trends profited during these declines. They were windfalls. But you will never read about it in the press.

Following Price

Price is objective. You can faithfully follow prices and make timing decisions based on them. You are able to determine trend changes, and most importantly, to exit those positions if the trend was a false one.

And false trends "always" occur. Usually at market tops and market bottoms. But the losses in "trendless" markets are kept small by those who use "price" to establish trading strategies.

And when the trends do take off, the profits are made.

Market analysis is always subjective. It can not be trusted in trading decisions. Indicators work some of the time, but also can fail miserably. The financial news media is not even worth mentioning.

Only price can be trusted. Only price is always right. Only using price to determine trends can lead you to profitable timing and a successful investing future.

Conclusion

Market timers must follow the trading strategies faithfully. Every sell signal must be followed immediately, and every buy signal as well. Small losses are part of the game, but then large gains are also part of it.

Guessing how far a trend will go is useless. No one knows. Price makes the trend.

Discipline is the name of this game. Those who stand the test of time and make the trades, will over time, beat the markets, and will be investing winners.

Article Source: http://EzineArticles.com/?expert=Frank_Kollar
http://EzineArticles.com/?Following-The-Trend&id=374051

Why Day Trading Futures is Better!

2007-09-12T18:45:00.001-07:00

By D Bennett

I am surprised at the number of articles I see that claim it is impossible to make money day trading. They are simply wrong. I make money day trading and I can prove it.

For years, I position traded various instruments over medium to long term time frames. Now I exclusively day trade futures contracts, because I like the consistent profits and the low risk.

I trade two futures markets, during the first 30 minutes of their primary trading sessions. I use simple support and resistance strategies based on taking defined actions if specific chart patterns occur during that opening half hour. If no pattern develops, I enter no trade.

If I put on a trade, I enter a limit order to take profit, a stop order for protection, and a market order to exit the position just prior to the end of the primary session. These orders are in an OCA (one cancels another) group, so I leave them working knowing that one of them will close the trade before the session ends.

Critics of day trading often say you have to stay glued to the screen for an entire market session, but I find it is best to walk away once the trade is set and your contingent orders have been placed. Two thirty minute periods of focused concentration represent my work for the day.

Critics also say that day trading is a game for fools because short term market fluctuations are completely random and impossible to trade. I think this is nonsense. Suppose I printed the 1 minute bars from the chart of an S&P 500 session, and then printed a similar number of weekly bars for the same market. If I hide the labels and scales, I am confident nobody could tell me which chart is which. The fact is the short term market establishes support and resistance levels, trends and generally exhibits the same behaviours as the longer term markets.

There are differences, of course. Intra-day movements are smaller in absolute magnitude, so trades are smaller. Consequently, brokerage fees and slippage represent a much larger percentage of profits than for a longer term trader. So low fees and good fills are vital for success. Fortunately, brokerage fees are very competitive now, and electronic markets with high liquidity have minimal slippage.

If day traders have strong discipline, follow a consistent routine and stick to predetermined trading plans, they have lower exposure to risk than longer term position traders.

Take the current market turmoil sparked by the sub-prime mortgage problems. I know position traders taking an absolute bath in this situation. In contrast, my trading has not changed at all, despite the fact that one of the markets I trade is the S&P500.

No longer am I sweating on wildly volatile long term positions, as I was in the stock market after 9/11, in natural gas futures during 2002, or in live cattle futures after mad cow disease was identified in the US. In my experience, these freak events happen much more often than you might expect.

Believe me, if you are in the market with leveraged instruments, you want to minimize exposure – not extend it! Unless you want an ulcer, I recommend you are out of your positions whenever the market is closed or illiquid. The chances of blown stops, massive slippage, or being caught in limit moves is far higher if you hold positions through these periods.

Another reason I prefer day trading is consistency of profits. No matter what system you use, it will have losing streaks. If your average trade holding time is two or three weeks, draw-downs will often extend to months. Sometimes, even a good system may have a losing year!

In contrast, the day trader is in the market far more often. Losing streaks still occur, but they are over much sooner. Draw-downs tend to be relatively short – a few weeks at most. This is a huge positive in terms of cash flow, peace of mind, and general enjoyment of the process.

David Bennett trades US commodity futures from his home on the Gold Coast in Australia. He provides coaching and mentoring services for people wanting to start trading for themselves. Visit http://www.12oclocktrades.com to read more futures trading articles.

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http://EzineArticles.com/?Why-Day-Trading-Futures-is-Better!&id=689069

Futures Day Trading - Money Management

2007-09-12T18:43:00.001-07:00

By D Bennett

A key attraction of trading futures markets is that the small trader has an opportunity of quickly turning a small amount of capital into a substantial sum of money. Leverage makes this possible, and the tool to harness leverage is money management strategy.

Leverage can only enhance strategies with positive Expectancy. It cannot turn a losing strategy into a winning one. Indeed, use of leverage will accelerate the ruin of a trader utilizing a strategy with negative Expectancy. For that reason the trader must be diligent about thoroughly back-testing the strategy to ensure positive Expectancy.

Leverage is a double edged sword and must be treated with respect. But there is little point in choosing futures as your investment vehicle if you are not prepared to use it (with due caution).

Money Management comes in several different forms, but the focus here is on the technique known as the fixed percentage method.

In this method, the trader calculates a fixed percentage of available capital prior to entering a trade, then divides this by the risk amount in the trade to determine how many contracts to enter.

For example, if capital is $8,000, the chosen fixed percentage is 5% ($400), and the risk per contract is estimated at $175, then you would trade 2 contracts ($175 into $400 goes 2 times).

The biggest decision you have to make is to choose the fixed percentage you are willing to risk on each trade. The larger the percentage, the greater the leverage. The greater the leverage, the greater the risk of ruin. Obviously, if you risk 20% of your capital on each trade, a run of 3 or 4 consecutive losses will decimate the account. However, the same bad run would not have a major impact if you risk just 1% per trade.

Professional money managers with large accounts usually choose 2.5% or less. Given a strategy with a positive expectancy, this keeps the risk of ruin very close to zero.

A trader with a small account will likely choose a higher percentage to accelerate earnings. Doing so introduces a significant risk of ruin which gets bigger as the percentage increases.

This table shows the results of selecting various fixed percentages during a three month simulation of a positive expectation strategy on the electronic soybean market, with starting capital amounts of $5,000 and $100,000 respectively. The table shows the final account balance at the end of the trial period for the fixed percentages shown.

Notice that no figure is shown in the 2.50% box for the $5,000 capital investment. This is because most of the trading opportunities would be considered too risky at that level. For example, if a trade risks $175, it cannot be taken because the risk exceeds 2.5% of $5,000 ($125).

In selecting a strategy it is wise to be a pessimist. Suppose you risk 10% and lose the first three trades? Could you tolerate the resulting draw down on your starting capital? The likelihood is it would cause you to give up, or make you deviate from our strategy, which is just as bad.

Another consideration is the probability of a win for your particular strategy. If P(W) is 30%, then clearly your risk of hitting a long run of losses is greater than if P(W) is 70%. This is the case, even if the Expectancy is the same for both strategies. For this reason, I have more comfort with strategies where P(W) is high.

Despite the mouthwatering returns from higher fixed percentages in this trial, statistics always assert themselves in the end. If you trade long enough with high fixed risk percentages, you will eventually encounter a sequence of trades which will ruin you.

To avoid this fate, consider progressively reducing the fixed percentage risked to 2.5% or less as your capital grows.

Also keep in mind the number of contracts to be traded. You cannot assume that you can trade 100 contracts in the same way that you trade a single contract. The reality is that this volume will move some smaller markets, distorting your results. For this reason, the money management plan should be realistic and trade contracts in relatively low numbers compared to total market volumes.

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http://EzineArticles.com/?Futures-Day-Trading---Money-Management&id=701443

Day Trading Futures Contracts - How To Win

2007-09-12T18:39:00.001-07:00

By D Bennett

The successful futures day trader knows that trading is a form of betting. It is a numbers game based on probabilities. The trader’s task is to adopt a strategy with favourable odds and execute the strategy as perfectly as possible.

To be successful, the trader identifies one or more setups which signal high expectancy trades. The setups are most often related to some kind of chart pattern, or a signal given by one or more technical indicators. I look at some ideas for setups in other articles. For now it is sufficient to understand that a setup should be measurable. It is a clear, unambiguous signal to enter a trade, and each trade should be managed in exactly the same way so that the results of the trade can be accurately determined in a theoretical test situation.

The expectancy of a trade cannot be estimated without testing the strategy. You test by either trying out the strategy on historical data (back-testing), or paper trading the strategy for a period of time. In either case you are unlikely to get a decent estimate unless the sample includes a minimum of 20 trades, preferably more.

You should observe the results for the trades in your test sample and calculate the Probability of Winning - P(W), the Probability of Losing - P(L), the Average Win in dollars - A(W), and the Average Loss in dollars - A(L). Use the following formula to estimate the Expectancy for your strategy:

E = P(W) x A(W) - P(L) x A(L)

For example, you test 50 trades resulting in 30 wins (60%) and 20 losses (40%), with an average win of $300 and average loss of $200.

E = (60% x 300) - (40% x 200) = 180 - 80 = $100

This means that in the long run you expect to make $100 per trade using this strategy.

Many people examine historical data to determine a good trading strategy. After this, you cannot use the same data to estimate Expectancy, because the strategy is optimised for this particular set of data. To estimate Expectancy, back-test data from a different period or run an independent paper trading trial. Ignoring this principle results in curve fitting and you delude yourself into thinking your strategy is better than it really is.

No strategy can be profitable unless it has a positive expectation, but higher expectation does not necessarily lead to higher profit. You must also consider the opportunities to trade generated by your strategy. A strategy averaging 10 trades per day with an Expectancy of $50/trade is better than a strategy providing 2 trades per year with an Expectancy of $1,000/trade.

You can see from the formula that Expectancy is a function of both the Probability of Winning and the Average Win to Average Loss ratio. If you only win 1 in 4 trades, but the average win is $400 versus an average loss of $80.

E = (1/4 x 400) - (3/4 x 80) = 100 - 60 = 40

This is a situation where a strategy with a low probability of winning has a positive Expectancy because wins are much bigger than losses. In contrast, suppose you win 8 out of 10 trades with an average win of $80 and an average loss of $300:

E = (0.8 x 80) - (0.2 x 300) = 56 - 60 = -4

This strategy wins much more often than it loses, but has a negative Expectancy because losses are substantially bigger than wins.

There is no right answer for the balance of these parameters, other than that the Expectancy for your trading strategy must be positive. Often, improving your average win to average loss ratio will decrease the probability of winning, and vice-versa.

However, for a small trader there is an advantage in gaining positive Expectancy by having a high probability of winning. Sticking to a strategy that generates a lot of winners is less strain on the trader!

A positive Expectancy is no guarantee against a run of losses. Indeed, with most strategies it is almost certain that there will be significant strings of losses at some time. However, a positive Expectancy should lead to profits in the long run, providing the trader uses proper money management and can survive losing sequences.

In summary, the trader needs to specify clearly defined strategies which can be traded in a mechanical manner whenever their setup occurs. The strategy should be tested (avoiding the trap of curve fitting) to ensure that it has a positive Expectancy. Thereafter, the trader should execute the strategy at every possible opportunity.

That is how to win.

Article Source: http://EzineArticles.com/?expert=D_Bennett
http://EzineArticles.com/?Day-Trading-Futures-Contracts---How-To-Win&id=684046

Is Daytrading Right For You?

2007-09-12T18:19:00.001-07:00

By James Okada Lee

Many new market participants are lured in by the glamour of daytrading. We hear of great stories of day traders making a sizable income, working only a few hours a day, and playing golf every weekend. With the fancy advertisements of brokers and data vendors, it is easy to get sucked in without really understanding what day trading is all about.

You may have had some experience investing in the stock market. Now you want to consider trading. Index futures, forex, and tech stocks are among the favorites with day traders. Do you really know what it takes to be a full-time trader?

The Attraction

Most people are tired of their current jobs and looking to find financial independence. Why do you think "Rich Dad, Poor Dad" made millions?

Here are the perks associated with day trading:

* Independence: There are no obligation to anybody but yourself. You do not have to deal with customers, clients, or even your boss. You pick your own working hours and wake up whenever you feel like it. Time is very flexible.

* Financial Independence: If you are considered a profitable trader, you are most likely not concerned about paying rent the next month. True, traders do go bust. But once you learn how to trade you can make money almost anytime you want.

* Mobility: You are able to work from anywhere in the world as long as you have a computer with an internet connection. You can place orders on the phone as well but I do not recommend it when day trading. Alot can happen in a matter of seconds.

Some things to consider

Like any other job, there are certain things you may have trouble facing. Do you like to work in an environment full of people? Then day trading may not be for you. Many day traders work from their home and are faced with isolation. There are trading rooms and facilities that you can go to but this is limited on where you live. Day traders also spend a considerable amount of time staring at their computers. You may actually sit there for 3 hours before you make one trade that lasts 15 minutes. It is similar to going to a Mike Tyson fight. Waiting for 2 hours and watching for 15 seconds.

Day trading may not be for you. It requires quick fingers and an aggressive personality. If you like to spend time analyzing before making a decision you might want to consider swing or position trading. Market analysis must be done prior to the opening. Hesitation in day trading can be costly.

My Daily Routine

Take a quick glance at my daily routine and if it suits you day trading may be right for you. I wake up approximately 1-2 hours before the opening to go over my charts. I spend this time to analyze and devise a trading plan. I will never trade the markets blindly. Having a plan is a must. From 9:30am eastern to 11:00am eastern, I have my eyes glued to the markets and my computer. I am looking for 1-3 good setups. From 11:15am to 2:00pm eastern I will usually spend time doing some work on my website, writing articles, planning new business', and grabbing some food. From 2:00pm to 5:00pm eastern, I am back to trading looking for any good afternoon opportunities. The markets close at 5:00pm and I spend another 2-3 hours studying my trades, analyzing market action, and trying to learn anything new. I will never sleep without learning at least one new thing each day.

I tend to be a night owl and a workaholic so I spend most of the time after the close working on different projects. My only break is on every Friday or Saturday night when I do go out and party hard. Sunday... I am back at the laboratory. In my case a 9-5 job offers less working hours. I tend to work over 12 hours everyday.

This may not sound appealing to some people. But the biggest reason why I love what I do is that I have complete independence. I can choose to do whatever I want to do. Also day trading offers a tremendous feeling of achievement. Everyday is rewarding and you make money based on your results. There is no harsher judge than the markets. If you are trading with a hangover the markets will rip your throat out. If you are prepared with the right mindset, the markets will reward you.

__________________

James Lee is a full-time day trader specializing in the mini-sized Dow futures. His core trading strategy is based on pivot point clusters and Market Profile. You can learn more about his trading methodology at http://www.traderslaboratory.com

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http://EzineArticles.com/?Is-Daytrading-Right-For-You?&id=299310

Trading Plan: A Roadmap To Trading The Markets

2007-09-12T13:19:00.000-07:00

By James Okada Lee

Having a trading plan is similar to having a map when traveling to a new location. Modern day vehicles often come with a navigation system making it easier to travel with the fastest route. A trading plan acts as a road map for the trading day.

Most new traders trade without a plan. This often causes reckless trading, emotional trading, and no predefined entry and exit points. They are simply lost during the trading session. Designing a plan prior to the open is necessary. Most new traders are still inexperienced to devise an effective trading plan that can guide them throughout the day. They are unable to locate key support and resistance levels, do not hold strict money management rules, and lack the discipline needed in trading.

So What Is A Trading Plan?

Everyday after the close I will spend 1-2 hours studying the market action. I will then go through my daily charts, 233 TICK charts, and Market Profile charts. First thing I do is to look for market acceptance vs rejection. Then I switch to the daily chart to view the bigger trend. I will then plot the pivot points and any significant price level that I will be looking at accordingly. This gives me a road map for the markets.

The second step is to plot the route I plan to take on the road map. I will visualize a number of possible situations for the following trading day. Couple examples include:

1. If the markets open up above the value high pivot, I will look for long setups.

2. If the markets gap down to the daily pivot, I will fade it for a gap fill.

3. I will not trade between certain price levels as it offers no opportunity.

Every trader has their own methods and analysis techniques to develop a trading plan. There is no right or wrong way to devise one. The biggest mistake alot of traders make is that even with a plan, they are unable to follow it. Why draw a map and not use it?

Develop a trading plan and stick with it. Have the discipline to follow your plans. By having a plan and applying money management, you have a significant edge over a good percentage of traders. Best of trading.

James Lee is a full-time day trader specializing in the mini-sized Dow futures. His core trading strategy is based on pivot point clusters and Market Profile. Find out how to identify high probability trading opportunities at http://www.traderslaboratory.com.

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http://EzineArticles.com/?Trading-Plan:-A-Roadmap-To-Trading-The-Markets&id=311284

To Day Trade or Not to Day Trade

2007-09-12T08:54:00.000-07:00

By Doug Tucker

Day trading earned a much-deserved negative reputation during the Nasdaq bubble in the late 1990's. Then you could find many day trading schools and trading rooms that tried to make day trading look like easy money, mostly with video arcade style trading applied to Nasdaq stocks. Most of those rooms and methods are now gone. But replacing the Nasdaq day traders are a new crop of on-line trading rooms and trading schools that focus on stock index futures and forex.

Is this the same madness of nearly a decade ago? Is day trading a viable approach to making money in the markets?

Among the investing establishment, day trading certainly has a negative reputation. When I am in a debate with a typical investor I hear comments such as: "I've never met a day trader that made any money. The costs of commissions and data eat up any profits. Day traders are chained to their computers all day while I am at the golf course. And of course, the really big money is made in the long term and day traders miss all those big trends."

These are all good points. I'll take them one at a time. Of course most people I meet near where I live have never met a day trader that made any money. I live in the Pacific Northwest, far away from the pits and trading floors in New York and Chicago. Most of the traders on the floors of the pits and exchanges are in fact trading in and out of the markets all day long. The are day trading. They are creating liquidity in the markets. They insure that the spread between contract months is in line and liquid. They are there to take the other side of the retail paper that comes into the market. The markets could not exits without the day traders who are professional and make their full time living from the small, numerous trades and small profits they take out of the markets. With new technology and lower transactions costs, off the floor, screen based day traders also contribute to this liquidity.

Are transaction costs and equipment a detriment? It was difficult to overcome transaction costs just a few years ago if you were an off the floor trader. Today commissions are practically negligible, and some of the best charting and data packages are essentially free with a minimum of trading activity.

And what about being chained to a computer all day, while your friends are out playing golf. It is true that to make money day trading one has to monitor the market during the trading day. I guess one could also say that to be a surgeon one has to spend some time at the hospital, and if you were a baseball player you would have to spend some time at the baseball field. It is hard to comment much further if anyone is going to criticize someone's career for actually having to be there while working at it.

Day traders certainly do miss some of the big moves. However, the big moves are rare. More common is the daily up and down pulsation of the market, and day traders are able to capture many up and down swings during the day, while the longer time frame trader has to sit through seemingly endless back and forth chop. In fact, markets spend most of their time trying to find trend direction, with much of that time spent in sideways patterns that make it difficult to make money on a position trade basis. Also, what information does the longer-term trader have to suggest a profit in that time frame? The day trader can more easily see what is there and what is happening right now. It is much more difficult to look out into the future and to make an assessment of what conditions might prevail a year or two out. A day trader doesn't rely on information disseminated by an analyst. He merely trades what is in front of him. He trades what he sees; not what he is fed by outside, non-market-generated information that may be questionable.

And what about the really big, wealth building kind of money that is the objective of the very long-term investor. Warren Buffett has made some really big money, and he is about the longest-term investor you could use as an example. I am quite sure he wouldn't advise day trading. Of course his ability to place large trades is made much easier because day traders are doing their job. It is true that in the very long term, if you are very good at seeing the big picture mega-trends, and use the power of compounding, truly spectacular gains can be had in the very long-term time frame. But even Mr. Buffett has a difficult time maintaining his own track record. Very few portfolio managers can keep up with the broad-based indexes for more than a year or two, let along better them. But the very long term does take advantage of the overall bullish trend of stocks over long periods of time. The same cannot be said for commodities, although to some degree they can keep up with inflation. While short-term day trading can be stressful, long-term investing can try your patience. Can you sit through twelve or more years of no returns or even negative returns? That can happen to the long time frame investor. The market may have long stretches of sideways movement, but the day trader still has the opportunity of many up and down trends available nearly every day.

There are some additional points to consider before considering day trading. It should be obvious, but some people just cannot make decisions quickly enough to day trade. Some people require more information and confirmation by looking at many indicators. With day trading, there just isn't the luxury of time to consult with many indicators, especially if a very short time frame is being used. It is better to use few or no indicators. A certain amount of intuition about the market you trade will in time, with enough experience, begin to emerge, which may take the place of looking at many indicators.

For many the biggest obstacle to day trading is the stress level. Concentration often must be maintained for long period of time during sometimes inhospitable market conditions. The stress level can be magnified as the time frame shortens. The stress can be intense while in a trade if the equipment and technology break down. You can have a backup computer, a backup high speed internet connections, a backup power supply, and backup brokerage accounts. Even with everything backed up the exchange order entry or data feed can go down at just the wrong time. With electronically traded contracts the only thing that can be done is to try to hedge in a similar market, if one is available. Even when all the technology seems to be working, there can be deceptive delays in data during sudden fast market conditions that can introduce slippage that wasn't apparent during testing.

After having traded in many time frames and trading styles, I think the most important issue is to find a trading style that fits the personality of the trader, and not rule out day trading because of misconceptions. There is not a right or wrong answer to the question of the feasibility of day trading. But it must suit the individual trader. For some traders long term investing is totally wrong, and day trading is a better fit. One will only know after trying, and keeping realistic expectations in mind. Also, I think it is a good idea to stay out of the crowd and chose a time frame very short or very long. It is difficult to take profits from the market if you are looking at the same information as the masses. Often either a day trading approach or a very long-term approach will prove to be a less beaten path.

Doug Tucker has a blog with daily commentary on stock indexes, precious metals, and other markets. There are many articles on technical analysis and indicator design and interpretation. To visit go to: http://tuckerreport.com/

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http://EzineArticles.com/?To-Day-Trade-or-Not-to-Day-Trade&id=707792

Day Trading Chat Rooms - What to Realistically Expect

2007-09-11T16:43:00.000-07:00

By Doug Tucker

About two years ago I entered a slump in my day trading. I decided to hunt the internet, and there I found many day trading chat rooms. One by one I signed up for trials to see what they were about. I had never been in a chat room before.

After being in a few rooms, my impression was that the members of the room were looking for a leader, a guru, someone with the answers. I guess I was too, although I already had about thirty years of trading behind me. I’d like to think is was just more curious than actually looking for answers. Most of the room members seemed very naive. I’m sure they thought they’d be given an indicator or method that would allow them to start making money right away. The other thing I noticed right away was the ego of the moderators. They spoke with great authority, and suggested that their way of trading was the one and only way. Only they had the answer. And the room attendees, in each of the rooms, seemed to agree.

I did not see much new in any of these rooms. Each one had some kind of gimmick or special oscillator. Some had a black box approach, where you were supposed to just sit there waiting for the moderator to call out the trades. I did not see many winning trades from the little time I spent in any of these rooms. From what I saw, I doubted if any of these people ever made a dime trading. I kept moving on.

Eventually I came upon a chat room that was free. Free was interesting. How could it be free? They must be selling something. I logged on.

I heard the voice of a very calm, relaxed man that had just taken a huge win out of one of the stock index futures. Dozens of traders posted congratulations to the moderator for the winning trade, but more so for such a wonderful, magic indicator, and all the wonderful trading patterns from this magic indicator.

The magic indicator being used was actually introduced around 1980, but this moderator had some interesting improvements on the way it was displayed and the patterns it produced. And the room was not only free; there was a charity involved. He asked everyone to donate a little out of his or her winnings. How could anyone criticize anything that was done for charity?

The moderator made the claim that he invented the use of applying patterns to an indicator. He did rename all the patterns, but I recognized many of the patterns that were well documented in many old books. He just put strange names on existing patterns. The mostly new traders did not know these were old patterns. Nobody questioned anything in this room.

Despite nothing new here, it seemed he did an excellent job of categorizing many different patterns and putting them all together into a package that would be more readily accessible to new traders. So that was good. And there were many good concepts offered on trading in general, and money management. Also, the chat room was upbeat and positive. Most of the previous chat rooms I attended were negative and angry. I thought I should continue on.

I spent the next few months learning as much as I could. As much as I wanted to believe he had wisdom worth listening to and a viable approach, many things started really bothering me. One was his insistence that his indicator could lead price An indicator, which is a derivative of price, cannot lead the price. That’s just mathematically impossible. Another was his insistence that you cannot be watching prices while you are trading. What?! You cannot see what you are trading? If you were driving a car would you cover up the windshield? The people in this room would if he told them to.

I had a hard time believing that nearly a thousand people would accept everything that was being said. Accepting it so readily. Were they all drinking Kool-Aid? It was an interesting study on the need to believe in a leader, a guru. Someone that can help make dreams come true.

But I persevered. His trading results certainly looked more encouraging than mine did. I would get the recaps after market close on days that they were available. Nearly every trade in the recap was profitable. I tried to write down the trades as they were being called, and then tried to reconcile them in the recap after the market closed. But I began to notice in the recap that the winning trades were selected very carefully out of the real time comments. Again, nobody questioned any of this. Was I the only one who noticed the discrepancies?

At this point I decided to do my own testing. I had been in the room long enough to know every pattern and every nuance. I was good at programming and had the data to test. I took each pattern individually so I could find which patterns had profitable or encouraging tendencies. For my tests I decided I needed thousands of samples. I decided to test each of the patterns on five years of data, and broke them up into one year segments. I was just looking for profitable tendencies and robustness.

After programming everything, I tested the signals by hand; just to make sure my programming caught all the signals based on the rules, and did not create signals that should not have been there.

After spending weeks and reams of paper for my printouts, I found that none of the patterns resulted in a profit in any of the previous five years when tested mechanically. A pattern that was touted as winning 90% of the time, actually lost money, and in most years had less than 30% winning trades. Results on the rest of the patterns were less reliable than the flip of a coin, far less in most cases.

To summarize my testing: nothing worked. Nothing came close to a favorable tendency. I tried to tell other people in the room about my research and the dismal results. Most of them would not hear it. They did not want to hear the truth. They were too invested in the method, and they had to believe they would eventually become successful if only they would hang on a bit longer, learn that secret that is just around the corner. But most of these people stayed in the room, some had been in for years, and kept showering congratulations onto the moderator for the great trades, and great magic, leading indicator. Did they ever look at their account statements?

You might assume my time spend in this room a waste of time. That maybe I thought that this guru did have the answer to trading success. I knew better than to expect this. The sad part is that so many other people don’t know better. They are told something that they want desperately to believe, and they believe it. They don not test it. They do not question it. They believe blindly. They invest much time and money, and then they get past the point where they simply want to believe. Now they are too invested and they have to believe. They will disregard all common sense and all facts and proof in an effort to keep the dream alive. I certainly learned about psychology and the mind of chat room traders that I compete with every day.

Trading is hard work, and every trader has to find what fits his or her own personality and temperament. Nobody is going to easily give it away, whether in a free chat room, or a paid room or seminar, or a so-called trading school. There’s a whole industry out there that supply traders with tools and education. Very little of it is good. Most of it is a waste, taught and promoted by people who are not successful using the approach themselves.

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