Day Trading For Dummies
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What's being a day trader like? Several day traders share their perspectives here. Trader A trades futures contracts on the U.S. markets from Tokyo. Trader B is a former floor trader at the Chicago Board of Trade who now trades from his house in Nevada. Trader C is another former floor trader who works his own account in California. Trader D trades stocks from Alberta, and Trader E trades currencies from Singapore. It's a wise and global panel!

Q: How did you get started trading?

Trader A: I was introduced to trading through a poker buddy of mine when I was 20. He had a friend who was a full-time day trader at 22. I visited his office (he was a prop trader), and that day was the day my life made a complete 180. I remember clearly walking in to the office and seeing a 12-monitor setup with charts, Level 2 quotations, and blinking lights. It was then I decided that I was going to be a day trader and do whatever it took to be good at it.

I never had an opportunity to learn directly from a trader or trading mentor, so 90 percent of my trading was self-taught through trial and error. I committed every amateur mistake in my first year of trading: selling lows, buying highs, using lagging indicators, trading without a plan, not understanding significant support and resistance levels, not understanding the basic concept of supply and demand. As an amateur, I thought I had to short because the price was too high or buy because price was too low. How foolish I was! I blew my first trading account in six months. To get back in, I built a stake through poker and took an office job with an IT company.

Trader D: I was interested in investing and started in 2000. I realized that I wasn't interested in buying and holding, so that led to day trading.

Trader E: Through the stock market. That's still the way most people get interested in trading. I got very interested after a friend showed me some charts. They were fascinating.

Q: Do you close out trades every day, or do you carry some over?

Trader A: I never hold any overnight positions. I'm based in Tokyo — a 13-hour time difference with New York. So I trade the morning session only 70 percent of the time. I prefer to start each day fresh. It's like getting dealt a new hand.

Trader B: I wait for the market to give me some clues. I have long-term, medium-term, and day-trading funds, mostly trading against 50-day moving averages. If a day goes by and I don't like what I see or if I want to go skiing, I do something else.

Trader D: I like to find stocks that I can buy in the morning and basically trade all day. But I look for things I can buy and hold based on long-term charts. Sometimes you have to hold overnight to get your profit. A good day for investors is not always a good day for day traders.

Q: What should traders know about brokerage accounts?

Trader A: Execution is very important. There are various platforms day traders can use to execute orders. But it is very important that the execution platform allows advanced orders, such as OCO (one cancels the other), bracket orders, and OSO (order sends order). If a platform has the ability to place an automatic stop or target, it makes the life of a day trader much easier. Energy is wasted in manually putting a stop. It can also affect the trader psychologically.

Trader B: As the pits disappear, I think we're seeing a bit more efficiency. And fees have come way down. The FCMs (futures commission merchants) are competing for the business, so commissions are coming down, too.

Trader D: Make sure your broker services suit your style of trading. Active traders need different services than investors.

Q: What is a typical day like? How easy is quitting at the end of the day?

Trader A: I tend to be a workaholic, so a typical day is pretty intense. I have a poker habit in that I tend to think about my trades (hands for poker) all throughout the day. Analyzing yourself is very important in both trading and poker. It is relatively easy for me to quit trading during the day whenever I want. I am very aware of my own mental level in terms of fatigue and do not trade when I am tired. I learned this habit from poker when I used to play 12-hour sessions daily. Fatigue turns into mistakes. And mistakes are very costly in this game. It is quite contrary to what people may assume, since I trade during the night hours. While U.S. traders have the luxury of calling it a day and playing golf, the city is pretty much dead here during my working hours.

Q: What is your secret to managing the stress of trading?

Trader A: I use several methods to handle stress. I am a student of neuro-linguistic programming, and I use a lot of visualization techniques to ease my mind. Meditation and self-hypnosis also work to clear my mind from any thoughts, positive and negative. Another weird method I use is watching bad movies with Chuck Norris, Arnold Schwarzenegger, Sylvester Stallone, or Jean-Claude Van Damme. Almost any movie with those actors in it is horrible, and for a full two hours I don't have to use my head. Very relaxing, in my opinion!

Trader D: To manage your emotions, have a target and a stop-loss before you buy the stock. Use your brokerage firm to manage your targets. Set them automatically so that you don't have to execute them yourself. If your sell-limit order is in place with the broker, you have a chance of getting it. Your finger is never going to be fast enough with the amount of volatility that we have. Don't second guess and don't change numbers on the fly. If you have a firm target with a stop-loss value, then there is no emotion. You have a plan.

Trader E: The trader is the weakest link in any trading system. Fear and greed will get you every time, so you need a trading plan. Before you trade, you need to know your leverage, your currency pair, your time frame, your stop loss, your profit target, and the percent of capital that you are risking. Once you have fixed rules, you have less emotion.

Q: What's your best piece of advice for someone considering day trading?

Trader A: It is important to know yourself. Without understanding who you are and what kind of trader you are, you are doomed to fail. You have to know your time frame and style as a trader. Once you find your style of trading, you must become an expert in it and have an edge. New traders tend to jump from one style to the next in search for the Holy Grail. There is no Holy Grail in trading. One needs to understand that trading is a game of probabilities and psychology. The futures market is a zero-sum game. One person's mistake is another person's profit. Do not treat trading as a hobby. Hobbies cost money. Trading should be treated as a full-time job and business.

Trader B: You have to look at the liquidity and understand the products. The exchanges come out with a lot of new products, and they are terrible for day traders. It's not that they are bad products; it's that they often aren't for day traders; they are for hedgers or for long-term positions. When you find a market with liquidity, though, there are a lot of ways to play it. There are 15 different ways to play silver now, with all of the different contracts and ETFs. There used to be two, the option and the future.

Trader C: You have to follow the rules that the other traders lay out because they make the prices. Over the years, I've noticed that women tend to be the best traders because they are disciplined and follow the basic rules. The men get greedy. They can't stop watching the machine. They can't walk away. The key is knowing how to read volume to tell how many orders are likely to trade above or below the current price. Then you can set your limits.

Trader E: Coming up with a trading plan is easy. But following it is a lot harder.

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