Steady Income From Day Trading Futures

There are still a number of expert traders out there who claim that it is impossible to make money day trading. As a person who relies on day trading for my income, this claim always surprises and saddens me. Make no mistake, day trading is no soft option. It is tough, competitive and unforgiving of mistakes. But, if day trading is your dream, it can be made to work for you.

Most successful traders find a niche which suits their temperament and which they become good at. In the process of doing this they may try different vehicles and strategies which are unsuccessful. However, because they fail in a particular area, it does not mean that it is impossible to make money in that area. All it means is that the trader was not good enough when (s)he tried it.

For example, there is not much that you could teach me about various option strategies. Theoretically, I know how to make a lot of money with options, but in practice it never worked out for me. Buying out-of-the-money options does not have enough winners for my temperament. Selling way-out-of-the-money options has plenty of winners, but really high stress levels on those few occasions when the options flirt with the strike price as the expiry date approaches. Multiple option strategies look good, but trading costs always seemed to kill my trades.

That said, I do know traders who do well with options, so obviously money can be made if you have the right strategy and temperament.

Fortunately for me, I found my niche day trading grain futures contracts, and I love it. What I like about it is that it is short and sharp, and the risk is tightly controlled. By short and sharp I mean that I only have to trade for about thirty minutes each day, but I have to really concentrate during that period to make sure that I execute my strategy with no mistakes. As for risk, I am usually in the market for a matter of minutes, a few hours at the most, and never have positions open overnight or at weekends.

This suits me perfectly. I enjoy the quick feedback from my trades, and I sleep easily at night knowing I am not in the market exposed to freak events that can be very painful when you are in a leveraged position.

Authors criticizing day trading are usually trading Forex. The day traders enemy is trading costs, and despite the commission free trading generally offered by forex brokers, trading costs are high because of the spread. If I were to try day trading forex, I would use futures contracts at the CME (Chicago Mercantile Exchange) during high volume periods.

However, I prefer markets with enough volume to ensure a tight spread, but not such a huge volume that the market becomes hard to read. The grains (soybeans, wheat and corn) fill the bill exactly for me. Equity indices (Russell 2000, S&P 500, Nasdaq eminis and the Dow $5 contract) are also good at times, but I find them more difficult. I dislike the very high volume bond market. I am not saying you can not make money there, all I am saying is that I have not succeeded!

Share traders often find a similar effect whereby very high volume shares like Microsoft are harder to day trade than a middle of the pack S&P 500 company. Usually successful share traders watch a group of stocks which they like and feel confident with.

The point is you do have to make the effort to find the best markets for the kind of trading you like to do. I think it is putting the cart before the horse to decide on a particular market before you decide on your trading style. My advice is to find the style that suits you, then find the markets that respond best to that trading style. Of course, markets are not static, so you will always be monitoring them, and be prepared to change if another market comes to the fore.

I have discussed the keys to successful day-trading in other articles, but briefly they are as follows:

• Understand how support and resistance works in the market.
• Build a trading method utilizing support and resistance levels. (The tactics you can apply near these levels are almost limitless.)
• Back-test your method on independent data (not the same data you used to design it). Ensure it has a positive Expectancy and good frequency of trading opportunity.
• Plan your money management strategy so that you know how much to invest in each trade without exposing yourself to too much risk.
• Practice, practice, practice, so that you can execute your trading plan flawlessly every time the opportunity occurs. This is harder than it sounds when day trading. Things happen fast and there are a lot of things to think about.

The trader who does these things, and has the discipline to stick to the trading plan during winning and losing spells, will be successful. As many, many authors have written, trading is 90% psychology. The main enemies are your own lack of discipline and self-honesty. Of course, the majority of day trading is done from the trading rooms of large investment banks and brokerages, and the professional traders involved are using bank funds and are not subject to the same levels of stress. You have to learn to perform as well as they do despite the additional anxiety of having your own money at risk.

Day Trading Basics

1. What is day trading?

This is like regular trading in the stock market, involves the buying and selling of stocks, options, currencies and futures in the financial market with the aim of making a profit from the difference between the buying and selling price. However, it differs from the regular trading in that the positions are traded within 24 hours between the openings and closing of the market; they are rarely, if ever, held overnight.

Historically day trading as an option was available to limited financial companies such as banks. This was mainly due to the fact that these companies alone had access to the market data as also to the exchanges where the stocks were traded. The advent of technology, however, has changed the picture significantly. Individual traders too have access to the data and therefore, they can also make the same trades.

2. What are the different ways of day trading?

Depending on the individual's personal trading style, it can be done through:

• Short-term trading

• Long-term trading

Short-term trading: As the name itself suggests, in short-term trading, positions are held for either a few seconds or a few minutes.

Long-term trading: In long-term trading, the positions are held for a period ranging from a few hours to the entire trading day.

Trading styles can also be classified on the basis of the direction of the current price movement of the stocks, currencies, or futures. Accordingly, these styles are:

• Trend trades

• Counter-trend trades

• Ranging trades

Trend trades: Day traders buy when the price of the stock goes up and sell when it goes down. In other words, they trade in the direction of the movement of the prices.

Counter trades: According to this method, traders go back and forth between two prices; this generally happens when the market is moving sideways.

A day trader, depending on his requirements, can choose between any one of the styles or choose a multiple combination, depending on the prevalent market conditions. No matter which style you choose, one thing remains constant: you have to have a thorough knowledge of the financial market and an ability to make quick decision in order to reap the profits.

Finally, trading can also be classified base on the number of trades a trader makes in a day. While there may be traders who make their trades throughout the day, there may be others who wait for the best time to trade, and in some cases, make only a single trade in a day.

No matter how positions are traded, or how many trades are made in a single day the bottom line is to reap the maximum profits during the day.

3. Which are the markets for day trading?

A person can trade in stocks, currencies, options or futures. Accusingly, the financial markets for trading are:

Day Trading - Still A Possible Way Of Earning Profits

Day trading is another one of the options in stock trading where you can purchase stocks, sell them off the same day, and earn the amount of profit, which has been accrued that very day. In day trading, the trader does not hold the stock until the next day; instead sells it off by the end of the day.

There are many advantages of day trading as defined by the stock guru's. First of all, it is a safer way for people who do not have a lot of know-how in stock trading; therefore, they can easily follow their stocks during the day and sell them off as soon as they see a rise in the value.

Secondly, day trading allows for lesser speculation as the trader may not see a lot of variation in the values during a span of a day. Usually day trading does not vary in value of more than 30%. But then again it is easier to keep a track of and not to incur a loss.

If you plan to invest your money in day trading, make sure you do not put in all your hard earned savings in one go, as this might prove to be quite dangerous for you. Get yourself a good day trader whom you can rely upon. While investing, make sure you have a good eye for analysis.

Many traders and investors rely too much on software's used for these purposes, but you do not get a true picture of the market just by using these software's, as there are many factors which constitute a stock market and some of them can only be assessed through skill and experience.

Day trading requires analysis and ability both. Trading on stock all by yourself is not a very sensible thing to do, unless you have enough confidence in yourself. The best advice for beginners is to find a good broker who would do the trading on your behalf.

Share Market Basics

You can buy and sell any stock over the Internet that is online stock trading, you don't need to call up a broker. You can do online stock trading with a minimal investment you should get started today and then start learning about the stock market and choose the stocks you want to invest in.

Day Trading ~~~~~~~~~~

Day trading is defined as the buying and selling of a security within a single trading day. It is designed to produce short-term profits. Day trading demands access to some of the most complex and sophisticated financial services and instruments in the markets. Trading with a stop-loss is extremely important for all traders to cut losses while they are still small, and to preserve their trading capital in case the market moves against their trade. Trading at certain times of the day is simply not profitable and in fact is highly risky. Day trading involves taking advantage of price movements in stocks within one trading day. Day trading strategies demand the use of leveraged or borrowed money to make profits. Day trading used to be the sole preserve of financial firms and professional investors and speculators. Day trading is however a mentally and psychologically challenging activity and is by no means meant for everyone. If you can't be highly disciplined and stick by predetermined selling points, day trading is not for you.

What is Technical Analysis? ~~~~~~~~~~~~

Day trading is defined as the buying and selling of a security within a single trading day and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns. Research and examination of the market and securities as it relates to their supply and demand in the marketplace. The technician uses charts and computer programs to identify and project price trends. Now technical analysis has become increasingly popular. Technical analysts use their findings to predict probable, often short-term, trading patterns in the investments that they study. It suppose markets have memory. If so, past prices, or the current price momentum, can give an idea of the future price evolution.

What is Fundamental Analysis? ~~~~~~~~~~~~~~

Fundamental analysis is about using real data to evaluate a security's value. Although most analysts use fundamental analysis to value stocks, this method of valuation can be used for just about any type of security. It is scientific study of the basic factors which determine a share's value. The analyst studies the industry and the company's sales, assets, liabilities, debt structure, earnings, products, market share; evaluates the company's management, compares the company with its competitors, and then estimates the share's intrinsic worth. More effective in fulfilling long - term growth objectives of shares, rather than their short - term price fluctuations.

Good Trading

Good trading generally entails getting smaller when things are going bad and getting bigger when things are going well. A sure sign of a losing trader is one who is generating margin calls on days he or she is losing money. If you buy a stock and things are going your way, then consider buying other stocks. Perhaps your timing and general read of the overall market is right today. However, if stocks you are trading are not moving in your direction, then do not add to your positions. Look to get smaller. In general, you need to make as much money as possible when the opportunity is there and lose as little as possible when the opportunity is limited. There will always be other opportunities. Remember, trending markets and stocks have more potential than sideways or choppy markets for non-market makers.

Limit your losses. Only you can determine what is right for you, but whatever you decide, make sure you stick to it. Many traders limit them selves to one or two levels, at the most. This means that in a stock that is a quarter of a dollar wide, they do not let themselves lose more than half a point. While this might not seem like much, any more can add up quickly. Remember that you are a trader and not an investor. Set a limit on what you are willing to lose per trade and also per day, and make sure you stop at this point. Another good stop point is likely to be the point at which you find yourself hoping or wishing. This is a good sign to get out. Do not let yourself get married to a position. Recognize that every second of every minute of the trading day there is another opportunity. There is no reason to insist on being there when a stock in which you have taken a beating turns. Do not let one bad day or a bad position ruin a week or month or even a year of hard work. I have seen this happen. Perhaps the most important rule I've ever learned from trading is never to take home a losing position. Sure stocks come back sometimes, but in the long run this rule is a must: Do not take home losers.

Take home winners. Winners are generally good to take home, and in the long run this will prove profitable. In fact, some traders build a whole career around taking home other peoples winners. They do this by buying stocks in the last hour that are up on the day, that are trading on good volume, and that go out strong. This strategy tends to work because the market makers in these stocks usually are forced to go home short. With this in mind, any buying pressure at all the next morning will generally push the stocks higher, while selling pressure can be absorbed by the market makers covering their shorts. A few words of caution here: Overnight trades equal higher risk and therefore higher returns. Be respectful of earnings releases, expected news, or the potential for unexpected news. Barron's lists some of the upcoming earnings. Also, companies will generally tell you their earnings release date if you care to call them. In addition, be care ful with options and futures expirations. They can cause unusual moves that tend to reverse the following morning. Expirations and their effects are generally scheduled for the third Friday of the month, but sometimes positions can be unwound earlier.

CFD's Versus Futures

I have never traded CFDs (Contracts for Difference), but increasingly I am finding that my non-US clients have been attracted into trading by companies marketing CFD instruments.

I say non-US companies because I understand that CFD trading is illegal in the US. I think there may be a good reason for that.

If you trade on a short term basis, you have to become paranoid about trading costs. If you are a long term position trader looking at, for example, a 90 or 100 point gain in a soybean trade, you are not too concerned about a bit of slippage on your entry, and a few dollars either way in the contract brokerage fee will not be too significant.

However, if you are a day-trader, you will be loading up with a lot more contracts looking to capitalize on just a few points of movement. Now slippage and brokerage costs are highly significant and have to be kept to an absolute minimum.

There was a time when a trader off the exchange floor had no chance in this game, but the advent of modern electronic brokerage companies has changed all that. Even though I trade from Australia, my brokerage company has very competitive fees and a platform that executes trades with minimum slippage.

Now, back to CFD companies. A little investigation showed they offer commodity trading in the grains, which is my speciality. What is more, there is NO brokerage fee on the contract, and no interest charge on long term holdings.

This seems too good to be true, but there is a catch. It is the spread. In the real futures market I am usually trading with a half point spread, which means if I buy and immediately sell - or sell and immediately buy - I am down half a point ($25 per contract).

However, the spread I am being quoted for a CFD is about five full points! If I go with them I have to make five points ($250 per contract) on the trade to break even.

No thank you! This could be a good deal for some trading styles, but it definitely would not suit mine. I am looking to be in and out of the market within a few minutes, participating for a short period in intraday trends. This spread would make it totally impractical.

It reminds me of the many forex brokers that popped up a few years ago offering commission free trades. Yes, they were commission free, but the spread back then was five pips! On top of that, there were interest charges payable each day you held the trade over night.

At about $12.50 per pip on the Euro contract, that was quite some alternative to commission! Give me a futures round trip commission of less than ten dollars on a currency contract, plus a nice tight spread and no daily interest charges, any day!

Nowadays, competition in Forex means that you can get two pip spreads in the major currency pairs, which is not too bad. But beware when the market moves quickly!

You see, if you trade with Forex or CFD companies, you are not in the real market. You are bidding in a market they make. They are in the real market and they make sure that they offset every position you take to their advantage. If you happen to hit a bid/ask in a fast moving market, and they can not offset it to their advantage, it will not be accepted. You will get a re-quote on the price.

The CFD may be illegal in the US, but there are better instruments available for the investor. For example, single stock futures (SSF) compete directly with the CFD and have a lower cost structure. Of course, international investors can access SSF products too.

I advise you to be very careful about assessing your trading costs before embarking on CFD trading. Carefully consider the alternative of trading in real markets with a transparent cost structure, where competitive pressure from thousands of participants keep trading costs to a minimum.

A key attraction of CFDs to investors is that they are leveraged instruments, but do be aware that there are many other leveraged financial instruments available to the trader.

Face it, all that CFD advertising and those free seminars must be paid for by something! Believe me, day trading is a tough business. An absolute essential is to minimize your costs. Look at every investment vehicle through the cost prism before deciding which path to take.

Forex Day Trading - Why You Will Never Make Money Day Trading

Long term you won't make money if you try forex day trading, as you can never get the odds in your favor however more traders try day trading than perhaps any other method. Let's look at why it can never work - yet still remains so popular.

Day trading doesn't work simply because all short term volatility is random and prices can and do go anywhere in a day session. If you try and use support and resistance you are going to lose - because volatility is random and these levels are of no use whatsoever - this should be obvious to anyone - but forex day traders don't see it.

You have millions of traders trading trillions of dollars and to say you can measure what this huge mass of people are going to do in a short period of time is absolute nonsense.

So why is day trading so popular?

Quite simply it's a good story and appeals to greedy and naive investors who are duped by marketing companies selling day trading systems, with track records that show amazing profits but they all have a problem - none of them have track records that are real, they are all simulated knowing the closing prices!

How hard is that?

Anyone would be a millionaire if they knew tomorrows price today - but forex trading is a bit more difficult.

When you see a track record of amazing gains look at the small print and you will normally see a disclaimer like this standard CFTC one

"cftc rule 4.41 - hypothetical or simulated performance results have certain limitations. unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown".

Put the above disclaimer on a track record and a vendor can say anything they want and of course they do. These track records never lose in hindsight but of course in the brutal world of real trading they get destroyed.

Day traders think that within a day they reduce risk - but of course there is no point in have a small risk to your stop if you have a high probability of it being hit!

Day traders get lots of small losses that simply eat into and destroy their equity.

If their lucky enough to get a profit, they take it quickly which of course breaks the fundamental rule of trading - run your profits, to cover your inevitable losses.

Day traders lose and wonder why but the reason is obvious - they simply can't get the odds in their favor - PERIOD

The Way To Win

If you want to win at forex trading you must get the odds in your favor and this means using reliable data. If you like the excitement of it try forex swing trading, if you are more patient try long term trend following.

Both the above will allow you to trade the odds and enjoy currency trading success so try these methods and do not try forex day trading.