DAY

TRADING
BECOME A BIG PROFIT TRADER

TRADING FOR A LIVING

TRADING STRATEGIES, STOCK TRADING & OPTIONS TRADING

J.P. Richardson
© 2016
 COPYRIGHT NOTICE
All rights reserved.

No part of this publication may be reproduced, distributed, or transmitted in any form or by any means;
including, photocopying, recording, or other electronic or mechanical methods, without the prior written
permission of the publisher, except in the case of brief quotations embodied in critical reviews and
certain other non-commercial uses permitted by copyright law.
 DISCLAIMER
Although the author and publisher have made every effort to ensure that the information in this book was
correct at press time, the author and publisher do not assume and hereby disclaim any liability to any
party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions
result from negligence, accident, or any other cause.
 CONTENTS
Introduction

Chapter 1 – Traits Necessary to Be a Successful day Trader

Chapter 2 – How to Get Started in Day Trading

Chapter 3 – Types of Day Trading

Chapter 4 – Trading Strategies

Chapter 5 – Tips for Successful Day Trading and Big Profits

Conclusion
 Introduction
You will have heard of people who trade on the stock market; people who make, and even lose millions
in the course of one afternoon. You will probably have an image in your head of these people; smartly
booted and suited, working in Wall Street and living lives of luxury. For some trader this is the lifestyle;
but like any career, there are plenty who never quite reach that standard.

The majority of people who work professionally in the stock market are looking after other people’s
money. It is often this which gives them the confidence to invest large sums of money; personally they
have very little to lose!

Trading on the stock market, in essence, is simply the purchase of shares at one price and then selling
them at a higher price. The skill lies in understanding what the market is doing and how specific
companies are performing. This requires traders to spend a large amount of their time researching and
studying companies before they are prepared to invest their funds.

The majority of investors are looking to purchase shares at a low price and then sell them at some point in
the future at a higher price. One of the most difficult parts of this is knowing when the stock has ‘bottomed
out’; i.e. its price is as low as it will go. You will then need to monitor the rise and decide when it has
risen as much as it can; or if you are happy with the profit it will give you at a pre-specified price. When
it reaches this price it is time to sell and make your money. Trading on the stock market is a relatively
recent concept. In the past it was possible to purchase shares, but without a good communication system it
was difficult to find a buyer; after all the position of a firm could change dramatically while you were
contacting and negotiating with a potential buyer.

The first real development which started to make it easy to trade on the stock market was the introduction
of the telegraph. Being able to send messages to people quickly and easily, led to the development of
ticker tape. Traders could then receive information regarding the latest stocks and trades; in practice a
trader would usually have an office near to the financial markets to ensure they received the most accurate
information. However, any trader who was not physically present at the stock market would have to
purchase their shares through a broker; this was a middle man who would purchase shares on behalf of
other people; they would receive orders via the trader though the ticker tape; add their mark-up onto the
price and purchase the requested amount. Unfortunately, the time delay between placing the trader placing
the order and the broker purchasing the shares could often lead to shares being bought at a different price
to that which the trader was expecting.

It was only in 1971 that an electronic computer system was established and regulated to provide an
electronic quotation system. This system allowed traders to receive up to date share prices electronically
and base their trades on the most up to date information possible. Of course, the broker would charge a
fee, or commission for performing each transaction; this fee was fixed and it was not possible to negotiate
on it. By 1975 the fixed commission fee was abolished; this opened up the market as the fee for a
transaction could now be set by individual brokers. This led to competition between brokers regarding
the fees they charged; many brokers offered discounted rates in order to build their customer base. The
more shares or transactions you requested the lower the fee became.

Of course, the telephone was the only really effective way for a trader to communicate with a broker
regarding an impending transaction. However, this meant it was very easy for a broker to simply ignore
their phone if it was not a good time to trade. This was particularly true during the October stock market
crash of 1987. The difficulty faced by many people in getting a purchase order seen and approved led to
the Securities and Exchange Commission introducing the Small Order Entry System. This system meant
that any order under a thousand shares was given priority over a higher quantity or value order.

1997 saw the arrival of the internet and the rapid increase in share prices of technological companies.
These effects combined to make it possible for small firms to access the latest prices and quotes directly.
Not only did the internet effectively level the playing field; it also allowed brokers, no matter how small,
to create web pages and reach new customers and potential investors. This put them in direct competition
with the bigger, more established brokers. Internet access was becoming a valuable tool for many small
businesses and the essential way of staying ahead in a competitive marketplace.

By 1999 the internet was making it possible for individuals to practice day trading. Being able to access
accurate, up to date information made it possible for many people to start day trading. As opposed to
many stock market purchases; which are bought for the long term, day trading focuses on what will happen
in one specific day. The theory is that you invest your funds according to what will happen in the stock
market in one given day. The investment is short term and in many ways is akin to speculating what will
happen in a given time period. Of course, even long term stock market investment is speculating on what
is, hopefully, a good long term outcome. The main difference is the time period and the fact that you are
more vulnerable to market changes. There are, however, many traders who not only make a living from
day trading but who actually do very well out of it.

When the practice of day trading first started, the small order entry system actually gave an individual,
day trading, an advantage. This sector of stock market investing earned a name for itself as a great way to
get rich quick; it led to many schemes and scams. This situation came to a head in 2000 when the small
order entry system ended and the dot-com bubble burst. Many day traders lost everything or were badly
burned; these people didn’t return to the stock market and found alternative careers.

Since the Dot-com bubble has burst and the majority of day traders vanished the market has slowly
recovered and there are now plenty of people who indulge in day trading but recognise it as being
essential to undertake the same level of research as someone who is trading in the long term movement of
the stock market.

Day trading can provide the opportunity to react quickly to stock market changes; you should already be
geared up to sell, a price crash may damage your finances but should not be devastating; providing you
are monitoring the markets and the wider economy. It is important to note that the advent of the internet has
now made it possible for almost anyone to attempt day trading, although this does not mean that everyone
should!
The rules and regulations are now fair, whether you are professional, working for a Wall Street firm or if
you are a private individual. The biggest difference between you and the Wall Street professional may
only be experience. You should both be able to access the same level of information and experience may
only play a small part in making the right decision. The real reason why a professional will day trade
with an apparent confidence that seems to border on the arrogant; is that they are not investing their own
money. Whilst every professional wants to be a good trader and make a name for themselves; losing a
little money on day trading will not be that daunting a deal; it is not their money they are spending!

It is likely that a professional will have the latest software and access to a wide range of the latest
equipment; however; the information required to gauge whether a particular company or share is likely to
rise or fall in a given day, is usually based on past performance and current market trends. This
information is freely available on the internet and can be researched easily; it can also be of assistance to
look at the growth figures for the companies you are interested in; this is often available on the website of
the businesses you are looking at. It is important to note that this free information is excellent for studying
the form and past trends for a company, or even a market sector. However, it is not the best way of staying
up to date with the ongoing market prices; the free information available on the internet can be anywhere
between ten and fifty minutes behind the actual movements in the market. If you rely on this information
you may be buying or selling your shares at a very different price to the one you think you are getting. To
ensure you have the most up to date information you will need to subscribe to an information feed. The
small charge associated with this will be worthwhile when counting your profits! In the past investing
was the preserve of brokers and market professionals, the internet has changed this and made it both
possible and viable for the average person to trade whilst sitting at their computer at home.

A variant of day trading has also become popular in the last few years; this is known as binary options.
This type of trading involves speculating on the price movement of shares; whether up or down, just like
any other type of investing. However, the movement is confined to what will happen within a few minutes,
or sometimes even seconds. Opinions are split as to whether this is investing or simply gambling;
however, even people who trade in binary options will have a higher success rate if they research and
understand the market they are dealing with.

This book will look at what it takes to be a day trader, the traits you need and the best way of starting in
the market. It will help you to devise a plan as to how to make big profits and even provide you with
some tips as to how to be a successful trader. You will gain a deeper understanding of the different types
of day trades possible and find out how to choose one or invest in all of them to obtain the results you
want. Perhaps one of the most important things that this book should teach you is the importance of
research and of creating a plan. You plan should involve a set of rules, tactics and strategies; you will
need to stick to these; whether you are doing well or badly. Not only will this help to ensure that when
you are up, you stay up; it will also help you to gain a perspective of the larger picture. This can be
especially helpful when you have had a bad day trading. As with any investment, you should never invest
what you cannot afford to lose. If you choose to use borrowed funds you will be operating as a ‘margin
trader’. Unfortunately, this can amplify any losses you make very quickly.

It is possible to leave a day trade to ride overnight; however, this will leave you exposed to a number of
risks; including price movements overnight and even price changes in closing and opening prices. As day
traders are generally allowed to trade at a higher level than long term traders you can quickly jeopardise
all your funds and assets if the price crashes and you are not ready for it. In this regard it is essential to be
even more on the ball than the average long term trader. It is possible for anyone to become a day trader;
however, this does not mean that anyone should. It takes dedication and commitment; you must treat it with
the same level of seriousness that you would give to any work undertaking.
 Chapter 1 – Traits Necessary to Be a Successful day Trader
Being a day trader can be an extremely stressful job and it is not the sort of career that will appeal to
everyone. The funds which you are investing and can potential lose are your own; a bad day on the
markets can hurt you mentally and financially making it very difficult to return to your home office the next
day and carry on. Before you decide to undertake day trading for yourself it is advisable to see if you
have the following traits; you will be far more likely to be successful if you do:

• Experience

The more knowledge and experience you have of the stock market the better you will understand the
principles and fundamentals of day trading. Whilst having experience of working in the stock market will
be beneficial it is not essential. What is essential is an experience of completing detailed research. This
requires patience and dedication and it the cornerstone to becoming a successful day trader. If you do not
have the patience to complete the research then you will never gain a true understanding of the markets.

• Finance

As opposed to a trait this is a resource which will prove to be very useful. Day trading with finances you
already have available will make it easier and more palatable to absorb any loss. However, many traders
will not have reserves of cash with which to start trading. If this is the case you will need to arrange a
line of finance. Borrowing to speculate in the stock market is a risky proposition, but it is better to have a
reasonable amount of funds available in order to make a wide range of small trades; this will increase
your likelihood of success.

• Discipline

It is very easy to get carried away when you are on a roll and add more funds or extend the trade.
However, this can be counter-productive; it is essential to have a plan and stick to it. Doing this requires
discipline but this is important to ensure you do not lose money unnecessarily. There is no place for
emotions when day trading, each trade should be based on your research and knowledge of the market. If
you decide to close all deals at the end of each day, which is the best route to take, then you should do so.
This may sometimes lead to not having made as much funds as you could have, but it will also prevent
unexpected and unaffordable losses. When you are trading you must be focused completely on trading;
there is no room for anything else.

• Computer knowledge

Trading from home will require you to use a computer. You will need to research companies and market
sectors; you will also need to be comfortably loading new software, including live feeds to your
computer. Some day traders even operate several computers and monitors to ensure they have all the
information they need displayed in front of them. To be able to do this properly you must be comfortable
with your computer and what it is capable of; you do not need to be a computer programmer!

• Preparation

Research is a key component to becoming a good day trader; however, it is also essential to be prepared
for any scenario. You will need to be able to absorb the latest information from a variety of sources and
decide which information is relevant and genuine. It is often the case that people do not fully understand
the stock market and will issue warnings which are unnecessary. Of course, there are also times when the
warnings signs should be heeded.

Being prepared means having your plan, knowing where you are going and watching the market
constantly. You will then be prepared to react to any situation and take the appropriate action.

• Commitment

A day trader will spend a lot of their time pouring over the internet; researching price trends or patterns in
the market. Many days can be tedious; in fact there is very little glamour in day trading, particularly if you
do it from home. It takes time, patience and commitment.

This is particularly important when dealing with a declining market. In this scenario many people are
eager to sell and minimize their loss, being committed and sticking to your plan will enable you to
capitalise, even in a falling market. As well as being committed to the markets and finding the best way
forward, you will need to be able to stick to your opinion; no matter how many people challenge it.

• Decisive

Whether prices are rising rapidly or sinking you need to be able to make a decision and follow it through.
This is not the type of business to be in if you are constantly second guessing yourself or are wary of
committing to a decision.

Research and a plan should enable you to see the best way forward at all times; even if it means taking the
facts that you know and making an educated guess. Once you have made a decision follow it through; this
does not mean you will always make the right decision. However, if you do make the wrong one then you
should be willing and able to stop your course of action and move to a better path.

• Support Network

Day trading from home can be a lonely experience; you will spend many hours by yourself researching
and making purchases or sales. You will be reliant on your own judgment and can easily become
absorbed in the buying and selling process. The adrenaline rush when you pick the right shares and they
do well; is amazing. But, the opposite is also true; the days when trades do not go well can be
disappointing and even soul destroying. This is when it is essential to have a good support network which
will not criticise; they will simply be there to support you and ensure you move past the disappointment.
They are an essential part of your team as they enable you to focus on moving forward; in fact, the most
important role of your support network is to ensure you remember that you are trading to live; not living to
trade.

• Open-Minded

Finally, it is essential to be open-minded. All the research and planning in the world will not prepare you
for every eventuality; there is always something unexpected which occurs. It is essential to be open to any
new experience or information received and be able to evaluate this; if necessary adjusting your plans
accordingly.

There are many factors which can influence a day trade and, as more people attempt to trade on the
markets from the comfort of their own home; there will be new ideas and techniques. Not all of these will
work, but being open to any change in market factors will enable you to successfully adapt your technique
and continue to trade.

It is possible to improve the skills described in this book, therefore, no matter how good you already think
your skills are, there is no harm in practicing and improving your approach.
 Chapter 2 – How to Get Started in Day Trading
Having made the decision to become a day trader you may be wondering how to move into your new
career. It is important to remember that day trading is not a get rich scheme; as well as having researched
the markets and developed an understanding of how they work; you will need to develop a strategy that
you believe will work best. Before you start trading you must have studied the markets and understand
what you are doing. There are a variety of different types of trading styles, these are explained in the next
chapter; it is possible to mix and match any of the styles providing you understand the concepts first. To
get started you will need the following:

• A computer

Trading on the stock market is possible without a computer, but you will expend the majority of your
energy and resources on the telephone, dealing with brokers and attempting to secure a price for your
trade that matches the information you have to hand. In reality, to trade from home you will need a
computer; a desktop or laptop is fine. Although it is possible to use any computer, the best option would
be to choose one with as large a hard drive as possible, at least three or four gigabytes of RAM and the
best processor you can comfortably afford. The size of the screen and the resolution is also especially
important. Ideally your computer will be able to output to several monitors at the same time.

• Telephone

This is an essential, although hopefully rarely used part of your kit. A day trader will buy and sell shares
and commodities themselves. You computer will allow you to link directly with your brokerage account
and make these transactions. However, there are times when your internet service has been disrupted and
even your back-up service is off-line.

Should this happen and you need to sell or cancel a trade it is essential that you have quick and easy
access to a phone. You will not need, or want to use your telephone to continue trading but you must be
able to end a trade as soon as possible, if necessary.

A landline is perfectly acceptable, although it may be affected by the same problem which has disrupted
your internet. This is when it is useful to have a cell phone available, especially if you are out and
working away from home.

• Trading software

To connect with the stock market and start buying and selling shares you will need to use dedicated
software. This will enable you to connect to the market in real time and buy or sell your shares. All
software options will display the current price and some of the software will even display the recent
price movements. In general the trading software is supplied by the brokerage you choose; it should be
free of charge when you sign up for an account. The software will link through your brokers account and
can even be integrated with your own programs or a third party provider; if you have some computer
programming knowledge.

The majority of brokerages will also provide a free trial of the product. This is an excellent way of
testing out the software and, using the demo mode to practice making trades on the market. This will
allow you to become familiar with the software before you start trading and give you the opportunity to
test out your strategies.

• Charting Software

As its name suggests, this piece of software will allow you to monitor the price of any stock, commodity
and option. You should be able to see current prices and track trends. This will assist you in deciding
when to purchase and when to sell your options to maximise your profit. There is a huge range of charting
software available and it is best to try a demo of several different products before you choose one. It will
become your most used tool!

For this reason it is essential that you choose one which is easy for you to read and access; generally the
more expensive the software, the more features it will have. When first starting up, you should be happy
with the more basic version. It is possible to download a demo and test the product out before committing
to anything.

• Internet Access and a back-up plan

To connect to the stock market and your broker it is essential to have internet access. This should be
reliable access with a reasonable download speed. Providing you have access of at least 256 kilobytes
per second you will have no issue obtaining the information you need to make trades in a timely manner. A
faster internet connection may be beneficial; if only to speed up the loading of your charts and data.

Even the best internet connection in the world is likely to have an issue from time to time. This could be
an issue if you need to end a trade and cannot afford to wait. It is, therefore, essential to have a back-up
plan in place. This may involve visiting a friend’s house, a local cafe or even using your cell phone as a
wireless hub and connecting via the data package associated with your mobile.

Whichever option you choose it will allow you to end any or all trades until the internet is restored and
you can restart trading.

• Day Trading Brokerage

It is possible to trade without using a brokerage. However, this involves creating an account with each of
the stock markets to enable you to trade. This is why the majority of day traders set up a brokerage
account; it enables you to trade on any market. As a day trader you will need to create an account with a
direct access broker as their systems will allow you to interact directly with the stock markets.

As you start to look for the right brokerage you will realise that there are literally hundreds of different
ones. Some of these will specialise in offering services to the internet based home day trader, others will
offer the lowest commission rates possible. It is best to choose the one that deals with the markets you
intend to use first and one which is recommended by a friend or is well established with a good
reputation.

• Market Data

Your market data, the information on current prices and volume of shares available, must be accurate and
up to date. Many day traders use the market data provided by their brokerage. This data is usually
provided for free and is posted in real time; meaning that you are looking at the same figures as though
you were stood in the stock exchange.

It is possible to set up an account with a dedicated market data supplier, this will provide you with all the
data you need plus some extras, such as price history and trends. As you become more experienced in day
trading you may find it beneficial to have several sources of data. You cannot have too much information!

The more experienced you become in day trading the more diverse your interests will become and you
may find it advantageous to have several computer screens, each one displaying different market data, you
may even need to have several computers to enable fast processing of all the information and allow you to
make the right trades.

The decision as to which approach is best for you will be partly controlled by the amount of time you
have spare and your ambitions as a day trader.
 Chapter 3 – Types of Day Trading
An important part of day trading is understanding the different options available to you and which will
best suit the time you have available, your finances and even your interests. Although all day trading
activities seek to make a profit by purchasing stocks and selling them at a higher price within the same
day; there are several different types of day trading:

• Futures

This is one of the most popular options for many day traders and an excellent place for a beginner to start.
On the stock market a futures contract is one which has been created between two parties; one agrees to
sell a certain amount of stock to the other in the future; but the price is fixed at the time of the contract.
These contracts can then be bought and sold on the market as different speculators decide whether they
can make a profit on the maturity value of the futures contract.

Day trading in futures simply means that you are focusing on the future contracts and looking to buy and
sell any which will turn you a profit within a day. Future trading is a good guide regarding the market and
where it is going in general; this makes it easier to trade in as they produce a more reliable picture of
prices than many other types of trading.

• Options

There are two types of options; ‘puts’ and ‘calls’. A stock option is a contract between two people. As the
buyer of the option you will purchase the right to buy shares from the other party at a set price, within a
set time frame. A call means you have the right to buy at the agreed price, whilst a put means you have the
right to sale.

If you are trading on the stock market this can be very beneficial; you can purchase the option at a low
price and wait for the price to rise. Once the price has risen you can then complete the purchase by
actually buying the shares and selling them immediately to someone else; making a profit along the way.

Day traders will often deal with the options; buying the right to buy shares from someone and selling the
option on to someone else. In principle this is the same as dealing in options on the stock market, but the
risk is lower as you do not expend any funds until you find a buyer. The option to buy is yours but this
does not mean you have to!

• Currencies

If you have ever been abroad and needed to change your money into another currency you will already
understand that currency rates vary daily. This volatility allows people to trade on two currencies of their
choice and make a profit.
In simple terms you seek to purchase a set amount of a certain currency, for example 200 US$. This may
cost you 150 GBP. If you then wish to change your funds back the exchange rate may have moved. This is
a result of market demand; the more popular a currency is; or the more the resources of a country are
needed, the better the rate of exchange will be. If the US market improves you may need to pay 175 GBP
to get the same 200 US$. If you have already purchased the currency you will be able to change it back
and make yourself a 25 GBP profit; less any transaction charges.

Day trading in currencies works on exactly the same principles; you will be able to trade online with any
currency around the world and potentially make good profits. Of course, every trade involves you being a
buyer and a seller; this does increase the risk.

• Stocks

The first thing most people think of when considering the stock market is shares. Purchasing shares and
holding them for the long term to make money from both increased value and dividends is a tactic
employed very successfully by many investors.

It is also possible to day trade in the same way; however your window of opportunity is much smaller!
Shares you purchase should be at the bottom of their fall or already on the way up. This should allow you
to purchase some and then sell them again later the same day for a profit.

To be successful day trading in stocks you will need to keep a close eye on the stock market and which
companies are performing well. The best ones to invest in are those which normally do well but have had
a blip thanks to an unforeseen, but fixable event. These shares will usually dip and then re-climb
throughout the day.

• Arbitrage

You should, by now, be aware that there are many different markets and it is possible for you to trade in
any of these. It is also possible for you to trade in more than one market at the same time and make money
doing so. This type of trading involves locating a product which is selling for less in one market than it is
another. Once you have located the product you purchase as many as you can in one market and sell them
all instantly in the other market. The risk is minimal as you hold the stock for only a few moments. The
price difference simply needs to be enough to provide a small profit after allowing for the costs involved
in the trade.

There are usually very small windows of opportunity available to make funds trading this way. The
process of arbitrage actually helps to consolidate the prices across the different markets; it is an excellent
way of keeping trading fair! At the same time it provides the opportunity to create a decent profit;
depending on how much you can afford to invest in the process.

• Momentum Trading

Big companies can be hugely affected by news in either the wider economy or by events which happen
inside their business but the information is publically available. There is no hard and fast rule as to how
the market will react to any specific news, it is essential to wait until you see the market movement.

Once you are certain that the share price is climbing or dropping you will be able to purchase your
shares. Only buy as the share price climbs; the momentum builds. Generally events like this will hit a
share price and then naturally rebalance later in the day; this is why it is essential to monitor the trend and
sell when it starts to go back down.

Always buy in a rising (Bull) market and sell in a decreasing market (bearish). It is best to set yourself a
target price, this should be at a level that will allow you to make a reasonable profit after allowing for the
transactions costs involved in buying and selling.

• Swing trading

It is natural for the price of any commodity to change during the course of a day. Swing trading attempts to
profit from these movements of prices. You need to identify the products or stocks which are moving
throughout each day. At some point they will go from higher to lower and then back again. Operating as a
swing trader means buying at the low end of the swing and waiting for it to go back to the top end of the
swing; all within the space of a day. It is important to note that you do not need to buy and sell at the top
and bottom of the swing; as long as the difference between the two prices will give you a profit and cover
costs. Even a product which has very small swings can be a good investment; small consistent profits can
quickly mount up.

No matter which option you choose to trade in, it is important to always have a professional approach and
to treat your day trading as a business. There are many people who have attempted day trading and lost
substantial funds as they have not be prepared or had the right approach. Any trading on the stock market
requires research, patience and an understanding of how the stock market works. The more you know
about your chosen market sector, the better you will be able to predict the up and down movements and
purchase the right day treading option for the occasion. It is possible to day trade in all the different
options listed above; it is even possible to day trade as part of a larger investment strategy. The key is to
be prepared!

No matter which type or types of trading you commit to, you should always sell and consolidate your
position at the end of the day. The prices listed on the market can change dramatically overnight and you
will have little ability to recover your capital, you will only be able to watch your funds disappearing and
hope they recover, to some extent in the morning. This is not a good position to be in and emphasizes that
you have not prepared properly.
 Chapter 4 – Trading Strategies
There are a variety of different strategies which you can employ to ensure you make a good return on your
day trades. Each of these strategies can be used independently or they can be mixed and matched,
depending upon your overall personal strategy:

• Trend Following

As the name suggests your investment strategy focuses on the trends for certain share prices. This
technique does not concern itself with whether the company is doing well or not; it is only interested in
the trend of its share prices.

A trend is not a definitive guide to a successful trade, it is impossible to exactly predict how the market
will react to any given news. However, a trend is a sign that something is doing well in the economy;
regardless of whether it should be or not.

Sometimes the reason for the trend is obvious, such as a change in the foreign policy of a company or an
increased threat of war. The trend should be obvious on a chart which shows stock prices and encourage
you to look further. An upward trend could be nearing the end of its upward cycle; for this reason it is
essential to be cautious when buying the stock.

Ideally you should purchase some stock and watch the price; in the meantime you must calculate at what
price you need to sell to minimise any losses. This approach can bring significant yields but it must be
carefully monitored to ensure you do not find yourself dramatically out of profit. Indeed, if the price
appears to peak, you should sell as soon as you are certain that the price is heading down again.

• Contrarian Investing

In essence this approach requires you to go against the current market trend; it is also the investment style
of many of the investing ‘greats’, such as Warren Buffett and David Dreman; although many investors
include this is their investment strategies. Of course, there is more to it than simply buying when everyone
else is selling!

Day trading in this style involves looking at the ‘hot’ stocks; any shares which are rising rapidly and being
chased by investors. This chase will inevitably push the price of these shares up into the buying fever is
finished. At this point those who bought last will want to sell their shares before they lose extensively on
their investment. This will trigger a downward adjustment and the share price will return to an acceptable
norm. It is possible to buy and sell on the trend and hopefully make some profit. However, if you happen
to buy at the top of the trend you are more likely to make a loss.

Whilst investors are chasing this big prize it is highly likely that they are selling shares in companies
which are perfectly good but not offering much in the way of returns yet. It is these companies that a
contrarian will be interested in. Shares in these firms have become undervalued as people chase the next
big thing and they can be bought for a fraction of what they are worth.

These shares can be kept for the long term in the hope that they increase in value, or, they can be sold as
soon as the market settles and a profit can be made on them. In effect, a contrarian investor is looking for
the next big prize, before anyone else notices it. This can necessitate a long term approach if you wish to
make the biggest gains. However, it can also be a very successful day trading approach as the market will
always rebalance after a large amount of attention forces the price of one particular share upwards.

As the share price drops and people sell to minimise their losses, they will look to purchase the next
rising star at a cheap rate; this is where you can make a sizeable return on any investment.

Perhaps the real beauty of this approach is that you have plenty of time to research the various companies;
most other people are ignoring them. You will be able to locate the ones which are most likely to become
the next best thing and invest as the interest develops; ensuring a healthy profit in one day!

• Range Trading

Many stocks trade within a specified range for the majority of the time. It is relatively easy to locate a
range; simply look at a graph for the share prices for any given company over a period of several months.
It will probably show several ups and downs. You will be able to draw a line through the peaks and the
troughs. You must be careful to draw the line through the average highs and lows, whilst ignoring any
particularly high or low one –off incidents.

Having established a range you will be able to monitor the stock and wait for it to dip below the range
again. This will be the best time to buy the stock and sell it again when it returns into the range. Your
established range should also give you an indication of how long it will take to rise in the range; you do
not want to hold the stock for long to make your profit.

It is also perfectly acceptable to purchase anywhere in the range as long as the price of your stock is about
to rise, according to your trend analyst. If your range shows a regular dip and rise you should be able to
make a small profit regularly by simply following the trend. However, you should always act with caution
as other market factors can alter the usual trend.

• Scalping

This technique can be very effective although you will require a reasonable amount of capital. It also
requires a high level of discipline. The idea is to purchase shares which are at their asking price, or even
just below; you then need to decide a strict policy of how much gain you are looking for. Many traders are
happy with just one or two percent. As soon as the price rises to this rate, which is usually quickly as it is
a small difference to the buying price, you need to sell the shares.

You will need to place between ten and two hundred trades a day, each trade will yield a small return but
many small returns add up to a sizeable sum. The key to this strategy being successful is to pick shares
which are at their bid price and to use your head, not your emotions. Your exit price must be adhered to
regardless of what the share price is doing.

It is also possible to practice scalping by buying at the bid price and selling at the ask price; even if the
share price does not move. The small difference between these two amounts can yield significant profits
if you have both a large number of shares and are repeating the process many times with different shares.
The only thing you need for this strategy to work is a buyer prepared to pay the market price; the shares
are usually bought and sold in a matter of minutes.

• Rebate Trading

This is an extension of the scalping principle; in fact the two techniques are often used hand in hand. The
difference between the bid and ask prices is created by demand. Those who wish to have their shares
instantly will pay the ask price; this includes the fees and transaction costs; people who are prepared to
wait for ownership of the shares will not have to pay the transaction costs and fees; however, they will
have to wait and queue to obtain their shares.

Every transaction completed on the stock market includes a commission fee which must be paid to the
ECN (Electronic Communication Network), this system is essential to allow people to trade from outside
the stock exchange and allow individuals to operate on the stock exchange. However, this commission
charge is not applied to the market makers, these are the people and companies who move thousands of
shares a day by buying at the ask price and selling at the bid price. In effect these traders create the market
spread which facilitates the movement of shares in the market. As a result of this they receive commission
from the ECN instead of paying it.

If you can position yourself to receive commission, and gain profits via scalping, you can make a
comfortable return on your investments with very little risk. You will need to choose a broker which
specialises in ECN to ensure you can claim your commission.

• News Playing

Every year there are certain key reports published; such as the Non-Farm Payrolls report. These reports
can have a huge impact in the stock market, however, there is no way of knowing what the report contains
before it is realised and whether to buy or sell shares to maximise your profit.

Despite this there are many traders who will trade based on what they believe the report will say. Of
course, if you get it wrong you can wipe out all your equity in one go! The higher the risk the greater the
potential gains. There are several techniques to ensure you get the most out of these reports:

1. The slingshot is where you already have shares in the market and are waiting for the market to move in
your favour; as soon as it does you will be in a great position to sell and make money from those
desperate to join the bandwagon. The trick is then to be able to sell while the share prices are near their
peak; unfortunately, it is impossible to know where their peak is.

2. It is also possible to identify the resistance points in the market; the low and high points relating to a
particular share price. If the share price drops out of the recognised range while waiting for a specific
report then it is a good indication that it is time to buy the shares. The report may be disastrous for share
prices and push them down further; in which case you will need to know when to cut your losses.
Alternatively the price can rise and allow you to make a reasonable profit.

The most important thing to remember when news playing is that the real gains are to be made when the
market does not act as expected. A good bit of news will drive many people to purchase shares, expecting
the price to rocket. When this does not happen, these people will panic and sell their shares. You need to
be the person buying their shares while they panic, this will ensure you buy them low. Every time the
market does not react as expected there is an opportunity to make money.

• Price Action

If you choose to use price action as your trading strategy, it means that you will always trade in the
direction of recent price movements. This is an obvious technique if the price is steadily climbing; buy
shares and sell them a little later in the day at a higher price. However it is often a little more complicated
than that!

The price action strategy uses price and disregards any other indicators. This strategy is based upon the
belief that a pure price chart shows you all the information you need to know, including all trades and the
prices they traded at.

Deciding which shares to buy and when to sell is still a result of the statistics you can see, it is still
possible to create a resistance area and the normal price range. The main difference is that the price is the
only thing which guides you to make a decision on whether to buy or sell. Always invest according to the
price action of the market, improving highs and lows indicate a market going upward and an opportunity
to purchase shares, which can be quickly sold on for a profit.

• Candlestick Patterns

The Candlestick is a way of technically analysing the stock market and then using this information to
decide which shares should be bought and when they should be sold. In essence the strategy is attempting
to work out how other traders see a given share and what they are likely to do as a result of their opinion
which will affect the price of the shares.

The candlestick is a way of viewing the data from a day concerning the starting and ending (or opening
and closing) price of a given share. The information is displayed on a candlestick graph which shows the
low and high for the share for the day as well. At a glance you will be able to see if your shares were up
or down for the day. It is even possible to do the candlestick for longer periods of time.

This approach can alert you to when a market is about to collapse. In most day trading strategies you
purchase and then watch the closing value. As long as it is higher than your buying price you are happy.
However, it can plummet suddenly and leave you selling for a loss, scratching your head. The candlestick
technique, which can even be used on an hour by hour basis for fast moving stock, will have shown you
the beginning and ending price for each period. You will be able to see when the price starts to fall; even
if it remains above the price you paid. This will allow you to make the decision to sell before it goes
below your purchase price.

• Artificial Intelligence

Artificial intelligence is slowly becoming a part of everyday life. More importantly, it is being accepted
as such. Computers are designed to crunch numbers and see patterns which are simply not possible to the
human eye and this intelligence can now be used to study the stock market. As this technology develops
the programs will have artificial intelligence and will be able to analyse the markets by themselves and
locate the best places to invest to make guaranteed returns. It will no longer be a calculated risk but a
certainty.

However, this may not become reality as there are many variables which can come into play through
human behaviour which can simply not be accounted for by an artificial intelligence.

In the mean time, there are a variety of algorithms available which profess to improve your chances of
beating the markets. Whilst many of these systems appear to work it is not always clear why they do. It is
an approach which may be worth considering depending upon your intentions.
 Chapter 5 – Tips for Successful Day Trading and Big Profits
Every trader wants to beat the system; to find the share that shoots up in value and makes them a fortune
overnight. Unfortunately, in reality there are very few opportunities like this. Amassing a personal fortune
through the stock market is achievable, but it is usually achieved by regularly making small amounts of
money and learning from the inevitable losses. Those who stick to a plan and build their funds slowly,
using their initial investment and not the profits, can make exceptionally good profits and a comfortable
standard of living.

To assist you in achieving the desired results it is essential to apply the following tips to your day trading
techniques:

1. Don’t Trade Every Day!

This may seem like a surprising piece of advice to give to a day trader; someone who by the very
definition of the role trades in a day! However, any type of trading is incredibly stressful. There are days
when your trades will go exceptionally well and you will feel like you are on top of the world. On other
days the market has gone against you and you will not know which way to turn.

To ensure you stay sane and you have the right attitude when you approach your computer and start
trading, you should not commit to trading every day. As a day trader you should have closed all your deals
out at the end of the day so, whatever the financial position, you can afford to take a day off. In order to be
a good day trader you need to have a healthy life / work balance; this means not being afraid to take a day
off, the market will still be there the next day. Even if a great deal happens on your day off there is no
guarantee you would have spotted it in the heat of the moment.

2. Supply & Demand

The most effective way of finding the right shares to trade in is to study the market as a whole. You need
to locate the places where there is a supply and demand imbalance. This is where more people want the
shares than there are sellers, or there are more shares than buyers. These are the shares which are most
likely to make you a profit as the market will automatically rebalance itself.

The bigger the imbalance in the availability and requirement for shares the bigger the potential profit. If
shares are plentiful and the demand is low then their price will be low. As they get bought they will
become rarer and this will force the demand up. The higher the demand is; the higher the price which can
be charged.

These imbalances can be created very quickly and will correct themselves quickly. You need to be
vigilant when surveying the markets and act quickly when you see the right criteria.
3. Price Targets

A price target is an amount that you will sell at, or an amount that you will buy at. Your selling price is
often worked out as a percentage of your buying price; this ensures you can allow for any transaction fees
and still make a profit.

It is essential to set these prices as soon as you purchase any stock; if you have not already decided the
values before. You then need to stick to them. One of the most important elements to becoming a
successful day trader is not to be too greedy. If the shares reach your pre-set target then you sell; holding
on to make a little extra profit is likely to backfire and cost you a lot of money. You must be content that
your calculations are correct and that you are making a profit.

4. Reward Ratio

There are many traders who will tell you that the reward ratio is useless. In fact, this means that they do
not understand it and how to use it to improve their trading average. Used in conjunction with the other
tools and good research it can be an invaluable strategy.

In essence the reward ratio specifies that the reward for every trade deal must be three times the risk
associated with the deal. This rule means that for every dollar you invest and risk losing, you should
expect to get three dollars back. This is an excellent ratio to adhere to when first starting out; as your
experience and knowledge grows you may be comfortable reducing this ratio.

As well as using this simple calculation when deciding whether to purchase stock or not; it can be used to
assist with managing your position during stock transactions and whether to sell your stock or not.

5. Discipline

It is important to remain emotionally detached from your stock purchases and act in accordance with the
right business decision for each scenario. This takes discipline and it an important strategy to ensure
successful trading. Failing to stick to your own rules and principles will leave you exposed in a deal for
longer than you need to be and can result in huge losses when you could have made a healthy profit. The
market can be very volatile and it is important to stick to the plan you have made.

It can be very easy to watch your share prices rise and believe they will keep on doing so, instead of
sticking to your business tactics you allow yourself to become emotionally involved and attached to your
shares; this can spell disaster! You have spent the time devising the right plan for your situation and must
have the discipline to stick to your plan.

6. Losses

Even if you are the best organised and most cautious day trader in the world you will, at times, have
losses. This is an inevitable part of any kind of stock market trading. It is essential to accept this and
accept any loss when it happens. Assuming you have only invested funds you can afford to lose, it is not
the end of the word and you will make money a different day.
Losses only become an issue if you make it one; you must deal with them; learn from the mistake you
made and then move on. There is no benefit in going over them again and again.

7. Budget

As already mentioned, day trading is not a get rich quick scheme; it takes hard work and dedication, as
well as good planning. Part of your planning stage, before you even start trading, should be to work out
your budget. You will need funds available to make your first trade; you will also need to purchase a good
computer or desktop; if you do not already have one. Alongside this you will need to download and
install the right software. Many brokers will provide software when you set up a brokerage account. You
need to ensure you are comfortable with their package and possibly allow funds to add additional
packages such as data monitoring or an independent trading software solution.

Your budget will ensure you have enough start up capital to purchase all the equipment you may need and
to start trading. There is no minimum amount required to start trading from home, although many online
accounts ask for a minimum initial deposit. The more funds you have available the more deals you can try;
each one will help you understand which is the right approach for your personality and investment type.

8. Trading Personality

Your personality will shape the type of trading you should undertake. If you have the ability to make quick
decisions and often do so then you are likely to be good at scalping. Each trade lasts only a few seconds
or minutes, before the next one requires a decision.

Alternatively, you may prefer to study all the facts, and then base your decision on these facts and your
own personal experience. If you are one of these people then you are more likely to be comfortable and
good at long term trading or possibly swing trading. These are trading styles which will give you the
opportunity to think through the various angles before reacting.

As well as the ability to make quick decisions there are a variety of other factors which will help you
decide which type of trading to undertake:

• Patience - the less patient you are the better you are at short term investments.

• Emotional Vulnerability – If you are unable to turn off your emotions you may struggle to stick to
your own trading rules.

• Ability to be flexible – This can be an important trait in some areas of the market

• Passion – The more passion you have for the subject the better your inclinations and commitment
will be. This trait is essential to being a successful trader.

9. The Market

You need to choose the right market for your personality, time available and even the time of day you
would prefer to trade during. There are many different markets and you can choose to day trade in all of
these markets. But, when you first start day trading it is advisable to start in one market and work your
way up to two, three or even four!

Technology has made it possible to trade in any market around the world, this means that even if your
preferred or only available time to trade is between midnight and six in the morning you will be able to
trade in one of these markets. This will be one of your deciding factors. The most common markets are the
stock exchange and the currency market; but the strategies this book teaches you will apply to any market.

10. Demos

Whether you choose to use the software supplied by your brokerage account or something from an
independent firm you are almost certain to be offered the chance to try the software first. It is essential to
try out the software; it may be the best product in the world but if you are not comfortable finding your
way round it then it will not be the right one for you.

The same applies to the idea of trading on the stock market. The majority of brokers will give you access
to a free ‘demo’ software which will allow you to trade on the stock exchange but without risking any of
your money and without making any money. This is an excellent way to build your knowledge of the
trading markets and improve your skills.

11. Trading Plan

As with any business venture you need a plan. The trading plan will cover your financial abilities and the
markets you intend to trade in. It will also cover your risk and how exposed you are prepared to be. A
good plan should assess your current skill set to confirm you are ready to start trading; this is a physical
and mental state. The plan will also help you to establish your goals and give you something to work for.
This may be becoming good enough to make ten successful trades every week; it may even be having a set
percentage success rate for your trades.

Whatever goals you choose to set yourself you will need to break them down into achievable smaller
goals and then work towards these goals week by week.

Part of your plan should also include making sure you have the time to research your potential investments
properly.

12. Trading Journal

Your journal should be filled in daily; it should be a record of your trades, your profits and your losses.
Perhaps most importantly you should make notes regarding your thoughts of possible investments and
which ones actually performed as expected. This journal will provide you with valuable insights as you
continue to trade. It will illustrate to you when you should trust your judgement and can inspire confidence
in your operating techniques.

It can also give you some useful information regarding how specific shares reacted in a variety of market
conditions. This type of information can be extremely beneficial as you continue and improve your day
trading technique.

13. Flexibility

Once you have put your own rules into place and become accustomed to working within those rules you
will be able to adopt a slightly more flexible attitude. This is not an excuse to say that you can ignore your
own rules and chase extra profit! Adopting a flexible approach simple means that you are able to
appreciate when a market opportunity outside of your intended scope presents itself to you and that you
are not afraid to act on it.

The rules concerning risk and reward still apply but you are not so rigid as to miss an opportunity. The
longer you trade and the more experience you gain the more you will see opportunities.

14. Analysis

One of the most important things you should do regularly to ensure you become a successful and profitable
trader, is to examine your trades and work out when you made the right decision. It may become apparent
that there are several occasions when you made the same mistake or even the right decision. You can then
study this and work out whether this decision could be applied to other market areas to achieve similar
results.

Looking over your performance also helps to keep you grounded as it reminds you that not all your trades
work out perfectly. It is one of the best ways of discovering your mistakes and learning from them to
ensure you are a better trader in the future.

15. Confidence

Being confident is not the same as being arrogant! However, to be a successful trader it is essential to
have confidence in your own abilities. You must believe that you can make the right decision and then
follow it through; even if the market conditions change and it turns out to be the wrong decision.

It is only by having confidence in your own abilities that you will be able to make a decision quickly
when you need to. If it turns out to be the wrong decision then simply learn from your mistake and move
on. Your confidence must go hand in hand with a positive mental attitude.

16. Work Place

Working from home does not mean you should not take your job seriously. You must create time every day
to study the markets, review the news and to possibly indulge in your trades. If you do not do your
homework and stay in touch with the latest market developments you will have an increased risk of
making the wrong decision as you will not be aware of all the facts.

An essential part of working from home and making the time to engage in all the relevant processes is
having a separate space to work at; without distractions. No matter what role you perform it is very easy
to procrastinate and this can cost you dearly. Create a unique work space that will ensure you are
completely focused on the markets and your trades; this will ensure every trade is successful.

17. Educate

There are a variety of options to improve your education and knowledge of the stock market. You should
choose the one that suits your personality and needs the best. You may even want to do every method
going!

There may be night schools or part time college courses near you that will help you to understand how the
stock market works and even provide a variety of tips and techniques to help improve your trading
options. You may be able to attend seminars held by professional investors which may improve your
knowledge.

But, perhaps the most important way of educating yourself and improving your knowledge of the stock
market is to be open to learning every day. Learning can come from contact with other investors or from
reviewing your own trading and learning from your mistakes. Provided you are open to improving you
knowledge you will continue to learn and develop.

18. Discussions

The internet has made it possible for many people to share their experiences and even to provide tips on
upcoming stock movements. Whilst you should be cautious about any tips provided by others there is a lot
of information which can be absorbed from the online forums.

You can join as many forums as you like and seek advice from others concerning specific trades or simply
share experiences. A forum will help you to unwind after a hard day trading with other people who
understand the procedures and stresses. It can be an excellent way of learning and de-stressing before you
spend time with your family or friends.

19. Consistent

Whatever approach you take and whichever markets you trade in it is important to be consistent. This is
especially important when you are first starting investing as you will need to know what approach you
took in order to adjust and improve on it in future trades.

Consistency is also important as it will help you to both develop an approach which is successful and to
stick to that approach. If your techniques are providing consistently good results then you must stick to
them and continue trading in the same way. The stock market can provide consistent results if the same
approach is taken every time. Find a technique which works for you and stick with it!

20. Mobility

Whatever approach you take to day trading it is essential to remember that it is possible to access
information on your phone or tablet. Although the idea conditions may be in your dedicated office space,
there will be times when you need to complete other tasks or even attend to family matters. During these
times it is still possible to watch your investments and adjust your position as necessary.

Of course, if you are able to finish trading before you have to leave your office then you will be able to
enjoy your time away from your work. Being able to trade from anywhere can be a critical component to
being a successful trader.
 Conclusion
It doesn’t matter if you have been trading on the markets for years or are new to day trading, it also
doesn’t matter if you choose to trade in options, stocks or any other form of commodities; it is possible to
successfully day trade. This book has been designed to help you to understand the basics of the stock
market and how to start day trading. The internet has made it possible for anyone to start trading from the
comfort of their own home with a very limited budget.

However, it should also be obvious that preparation and planning are vital to ensure you become a
successful trader. Setting your own rules and guidelines will ensure that you have the ability to operate
long term and are able to recover from any losses you make along the way. It is possible to day trade
using finance instead of your own funds. However, if you choose to use finance it is essential to watch
your investments very carefully. The market can move extremely quickly and a profit can be wiped out
and leave you in a loss before you have time to react. To ensure this does not happen you should always
keep some funds in reserve and never hesitate when the stock falls to your stop point. You may have made
a loss that day but you will be able to trade again another day. The safest approach is to use your own
funds which you can afford to lose. It can also be advisable to remove your profits as soon as possible
and put them aside; this will ensure you are only ever at risk of losing your initial investment.

In the late 1990’s day trading gained a reputation for attracting people into what was perceived as a get
rich quick scheme and, in fact, resulted in financial ruin for many people. Thankfully the rules and
regulations have been adjusted and tightened to ensure that day trading is now a respectable part of the
stock market. In fact, many traders on the stock market will dabble in day trading alongside their main
investment pots. It is now possible to study the market and make several trades in one day which can
result in a reasonable profit and a comfortable standard of living.

The purpose of this book is to help you understand the variety of different types of day trading which it is
possible to engage in, it has also provided you with a range of strategies and tips on how to develop and
adhere to a successful day trading regime. As with any career it is essential to adopt a professional
approach and focus completely on your trades when ‘at work’. One lesson that it is essential to learn is
that it is always possible to learn more.

You can study past trades which have been successful and techniques and strategies which have been used
in the past to good effect. However, it is also possible to watch the trends and trades that are going on in
the current market and learn valuable lessons from them. But the technology on which the stock market
now operates is constantly evolving. To ensure you remain a successful day trader it will be necessary to
keep up with the latest technological advancements; these can be key to ensuring your strategies stay
relevant or that you evolve and adapt to the new possibilities as they arise.

Day trading can be a rewarding career which can offer financial security and a healthy work / life
balance; providing you pay attention to your own rules and do not become obsessed with the market!