I have traded my own account for many years, trying most styles before finding my particular niche - day trading grain futures contracts. What seemed important in those early days now seems largely irrelevant. Instead, I focus exclusively on a few powerful trading concepts. This article summarizes what is important to me now. People day trade for many reasons, two of which are especially important to me.
However, system trading can be difficult to implement in practice because it typically requires you to take all of the valid signals produced by your system in order to allow the system's edge to manifest itself. This is because it may take a considerable amount of trades in order to turn a profit with a mechanical method. As a result, your system will often produce entry signals that run contrary to what your common sense is telling you. For instance, the current trading day may be a very strong bullish trending day without any signs of selling; however, if your system produces a valid short signal, then you must take the signal without question in order to allow the edge to manifest under a system trading approach. Or, if you are in a trade and prices come very close to your profit target and suddenly reverses back toward your entry, you must stay in the trade if your system trading rules require you to do so, even if you believe strongly that the trade is failing. This type of trading is very hard on the emotions because it often requires you to make decisions that go against logic.
Day trading is a broad term, encompassing many trading styles. The one thing all day traders have in common is that they are out of their positions at the end of the primary trading session. No open positions are held overnight, at weekends, or even during lightly traded electronic sessions outside primary trading hours. The typical image of a day trader is of a person glued to a screen during long market hours, possibly entering several trades during the course of a day. That is true of many traders, but there are other styes. For example, my own approach is quite different. The biggest problem in day trading is trading costs. A day trader takes many more trades than a long term trader, so obviously costs are higher. Typically trading costs are a combination of brokerage fees and trade slippage. In my experience, trading costs can get out of control if you take too many trades, so I limit myself to one trade per day.
The most important thing, other than the money, trading system and market account, that a day trader need is the market information. Market data enables day traders to pick suitable products to trade. Day traders need live or real-time market quotes as a small delay in information can cause them huge loss. It is the trading system that they use serve for this purpose. Advanced systems provide these information as graphics and are usually have alerts and triggers to automate trades. Day trading systems also use technical indicators and various mathematical tools to facilitate the picking of stocks, futures, currencies, etc.
An early entry is especially good if the exit strategy can be automated. I can set up an OCO (one cancels other) group to implement my exit strategy without having to monitor the market after the trade is entered. Thus, after watching the market for up to 30 minutes to find an appropriate trade entry, I can set up the OCO group and just leave the trade to work. As I live in Australia and trade at night, this means I can go back to bed! Finding the right entry is the great challenge, especially in the fast moving period as a market opens. The trader hasn't got a lot of information to go on at this stage. I've generally found technical indicators to be worse than useless at this time, because they react to price changes too slowly. Most professional traders try to determine support and resistance levels, based on significant turning points in prior sessions, or the extremes of an opening range established in the current session. Traders then apply one of two broad strategies - either they sell resistance and buy support, or they buy breaks through resistance and sell breaks through support. They can devise an almost limitless range of tactics to implement either strategy.
There is a third approach to stock day trading which combines both approaches described above. The hybrid trading approach merges together system trading and discretionary trading. Under a hybrid trading approach, you would employ objective system trading rules for those parts of the decision process that will enable you to achieve consistent results, but discretionary decisions would only be allowed for situations that don't materially affect the outcome of the trade. For instance, identifying when a trade opportunity exists and when to enter the trade would be performed under objective system trading rules. However, discretionary decisions regarding how and when to exit the trade would only be allowed after your first profit objective has been satisfied because the essence of the trade opportunity has been met. A hybrid trading approach can often produce more effective results than either a system trading approach or a discretionary approach by relying on the rudimentary idea that sometimes the sum is greater than the parts.
However, system trading can be difficult to implement in practice because it typically requires you to take all of the valid signals produced by your system in order to allow the system's edge to manifest itself. This is because it may take a considerable amount of trades in order to turn a profit with a mechanical method. As a result, your system will often produce entry signals that run contrary to what your common sense is telling you. For instance, the current trading day may be a very strong bullish trending day without any signs of selling; however, if your system produces a valid short signal, then you must take the signal without question in order to allow the edge to manifest under a system trading approach. Or, if you are in a trade and prices come very close to your profit target and suddenly reverses back toward your entry, you must stay in the trade if your system trading rules require you to do so, even if you believe strongly that the trade is failing. This type of trading is very hard on the emotions because it often requires you to make decisions that go against logic.
Day trading is a broad term, encompassing many trading styles. The one thing all day traders have in common is that they are out of their positions at the end of the primary trading session. No open positions are held overnight, at weekends, or even during lightly traded electronic sessions outside primary trading hours. The typical image of a day trader is of a person glued to a screen during long market hours, possibly entering several trades during the course of a day. That is true of many traders, but there are other styes. For example, my own approach is quite different. The biggest problem in day trading is trading costs. A day trader takes many more trades than a long term trader, so obviously costs are higher. Typically trading costs are a combination of brokerage fees and trade slippage. In my experience, trading costs can get out of control if you take too many trades, so I limit myself to one trade per day.
The most important thing, other than the money, trading system and market account, that a day trader need is the market information. Market data enables day traders to pick suitable products to trade. Day traders need live or real-time market quotes as a small delay in information can cause them huge loss. It is the trading system that they use serve for this purpose. Advanced systems provide these information as graphics and are usually have alerts and triggers to automate trades. Day trading systems also use technical indicators and various mathematical tools to facilitate the picking of stocks, futures, currencies, etc.
An early entry is especially good if the exit strategy can be automated. I can set up an OCO (one cancels other) group to implement my exit strategy without having to monitor the market after the trade is entered. Thus, after watching the market for up to 30 minutes to find an appropriate trade entry, I can set up the OCO group and just leave the trade to work. As I live in Australia and trade at night, this means I can go back to bed! Finding the right entry is the great challenge, especially in the fast moving period as a market opens. The trader hasn't got a lot of information to go on at this stage. I've generally found technical indicators to be worse than useless at this time, because they react to price changes too slowly. Most professional traders try to determine support and resistance levels, based on significant turning points in prior sessions, or the extremes of an opening range established in the current session. Traders then apply one of two broad strategies - either they sell resistance and buy support, or they buy breaks through resistance and sell breaks through support. They can devise an almost limitless range of tactics to implement either strategy.
There is a third approach to stock day trading which combines both approaches described above. The hybrid trading approach merges together system trading and discretionary trading. Under a hybrid trading approach, you would employ objective system trading rules for those parts of the decision process that will enable you to achieve consistent results, but discretionary decisions would only be allowed for situations that don't materially affect the outcome of the trade. For instance, identifying when a trade opportunity exists and when to enter the trade would be performed under objective system trading rules. However, discretionary decisions regarding how and when to exit the trade would only be allowed after your first profit objective has been satisfied because the essence of the trade opportunity has been met. A hybrid trading approach can often produce more effective results than either a system trading approach or a discretionary approach by relying on the rudimentary idea that sometimes the sum is greater than the parts.
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Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: The Activities Of Gold Buyers Arizona You have full permission to reprint this article provided this box is kept unchanged.
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