Trading Stocks Online

What is Online Stock Trading?

This may be a elementary topic for many of you; however, for those who are new to trading stocks over the internet, online stock trading gives you the ability to buy and sell stocks using an online stock broker. Traditionally, you may be used to calling your broker and instructing him or her to place a trade for you. That is not necessary anymore, the advent of the internet allows you to cut the middle man out (Broker) and trade stocks online at your discretion.

As many of you saw when the internet bubble burst, many of you cannot trust your stock broker to make the right financial decisions for you. Most stock brokers are mere sales agents who are given a list of stocks from senior management and told to advise their clients to get into them. Online stock trading not only allows you place your own trades, but it also allows you to save a boat load on trading commissions and truly take control of you financial future.

Which Online Broker should I Use?

Picking an online stock broker seems like a trivial task, however, there are hundreds of them to choose so you need to be careful with who you trade with. Make sure you are dealing with a major player who has billions of assets under their belt. The last thing you need is for your broker to go bankrupt or run into financial turmoil thereby freezing your assets.

You should ask a prospective brokerage house a few key questions to help you make the best choice:

1. First, what is the minimum investment amount to start trading stocks online?
2. Second, ask the brokerage house if there are any inactivity fees for a lack of trading?
3. What are the trading commissions for the products (stocks, bonds, mutual funds, etc) you wish to trade online?
4. What type of trading help or guidance do you require? Some of the more expensive brokers like Fidelity offer a lot in terms of market research and telephone support. You may be okay with their marginally higher commission structure for the peace of mind.
5. What other types of businesses does this broker run? This is an important question because of the fact that you want to make sure that your broker is not involved in too many risky lines of business which could affect your ability to get your money back from that broker in the event of a disaster in the financial markets.

Some of the best brokers for online stock trading are:

1) Fidelity - Fidelity has trillions in assets under management and is as solid of a company as they come. Online stock trading with Fidelity may be a little more expensive than the other brokers; however, they have great customer service and a nice trading interface. They offer you the ability to invest in any type of investment vehicle you would want ranging from stocks, bonds, options, bonds, cds, etc.

2) TDAmeritrade - TDAmeritrade is another solid, trusty worth online broker who is a large amount of capitalization. They have a low commission structure for stocks, options, and bonds and they offer a lot of free gadgets for their customers to use. They have decent customer service but not as good as Fidelity. TDAmeritrade's online stock trading interface has given me technical issues in the past so this is something to be aware of.

3) E*TRADE - I would rate E*TRADE on the same scale as TDAmeritrade. They have a great commission structure and have very little in the way of technical issues which would prevent you from placing an online trade. Not many gadgets, just your simple, yet reliable order entry system.

4) Scottrade - Scottrade is a great trading platform with very low commissions. They have great customer service and a reliable order entry interface. They have more local branches than any other online broker and allow you to trade stocks, bonds, options, mutual funds, and bond products.

Opening & Depositing Money into your online brokerage account

You can open your brokerage account in a couple of ways. First, you can ask the broker to send you an application to open an account. Fill it out and send the forms back with a check to fund the account. Another option is to fill out the online form and then electronically fund the account by funding through an ACH transfer (note: this will require that you provide you bank details to the brokerage house so that they can link up with your personal bank account) I know this may be a bit unsettling for you especially if your new to online stock trading, however, that is why you need to go with the best brokers who employ the best measures of security on their website.

You will be asked to provide information on the application regarding your past online stock trading history for different types of trading vehicles, such as stocks, bonds, options, etc. The application asks for this information to assess your level of expertise and to determine which products you will be allowed to trade. For example, if you plan on trading risk options spreads without any past history of doing so, the brokerage house will protect you against yourself by revoking your access to doing that. It is also protecting their assets in case you lose more money than you have.

If you ask for a margin account, there will be a separate section for that as well.

Fraudulent Stock Information

The web is a great place to acquire information, however, be aware of fraudulent information. Be aware of message boards, newsletters, and emails pumping a stock which is going to be the next Microsoft. These fraudsters will attempt to pump a stock, only to sell it themselves. They create an artificial demand for a stock which drives the price higher and they sell their shares out to the general public. Once that artificial demand goes away, the stock drops like a rock. Always do your own due diligence when you are trading stocks online and please do it from a reputable source.

Online stock trading may seem a bit daunting for those of you new to it but it allows you to take your financial future into your own hands. Good luck!

See You At the Top,

mysmp

Trading Opening Range Breakouts

One of the most common and popular intraday trading concepts is the Opening Range Breakout (ORB) trade. Since its conception, ORB has evolved into a number of different varieties which are often reviewed in the Trading EveryDay Live Trading Room with entries, set ups, and stops.

Ever since the market decline of 2000-2003, the trading environment has become one of low volatility resulting in the propensity for short-term price movements to reverse. In turn, this environment has created chaos with Opening Range Breakout trading. Let's take a look at what this means.

Say that a trader looking at the opening prices from the stock market open interprets a decline at mid-morning as an OBR. If the trader is astute and experienced, three (3) things would come to mind before taking the trade.

1. The trader should look at the entire pre-opening market as the opening range because it is an indication of how U.S. stocks have responded to pre-opening economic reports and Asia and European market developments. The only way you can tell if the new buying and selling information is impacting traders' value assessments is if you break out of that range.

2. A true breakout move should impact all the major market averages and sectors (including, but not limited to, Dow Jones, Standard & Poor's, Russell 2000, etc.) the same way.

3. A valid breakout should also provide us with increased participation as there are lower or higher prices. When this happens, you can be fairly certain that that the "big boys" are "playing" in the move, which allows you to follow in their footsteps.

So did the trader take the trade? Not if the downside move turns out to be a failed test of the overnight lows. The moral of the story is to do what you have to do to figure out how to separate valid ORB trades from false breakouts. That means to continue educating yourself because just as you evolve as a trader, the trading world is evolving as well.

Day Trading - Want to Try it? Then Say Goodbye to Your Equity

Day trading is popular with huge numbers of novice traders yet you are guaranteed to lose in the longer term, as the logic it is based upon is simply not true and can never work...

Let's look at the two reasons why if you day trade you will lose. Before we get started on the reasons why day trading is a guaranteed route to losses lets look at why you see track records with huge profits on many day forex day trading systems.

Here is the reason they all carry a disclaimer like the one below which means they have NEVER been traded:

"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 trading 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".

So you can make anything up you like and the track record is not worth the paper it's written on.

What's the point in having a track record if it isn't real and also you would think that the person selling the system would actually show confidence and trade it! The reason they don't is most are sold by marketing companies looking to dupe nave and greedy investors. Try and find a forex day trader with a real time track record and let me know if you find one you won't

So why doesn't day trading work?

The reason is obvious all volatility in short time frames is of a random nature and all support and resistance levels are not valid.

You cannot get the odds in your favor when day trading and if you can't get the odds in your favor you will lose - Period. You simply can't judge in such a short time span what prices will do. You have millions of people all with different motivations and personalities and to say you can measure what this vast diverse group will do in under a day is simply destined to failure.

So the next time you see that tempting day trading track record check the small profit, as chances are its never been traded. Then think about the above and you will see that day trading is a total mugs game.

Online Stock Trading - Finishing The Trade

It only takes a few minutes to review a trade that you have just closed. Though most people overlook the importance of this brief examination, the benefits of a simple trade analysis are huge. This value is certainly true both in future profit potential and the positive effect of quickly improving your online stock trading methods.

It's very important to keep a trading journal. You can use something as simple as a plain paper notebook or as sophisticated as a trade management software program. Whichever you choose, here is a short list of questions to include in each trade review ...

• How did you choose your trade?
• What were your reasons for buying or going short?
• What was the basis for the trading setup - perhaps a certain pattern, indicator, or moving average?
• How did you feel as you placed the order?
• Was the order filled close to the actual entry price?
• Did you enter a stop?
• What were your thoughts as the trade progressed?
• How well did the stop work?
• Was it too tight or too broad?
• How did your exit strategy perform?
• What emotions emerged once you closed the trade?
• Did you stick with your overall online stock trading plan?
• Should you have done anything differently?

A calm analysis of your trades will give you much more than excitement from a big winner or disappointment from a loser. Keeping a log of the "before and after" aspects of your online stock trading experiences will help you learn from the past and improve your methods.

The review process also lets you be more objective about your emotional strengths and weaknesses. Not surprisingly, this type of routine self-assessment will dramatically improve your online stock trading skills.

Margin Trading Basics

Definition of Margin Trading

Margin trading is when you borrow additional funds from your broker for trading. Each broker has their own margin trading requirements which is dependent upon a number of factors, such as the volatility of the stock, account size, etc. In order to trade on margin, you will need an approved margin account.

Requirements for a Margin Account

In order to create a margin account, you will need a minimum deposit between $2,000 and $5,000. This deposit is used as collateral against your trading activities. There will also be some sort of application you will have to complete, in order to have your account elevated from a cash account to a margin enabled account. Once an account has been approved, you will only need 50% of the cash on hand to purchase or sell short a stock. For example, if you wanted to purchase $10,000 worth of stock, you will only need $5,000. The one caveat to this, is that for some volatile stocks, there are strict margin requirements. There are some stocks that will require you have up to 80% of cash required to hold the position.

Maintenance Margin

For each stock you trade, there will be a minimum cash balance required to hold the position. This maintenance margin is calculated real-time and brokers will require that you keep the minimum cash on hand to maintain the positions, or (1) you will have to liquidate all or part of your position, or (2) deposit more cash. If you are on the wrong side of the trade, this can become a slippery slope as you will quickly find yourself depositing funds quite frequently.

Margin Calls

My rule regarding margin calls is not to answer them, meaning, do not fund the account to get it above the maintenance margin requirement. If you get a margin call, it is because the market is signaling that you are incorrect regarding your trade. You do not want to throw more money into a bad situation. More times than not, you will be happy you cut your losses short and sold the stock (or covered it if you were short).

Interest

Brokers do not provide margin for free, this is capitalism. Brokers will charge you interest daily for your positions. This interest rate is much lower than a standard loan, but nonetheless it is money out of your pocket. So, it is in your best interest to use margin for short-term trading activities to avoid the fees.

See You At the Top,

mysmp.com

Forex Traders Are Braver Than Superman

Are you trading at the moment? Live or demo?

Forex trading is a lot easier than some people would have us believe, but it requires discipline. If you have a workable strategy, and the discipline to only trade that strategy, you will make money, guaranteed. Where a lot of traders go wrong and lose vast amounts of money is by making trades that do not meet the criteria required by their strategy. They start to listen to other people's ideas and follow trades, they trade on a whim when they think a currency will move a certain way, they trade data, they let losses run out of control hoping the market will turn, they take the first profit available...none of that comes within their trading strategy and they ultimately lose. It's human nature unfortunately, we are impulsive. Retailers spend millions of dollars a year finding ways to exploit that impulsive urge in us. To be a successful trader we need to control our impulsive urges and discipline ourselves to obey our strategy without exception, we know it works, and we must stick to it in order to be successful.

With absolute discipline comes control. We will have total control over ourselves and only trade exactly what our strategy says we should trade and in a way it says we should trade it, no exceptions, none.

So now we have discipline and control we can trade our strategy without hesitation or deviation. Once our strategy has signalled a trade and even before we have entered the market we already know what the outcome will be. We will either gain, break even, or lose, there are no other choices. Our gains can be either a set amount that we decided to make each trade, or trailed with stops. Break even speaks for itself. Losses will be the amount of pips our strategy dictates we should risk. There are no unknowns, we know without any doubt what can happen because we have disciplined ourselves to trade our strategy and not deviate from it.

A classic example of losing control....you enter a trade and set a stop in your mind of 30 pips. You are confident the trade will come good, everyone said it would, even your Uncle Bedjo said it would. The price goes the wrong way by 10....15....20....25.....30 pips, it's time to close, but instead you wait because it may come back. The price moves away further....35....40....45, oh no, this wasn't the plan. Ok, I'll close at what I said I would for -30 when it comes back....the price moves further....50....55....60, oh no, I cannot afford to lose that much, it is bound to come back, it has to, I'll close at -40 when it retraces.....65.....70.....75...no way! I'm not closing now and losing all that money, no way!.....80.....85...., ok ok I'll close for -50 when it comes, damn I knew I should have taken -50, please, ok -60 then, please?...90......95.....100, oh shit I better close, it could go anywhere...closed for -100. Shit and xxxx and xxxxx's, that's all this weeks gains down the crapper!

Now desperate to get back your losses you'll trade anything that moves, roll on more losses....and more losses, and maybe the odd profit pip grabbed here and there. We've all been there, we've had reccuring nightmares about it! Discipline = control = nerves of steel. Take no prisoners, you're in this game to make a killing not get killed. Plan the trade, and trade the plan....no exceptions. Hope that helps, and may the pips be with you :)

Day Trading Time Zones

Understanding Specific Time Zones during the Trading Day

Having a successful trading career not only depends on the trading system or style that you use but also depends on other intangibles, such as day trading time zones. Understanding the market dynamics during different times of the day will take your trading to the next level.

Think about your trading history and notice if you see a pattern in the different day trading time zones in relation to winning and losing trade percentages. What a day trader must understand is that even if a chart has a great setup, the time at which the trade is placed may be in a day trading time zone which typically starts a countertrend move. For example, many traders who day trade breakouts will be far more successful during the first two hours of the day than any other timeframe during the day. Typically breakout attempts will fail and reverse which will only serve to frustrate the trader and cause you to doubt your approach to trading.

Let's now take a look at the different time zones and understand the general market dynamics during each time zone.

Day Trading Time Zones

The opening bell - 9:30am to 9:50am

The first 20 minutes of the day are the most volatile of the trading day. While this is the most dangerous day trading time zone, it can also provide to be the most lucrative if you understand how to trade in this time frame. It is usually recommended that novice traders stay out of this zone and wait for the imbalances created from overnight news or earnings releases to settle down. Many technical indicators do not work well in this time frame as the volatility is too strong. In most cases, volume will also be the highest of the day during this time.

The Morning Reversal- 9:50am to 10:10am

The first reversal zone of the day begins at around 9:50am and lasts for 20 minutes. This is a very important period of the day for day traders. I look for this time zone to put on continuation trades. For example, a stock may gap down by 10% on the open and then bounce for 10 to 15 minutes coming into this time zone. However, this is where day traders will look for a reversal of the bounce and a continuation in the primary trend. Once the dust has settled from the opening bell, you will be able to more clearly see what the traders in this security will want to do. Volume will drop off a little bit compared to the open but will still be very high during this day trading time zone. This time period is my favorite for trading as the price stability returns to the market but volatility is still present for profitable trading. In strongly trending markets, reversals may be small or non-existent

Low Risk Trading - 10:10am to 10:25am

During this day trading time zone, volatility shrinks again and you want to look for clues in the Dow, S&P, and Nasdaq as to the direction that the market wants to take. This is an opportune time for bigger traders to move the market the way they choose. Watch the tape of the stocks that you track for any indications of direction.

Decision Time - 10:25am to 10:30am

The market will be settled for the most part and most of the days volatility will have passed. There may have been a few reversals in the first hour but during this small zone, many traders will cash out of profitable positions and finish the day while others will position themselves for the next move in the market. I look at this period as a time for consolidation and preparation. The move following this day trading time zone can last until lunchtime.

Final Move of the Morning - 10:30am to 11:15am

This time zone will be the final major time zone as far as morning trading is concerned. It is safer in relation to the other zones in that technical indicators such as the slow stochastic or RSI will have a more pronounced effect than some of the earlier time zones. Be careful near the end of this range as it leads right into the lunch time hour which can start early or start late. A rule of thumb is that the more volatile the preceding day trading time zones are, the greater the chance that this move will extend further into the 11 o'clock hour.

Go Eat your Lunch!! - 11:15am - 2:15pm

Lunchtime trading can be brutal. False breakouts and choppy sideways moves characterize this time period. If you must trade, trade lightly until you have a good track record of putting on winning trades in this time zone. Also, please let me know how you do it! The risk to reward is very high here. Volume will fall out of the market as floor traders and other institutional traders will take their lunches. Don't let this time zone turn profitable morning trading into a loss.

Back to Business - 2:15pm - 3:00pm

Traders will work their way back into the market during this time frame. For the most part, trends have been established and trading during this timeframe will provide you with opportunities where the use of technical indicators is applicable. Remember, the CME closes at 3pm so you will see a pickup in volume due to some of the bond traders coming into the equity and futures markets.

It's GO Time - 3:00pm - 3:10pm

Bond market closes and bond traders will flood the equities markets; watch for sharp moves in either direction. Moves can be fast and large.

Use Caution & Stay with the Trend - 3:10pm - 3:25pm

During this day trading time zone, use caution as you are approaching the 3:30pm timeframe which tends to produce a reversal or a stall of the prior trend. During this zone, you want to stay with the trend that has been established from the 2:15pm and even 3:00pm timeframe but don't get attached to the positions.

Portfolio Re-balancing - 3:30pm - 4:00pm

I tend to recommend traders not trade during the last half hour of the day. There are many funds and institutions rebalancing their portfolios and it can get a bit tricky. If your day trading, you only have 30 minutes max to get out of your trade and I don't like working under that type of pressure. If your an action junkie or like putting on very short term trades, the volatility is there for you to do so.

Conclusion

Personally, I trade up until about 11:00am to 11:30am. The volatility in the morning fits my trading style. That is key; you need to understand who you are as a trader and trade accordingly.

As you can see, the chart setup or systems that you look at are not the only factor in putting a day trade on. Remember, day trading is not absolute; it is a game of odds. Your job is to put the odds in your favor and by utilizing the different day trading time zones that we have discussed, your trading will become more consistent.

See You At The Top,

mysmp.com

What's Your Trade Personality?

When I talk to new traders I find they all have some things in common. Most new traders are excited about all the opportunities the markets hold and are eager to jump right in; with a plan of attack they feel certain will be successful. What I have found is the old boxers'addage "Everyone has a plan until they take the 1st punch" holds true almost every time. Typically, most traders are a strong willed bunch who doesn't give up. So they continue to try to work their plan until the money is gone. However some new traders rely on their broker's personality to guide them through the markets. Through my experience trading for clients I have learned that successful traders identify their personality type and trade within their temperament.

Here are the 3 trade personality types.

1) Day Trader- Traders who like to attack the volatility of the markets everyday. Day traders are satisfied with quick profits. They are comfortable with small profits and constant activity.

2) Position traders- Position traders like to execute trades with a 2-3 day window in mind. Position traders will commonly have objectives marked and anticipate execution with that in mind. They are also willing to let the near term market trend work for them. Also, as position traders encounter objectives either for or against they will exit the market and wait for another indication to reenter on strength. Unlike most day traders position traders usually use smart money management and tend not to over extend.

3) Buy and Hold Trader- Buy and hold traders, or Sell and hold traders are the most conservative of the 3 types. Buy and hold trader shave defined objectives for entry and exit inside the market. Most buy and Hold traders watch the markets patiently for opportunities, and rather pass on opportunities that may not meet all of the objectives. These traders are almost always good money managers, keeping in mind how much money is required to enter and hold positions through the volatility of the markets. These traders don't trade nearly as often and understand that margin calls could be frequent as they swim through the volatility.

NOTE: Most brokers want you to be a day trader. That is because they must generate commissions. There are brokers however that will help you identify your personality and help you trade within it.

As you develop as trader remember identifying your trade personality is one of the key fundamentals you will need to understand.

HAPPY TRADING

Fibonacci Levels - A Few Trade Secrets Revealed

First off, I don't claim to be a "guru" on fibonacci levels. Like any other trading technique, a new trader needs to do their own homework and see exactly how the market reacts to various fibonacci levels (from this point forward, I am going to abbreviate the fibonacci word by "fib" because to type fibonacci out every time would lengthen this article by half again).

I am not going to look at any other indicators (like moving averages, or other technical indicators). In my full trading plan, those indicators play an important part of deciding if I take a trade or not. In another words, just because you have reached some of the fib levels I am going to talk about in this article, DO NOT take a trade unless other criteria have been met. Fib levels, while important, are not a be all, end all, stand alone strategy.

The 61.8% Fib Level

When I first started trading, many of the trading books and manuals that I studied recommended using the 38.20% (38%) fib level, and the 50% fib level to analyze support/resistance areas. While I have found those to be somewhat useful, there are other levels that I have found to really give a trader a better edge in making decisions on where support/resistance areas are. The first of these levels is the 61.8% (61%) fib level. Most charting platforms have a fib tool built in. In Tradestation, the fib tool is very easy to use. Let's assume that the market opened (point 1), moved down and bounced off of a certain level (point 2) and then began to rally back up to point 1. The price stops there and begins a pullback. Using your fib tool, click on point 1 and then on point 2 and release. Your fib levels will then be marked. It is important to see how the price reacts to the 40%, 50% and ultimately the 61% fib level. The market can turn and go in the other direction at any of these levels. My research has shown that the larger the pullback (specifically the 61% fib level), the better chance that the market will turn around and go in the other direction. I have seen many times that the market will pause at the 61% fib level, almost as if it is trying to make up it's mind if its going to stop there, or head on in the original direction it was headed. I urge you to start watching the 61% fib level and see how many times that level holds the price in.

The 127% Fib Level

If the 61% fib level described above is broken, then the next two fib levels come into play. The second fib level that my testing shows is worthy of mention is the 127% external fib level. Usually (but not always), once the 61% fib level is crossed, the market will travel to the 127% external fib area. An interesting point is that many traders don't acknowledge or use the external fibs to determine possible stopping areas. I am amazed at how many times the market turns on a dime at this level.

The 161% Fib Level

Another level that I think needs to be addressed is the 161% external fib level. If the 127% fib level doesn't hold the price in, the next stopping point is the 161% fib level. This level also seems to stop a trend in its tracks.

How To Use Fib Levels

In my opinion, there are two ways to use fib levels. If I am looking to enter a trade and the 61% fib level is right above/below my entry, I will pass on the trade and wait for a set-up without that area to compete with. Secondly, if the 61% fib level has been broken, I know that there is a reasonable chance for the price to go to the 127% or 161% fib extension area.

Conclusion

As you began to work with fibs, understand that these areas are just that, areas. That means that when the price approaches a fib level, it can go past that level by a few ticks or more and still be a valid fib level. I hope that if you are serious about learning how to day trade, you put fibs in your tackle-box as a tool to help evaluate strong support and resistance levels. Charts describing the above set-ups and more free commentary are available on my blog. I hope that Fib levels help you be able to: Catch a whopper!!

Regards,

Ron Lewis

An Introduction to Trading Options

What is an Option?

An option can be defined as the right to buy or sell an asset at a fixed, predetermined price before a predetermined date. Buying options gives the buyer the right to buy (call option) or sell (put option) a stock at a specific price for a specified period of time. Let's be clear here, the buyer of this option is not obligated to buy or sell anything, an option is just that; it gives you the right.

Selling an option is a different story. When you sell an option short, you give the buyer of the option the right to force you to buy the security at a higher price (put) or deliver shares to the option buyer at a lower price (call) if the option is exercised. Selling naked options, or selling options without holding the underlying security, is more risky and should only be attempted by experienced traders. Naked options have unlimited risk.

Option Basics

An option has a few key components which govern the rules around exercising the option. The exercise (strike) price, expiration date and option type represent these rules. In this section, we will also cover the basics in options valuations as well.

Exercise Price

Exercise price, aka. "strike price", refers to the price at which the option buyer can exercise his/her right to buy or sell the underlying security of the option contract. For example, lets say that you purchased 10 March call options on Merrill Lynch with a strike price of $60. As the purchaser of the option, you will have the right to buy 1000 shares of MER at $60. Now, you would have paid this premium to buy this stock at $60 only if you believe that it will be above that price by the expiration date of the option.

Expiration Date

Expiration date refers to the date up until which the option can be exercised. In our example above, the expiration date of the Merrill Lynch option would be on options expiration in March. The value of a call option at expiration, as long as the last price is above the strike price, is the intrinsic value of the option or: (last traded price - strike price). Conversely, the value of a put option at expiration is: (exercise price - last traded price).

Option Types

Options can be one of two types; American style or European style. The majority of all options traded are American style, and US equity options are all American style. The key difference between American and European options lies in the ability of the option holder to exercise the option. American style options are exercisable at any date up until options expiration while European style options are only exercisable at expiration. For this reason, American options command a higher premium.

Options Valuation

Remember, options are a separate entity than the underlying security that they are derived from. They have their own ticker symbol and can be bought or sold at any time. We discussed the basic components of an option; strike price and expiration date. These represent price and time and therefore we can say that the price of an option is derived by adding up the intrinsic value and time value of the option.

Intrinsic value is basically the value of the option that is In the Money (ITM). Lets refer back to our Merrill Lynch example once again. If MER was trading at 65 when the strike price was 60, we can say that the option is in the money by $5. Time Value is the second portion of the option and this represents the value associated to the risk that remains for the seller of the option due to the time to expiration. For example, if we buy a 3 month option and a 9 month option, the intrinsic value on both will be the same; however, the 9 month option will have a greater time value component due to the greater time risk that the option seller is taking.

Out of the money calls (OTM) are options in which the current price of the underlying security is below the strike price. In this case, there is no intrinsic value and the option is made up of only time value. An option is said to be At the Money (ATM) when the last traded price is the same as the strike price of the option. Again, there is no intrinsic value for an ATM option, just the time value.

OTM puts work the opposite way; puts are considered OTM when the last traded price is higher than the strike price. Conversely, puts are considered in the money when the last traded price is lower than the strike price of the option.

Conclusion

We have just reviewed the very basics of options and options terminology. Options are great in that they allow you to control a large amount of stock with a relatively small amount of money. Options can be quite dangerous if not utilized properly; however, they can add quite a bit of safety to your portfolio as well if used properly. We will go on to discuss the many different types of options strategies that one could leverage for their specific scenario. To conclude, options provide quite a bit flexibility and allow you to greatly increase your gains if used properly while at the same time lowering your risk in the trade.

See You At the Top,

mysmp.com

The Real Story About Day Trading

Day trading is turning into a "work from home" type of business nowadays, more and more people are actually taking the time to learn about the Forex market. Day trading is the practice of buying and selling commodities or futures (in this case currency) and then closing all positions before the market(s) close that day. There is after-hours trading, but I wont get into that here.

Some of the most popular day trading commodities are stocks, currencies, stock options and some futures that involve equity index's, commodity futures and interest rate futures. Day trading used to be, and still is, the favorite among financial firms and investors. Many of the biggest day traders now are big banks like Bank of America, investment firms with tons of capital to trade. These companies usually have a whole team of very highly skilled traders doing the work for them on the Forex market.

Of course you can imagine what kind of money management strategies must be employed so that people like you and me don't wake up to find our bank accounts wiped out over night. Day trading is always going to be the biggest money maker for big companies like Deutsche Bank, day trading in the Forex market has a daily turnover of $3.21 Trillion dollars. Think about that, thats more than the NASDAQ, Tokyo Nikkei, and NYSE etc combined! The sheer volume of this market is incredible, not to mention that it never closes because, well, it can't!

Day trading has become more popular mainly because of the advances in technology in recent history. People can now automate their trades and watch their accounts more closely, depending on the Forex broker of course. Changes in the way a government works in a certain country can open up large opportunities for people to hold their money their, like Switzerland for instance.

Originally the most important U.S. stocks were trades on the New York Stock Exchange. A day trader would contact a stockbroker who would relay the order to a specialist on the floor of the NYSE. They would each make some markets in only a small stack of stocks. And so on and so forth, brokerage commissions were fixed at %1 of the amount of the trade. So if you wanted to buy $10,000 worth of stock, it would cost you $100 in commissions. Not bad for a day trader.

There are several techniques to ponder if you are considering day trading, most if not all are based on mathematic algorithms. Each technique is based on a certain trading style, so if you don't like one then try another and so on, until you find what fits you best.

Here is a quick list of some of the techniques you do day trading with: trend following, contrarian, range trading, scalping, rebate trading, news playing etc etc. Too many to list here. I'd suggest researching each one and then give them a try, day trading can be extremely risky if you don't know what you're doing...the thing is, most people DON'T.

Some strategies require some sophisticated trading software and hardware. This stuff can run up to $50,000 or more! Many day traders use more than one monitor to even multiple computers to do their day trading. This is a very common practice among day traders. Some of these day trading softwares send signals into the market and present their feedback on the screen of the computer that is currently running that software, advising the user to buy or sell at that point. Needless to say that a fast internet connection is VITAL if you are to be successful at entering and exiting key trades.

Rules Vs Guidlines - Undermining Your Trading Results

I have discussed the importance of having a game plan to day trade in various articles recently (A Tale Of Two Traders, Trading For A Living and Mind Over Market). Yesterday afternoon, while I was doing my Daily Wrap Up of market commentary, trades of the day, and trading tidbits, I typed something to the effect that a certain trade did not fit my trade "guidelines". I got to thinking after I typed that word. Why did I use the word guideline instead of rule? To me, the word guideline is a looser interpretation of the word rule or rules. If you read my article "A Tale Of Two Traders", I explain how integrity plays an important part of MY trading strategy. I think that it is important to be true to your trading strategy and follow your rules to the letter. Therefore, my use of the term guideline was probably not appropriate as that may lead many of the traders reading this article to believe that you can change your rules at a whim, move stops or not adhere to the limit orders you have in place. Now some of you my think that this whole article is a matter of semantics. I don't agree. If I use the terms interchangeable, my sub conscience mind might think that it is OK to move stops, or make changes in the way I trade. I work daily on my trading mind set and how I place trades and most importantly, how I manage the trade once I am in that trade. ANY influence that could affect that mind set and cause me to stray from my tried and proven strategies is not acceptable. So, I hope you study your own lexicon and make sure that you are not doing something that will submarine your results.

One other thing that I would like to touch on is very near and dear to my heart. If you have a trading buddy or partner, having a true conviction about your trading rules is extremely important. I have several friends that trade for a living. The lesson that I am about to share with you has come a great cost and frustration. If you are not totally convinced that your trading strategies have the ability to make you money, then you can be easily swayed. Here is the story that happened to me. When I was first learning how to day trade, I studied many courses and manuals regarding the subject (some free and some costing thousands of dollars). Going through this process with me was a good friend of mine. We would cuss and discuss various trading strategies that we had studied and how we interpreted the various results we were receiving. Then finally it occured to me that I was responsible for MY trading results and MY trading results only. Although my friend and I are very close, when it comes to trading, it is important not to focus on what anyone else is saying to you. I can't tell you the number of times that I was influenced by what my friend said. The markets going up, down, sideways, etc. It always made me feel that he was right and I was not. Finally, I became confident enough in my own strategies that I started to take his advice and comments with a grain of salt and trade MY trading criteria. My advice to you is once you have a set of rules and have tested those rules, become so focused on how you trade those rules that no one else can sway your thinking. You will be surprised how much better your trading results become.

One final thought. As I have discussed many times in my articles, I have gone from one strategy to another, usually paying lots of dollars to learn the secrets from so called gurus. What I have found out is that many of the so called gurus out there are just selling you something. Some of the best strategies that I have learned have been FREE. Keep that in the back of your mind next time your are asked to cough of thousands of dollars to learn a new concept.

Day Trading - Trade Intelligently

Ever predicted the next card you would get in black jack? The answer is a definite no. On the othera hand, while investing in stocks each buys and sells move is a well-forecasted and calculated step. So how can stock trading be referred to as gambling? For those who are currently indulged in stock trading, it is quite clear that trading in shares is far different then gambling. Share trading not only lets an investor put the money at take, but also, needs time and intelligence to trade.

However, the features indicate stock market to be a well-refined business that needs sheer attention, patience, consistency nd knowledge to make profits. For those who are stepping into the world of share trading, it is important to know that day trading is just a part of the investments not the whole concept of stock investing.

In literal terms, day trading refers to the trading in stocks that involve the buying and selling of shares within a day. It is a part of short-term investments that carries high degree of risks. The risk being high notifies the fluctuations in the share prices with direct effect of economic conditions.

It has a distinct feature of short term buying and selling. All the day traders trade for small profits. The fact that makes day trading so popular is its instantaneous and low brokerage terms. Brokers generally charge low broking fees for day trading as compared to other investments. Also, the results are quite instant and a day trader can carry money at the end of the day unlike other long-term investments.

However, by being instant, it features greater risks that are to be dealt with. Hence, here are some tips that can help traders for better trade.

Integrate the investments: staking all money in a single company is not worth. Diversification of investments must be initiated. This not only integrates the risks but also create a balanced portfolio.

Trading in right direction: buy during bears and sell during bulls is the key mantra to be followed. To simplify, buying the shares in broken market tends to bag low priced shares. This helps in gaining more profits for any trader.

Decide upon our sensex levels: to avoid bankruptcy it is important to decide upon the amounts of your share prices. The share market has its own moves and in no case any trader can catch its speed. Hence, create your own sensex for stock evaluation and sell them according to the market. Getting emotional and illogical and hoping to get the conditions better, always worsen the situation.

Stop chasing the tips:

Trading Stocks Online - 10 Steps You Should Follow to Get Started Day Trading

Online Day trading - Sounds fancy or prestigious in some way. If you talk to someone who has been day trading online for several years, odds are that what they tell you will be over your head if you are just beginning your online stock trading. This guide is meant to serve as a stepping stone for beginners to help you get started, but also a "refresher course" for the seasoned day trader, as many of the trading ground rules rarely change. I've been involved in stock trading online for a couple years, although somewhat sporadically. Even for the beginner or professional, there are many resources available to help improve your "sixth sense" for the market.

1. Services for Trading Online

There are many services where you can set up brokerage accounts to begin day trading. Many have similar features, while each may expand a little in different areas. The best thing to do when finding a service is to visit the website and just try it out. See how you like the look and feel of the site, and use the resources that the site provides to get a feel for the main account area, and also the trading area. The service you choose needs to be familiar and comfortable to you, so that when you are making your trades you are confident with using the service.

2. Set Up Your Account

Well, this is an easy part of the formula. The worst part of this is the long forms that you are supposed to read concerning the markets and notices, and other legal forms. I would recommend printing this information and reading through it so that you will have a better understanding of the rules for the market. Once you have your account activated, there is usually a process to add a bank account and get it verified so that you can fund your account. This may vary with brokerage, so you have to read the rules to get set up.

3. Get the Feel of the Trading Area

This part is very important. Most online brokerages have tutorials and sometimes even videos that show you the basics of their site. Always make sure to look through the Help file for the brokerage if you get lost or do not understand certain terms on the site. After all, browsing and reading the help section is usually the fastest way to figure out anything that you don't understand on a website.

4. The Three "R's" of Trading

Research, Research, and Research some more! It sounds redundantly repetitive, but don't be fooled into thinking you can win this war (see next step) without knowing what you are up against. Knowledge is the best tool in your arsenal, so make sure you are doing your homework!

5. Choose Your Warriors

You are the General. The investments that you choose (in this case the companies you invest in) are your warriors. And this is a battle that you will want to keep a close eye on. It is your hard earned money at stake. Sometimes you may lose a battle, supposing that the company you just invested in goes belly up, but the whole point is to make sure you win the war! You are not just investing to have something to do during the day (or are you?). This money may be your retirement fund if that is what you have planned.

6. Practice Trades - Break Out the Play Money!

This step is actually quite fun. If you will check out my resource box below, you will find a link to a website that has many resources on it, including a place that I use where you can set up a "play money" account and see how you do with investing. So a company you bought into took a dive towards the big zero? That's alright, there is a handy dandy reset button to start over! Too bad you can't do that once you get into the real money...

7. The Opening Bell

I have heard many people say that they make their trades before the opening bell of the day, because trading during the day can get very emotional for the investor. Don't let your emotions be a factor in your investments! If you follow my guidelines and do your research, you are much better equipped to make decisions without emotion. As I mentioned earlier, the best tool you have on your side is educating yourself about the market, the companies, running the numbers, and knowing your exit strategy. You will begin to develop your own system of investing and studying as you go along.

8. Think You Got It? Now for the Green!

Here's where the magic happens. Once you have educated yourself on all the points I have made, and any other areas you find you need to know about, you can fund your brokerage account and get started with your investments. If you feel more comfortable playing it slow at first, then just start out with a small portion of your total investment capital and go at your own speed. Just remember to never get in a hurry, and never let your emotions affect your investment decisions.

9. Risk versus Reward

In the world of online stock trading, there is a delicate balance that poses a decision all investors must make. This is the decision of Risk versus Reward. Under most circumstances, the more risk you take, the more reward is possible to achieve. However, with more risk, you could also end up losing a lot more of your hard earned money. Each person must decide for themselves the amount of risk they are willing to take on a trade, and, as mentioned earlier, this will affect the choice of companies that you are willing to trade on. Which brings us to the final (and probably most important) step in this series...

10. Keeping Your Sanity!

Now I know this sounds funny, especially to anyone who is new to stock trading. But on a serious note, some people take on too much risk while looking for that great payout. To many new stock traders, the idea that your money is floating around out there in cyberspace and it's fate is attached to some company that you may have never seen, can be scary. Balancing the risk and reward equation to a level that you are comfortable with is something that just may help you sleep better at night.

So now that you have a step-by-step idea of how to get started, all that is left is to go for it. But as a good rule of thumb, I always tell anyone looking for an investment that they should never risk more than they are willing to lose. And of course, if you don't feel comfortable making the choices of investments, stay in that practice zone until you are comfortable with it. If that still does not help you, you should seek the advice of a professional broker, and perhaps the service you choose has people available to consult with you. Always use all the resources that are available to you, and your investments will be based on a very well researched decision.

Trading Support and Resistance

Support and Resistance Dynamics

------------------------------------------------------------------------

Defining Support and Resistance

Defining the concept of support and resistance is fairly simple. When discussing it in the context of the stock market, it defines the levels at which buyers and sellers step into a market or where the law of supply and demand come into play. Imbalances in supply and demand create support and resistance levels. For example, when an overwhelmingly high number of buyers (demand) step into the market, an indication of support is being put into the market. Conversely, a large number of sellers (supply) indicates that there is overhead resistance preventing the stock from moving higher.

The price levels which create support and resistance in a stock only tell half of the story. We mentioned a key phrase above; "overwhelmingly high". Volume, is the second half of the equation and shows us the strength behind the buying or selling at support and resistance levels. The stronger the buying or selling is at support and resistance levels, the more important of a signal is being given.

Support and resistance can come in many forms:

• Blow off tops or panic selloffs can put tops and bottoms into markets and mark important support or resistance levels for a stock.

• An increasingly popular technique for determining support and resistance can be derived through the use of Fibonacci levels. These levels are viewed by some as imaginary levels but have now developed a strong significance due to their widespread use. It is almost a self-fulfilling prophecy which causes prices to stop and reverse at these levels.

• Speaking of imaginary levels; many traders, especially day traders, use whole numbers to define support and resistance levels. Decade ($10, $20, etc) and century numbers ($100, $200, etc) are looked at very closely by many traders.

• Many traders also use trend lines and other technical indicators such as the RSI, slow stochastic, moving averages, and CCI to derive logical levels of support and resistance in a stock.

• Gaps often act as magnets for prices; for example, if a stock opens down 3 points in the morning, that price gap will most likely be filled at some later point. The close of the bar prior to the gap is considered to be support on gap ups and resistance on gap downs.

While all of these are important, let's take the time and focus on point #1 above. The other four points have been discussed in detail in other articles and can be viewed by following the links above.

Example of Support and Resistance in Action with Volume

**The original article has the image related to this section

Blow off tops and panic sell-offs are a result of extreme movement in price and volume in a stock. They signify massive shifts in ownership and can provide very strong support and resistance in a market. Let's take a look at a very good example. We are going to take a look at a trade that we actually were involved with back in 2004. Sirius Satellite (SIRI) announced that Howard Stern was going to move over to their platform and the stock catapulted much higher in a very short time. Let's review the graph.

Look at point A on the graph above. Notice that SIRI moved from $2 to $4 with climactic volume. The expansion in volume and price created a large imbalance between buyers and sellers and once it ran its course, it set up a resistance level that took 9 months to penetrate. Typically after a blow off top, an immediate response will follow in the opposite direction due to profit taking and new shorts speculating that a top is at hand. The low point put in, as seen at point B, is called an "automatic reaction". Automatic reactions are typically fast and swift in nature just as the preceding up move was. Points A and B now set up your range of support and resistance that you can expect the stock to trade within until an indication is made by the stock that it wants to break out of the top or bottom. Moving on to point C; frequently, you will see a re-test of the blow off top (A), this is commonly known as a "secondary test". In our case, the secondary test came in with lower volume and failed to take out the price highs that we set back in January '04.

SIRI failed at the $4.20 level and moved back down into support at around $2.50 and actually broke through our support area designated by point D in the graph. The zone highlighted in blue is very important because it is a false break to the downside. This break came on very light volume and then moved right back into the trading range in early September. This indicates to us that a move back to the top of the trading range may be in store. Point E was just that. SIRI bursted up to $4.20 with strong volume and actually penetrated the level by a few pennies before reversing lower again. This test was very telling. The increase in volume over the January levels told us that the buyers were strong and looking to push prices higher. We should now be on watch for a break higher.

SIRI had now set up a triple top at the $4.20 level. The price action between points E and F were of strong significance. Notice how the price retracement off that high was shallow and notice also how volume contracted by quite a bit as well. Price was rejected but not severely. SIRI refused to go lower and went right back up to the $4.20 resistance level and closed above it. This confirmed a breakout on the chart. Notice how the stock moved significantly higher into point G where it set up an island top candlestick reversal with gigantic volume. This was the beginning of the end for this stock and these levels were never seen again.

Our expectations for this stock were slightly higher due to the nature of the trading range that the stock was within. We are talking about the the relationship between "cause" and "effect". In a nutshell, the greater the preparation, the stronger the result. We have to keep our charts in perspective, a shorter term formation will most likely not produce as dramatic a result as a longer term formation such as the one we discussed above.

Not an Exact Science

Defining support and resistance levels is not an exact science. You will rarely get support levels retested at exact prices. Keep an open mind; most of the time, you will see zones of support and resistance.

Trading Ranges

A few key points we want to mention regarding trading ranges. If a stock moves out of its support and resistance boundaries with heavy volume, you are possibly looking at a shift in the character of the stock. For example, if a stock moves up through the top of its range with heavy volume, it is indicating that the buyers were able to take hold of the stock and overpower the sellers at that level. This is bullish and the former resistance level should now be considered as support on a pullback. You can almost look at it as if the bulls claimed victory at that price level.

A breakout of a trading range in which the preceding trend was sharply down is more reliable than a breakout of a trading range that comes after a rally. These are considered secondary rallies and are more prone to failure.

ConclusionIn conclusion, you must study how a stock behaves at key support and resistance levels and take note of climactic increases in volume as it typically is associated with panic or extreme levels of greed. This is a good time to look for take the opposite side of the primary trend. Remember, climactic volume eats up a large amount of buyers and sellers and tends to produce sharp snap backs in either direction as buyers have put in major support and sellers will have put in major resistance going forward.

See You At the Top,

mysmp.com

FOREX Day Trading Thinking Of Doing It Don't Make These Mistakes!

FOREX Day trading is more popular than ever as traders seek to make big consistent profits from scalping the market and building a regular income.

Here we will look at the common day trading mistakes people believe will make them money and why they lose.

Before we start consider this fact.

You will see numerous day trading systems with attractive copy telling you how much money you will make from online forex trading yet, the most important part is missing.

You NEVER get a real time track record of profits!

You get a hypothetical one ( but that is designed knowing the closing prices so is of no use ) but never a real time one the vendor has traded and made money out of.

Why?

Because these guys don't make money from FOREX day trading, they make money selling systems and their smart enough to know day trading by its very nature doesn't make money.

There are numerous mistakes that people make that make them think they can make money so here they are

1. They believe hyped sales text and hypothetical track records

This proves nothing.

Anyone can do a track record knowing the closing prices even my daughter and she's ten.

If you believe sales copy and don't check the facts your asking for trouble.

2. You can predict support and resistance in short time frames

All volatility is random so support and resistance levels, pivot points etc are meaningless its laughable that people think their valid.

3. Successful technical indicators wont work

Technical indicators that work in other time frames don't work in day trading as they have no reliable data.

It doesn't matter how good the indicator is if it has no reliable FX data its doomed to failure and day trading data cannot be used, so these indicators fail.

4. Cutting losses and running profits

Even if the data was reliable (and we already know its not) then at best trading is an odds game and your losses need to be small and you need to run your profits to cover them.

This is true of trading FX in any time frame - you will always have losses that just life and trading.

FOREX day trading does not even achieve this.

Sure your losses are small, but you can never run your profits to cover them.

Day trading by its very nature only holds profits for a short time and the idea of scalping is laughable The market doesn't get scalped the trader does for all his equity.

Most FOREX day trading systems are sold by failed brokers or marketing organisations that don't trade their systems they know it's a good story and it sells.

It makes them lots of money and the trader takes a beating from the market, but their happy as they have the income from their system sales.

If you are considering FOREX day trading doesn't!

It's a big mistake and will ensure you lose your equity quickly.

Don't fall for the hype look at the facts and save your money.

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

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

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

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

A new approach has to be used. With this approach, a few premises must be inserted into one's mindset. Write these down:


1) A method doesn't have to always work, just under the right circumstances

2) Not every trading day will be profitable, so don't push it

3) If it don't fit, you must a quit, for that market period

4) You can't control the market, only your actions

5) The market sets the pace, you need to adapt

6) No method works in a flat market, so stay out of them

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

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

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

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

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

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

Proper pacing with the market breaks down like this:


9:30-10:30am est Fast pace market - trader can play hard here

10:30am-12pm Market slows down - trending forms, trader should tighten his method filters and slow down

12:-2:30pm Market in Dead Zone - trader needs to leave the screens physically

2:30pm-3:30pm Market starts to speed up - trader can start to look for prime setups again

3:30-4pm Market fast pace dash into the close - trader lower share size and look for final trades for the day

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

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

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

Switch From Casual Trading to Forex Day Trading

Forex day trading is the buying and selling of foreign currency within an individual trading day. Most day traders take on this role as a full time investor and are working with significant amounts of money. Day traders tend to be highly educated as well and without them, there would be no liquidity within the Forex market. They have a pivotal part to play by keeping the markets flowing liquidly through their daily activities on the Forex market.

Many people who initially set out to invest in the Forex day trading field are typically funded through various sources and have made it the full time job of choice. There have been many companies that promise huge results to the beginner. Specifically promising large returns in Forex day trading however, the majority of those who try to day trade without a fundamental understanding of the workings of the market generally lose their shirts. Don't be fooled, there is no get rich quick scheme hidden behind the curtain of it. It has to be understood and all aspects of the Forex day trading business need to be comprehended fully in order to succeed.

The pivotal difference between casual trader and Forex day traders is usually the amount of capital, which is a definite advantage. The average Joe who gets into it hoping to make a ton of money on intra-day movements is in for a huge disappointment. In order to benefit from day trading, a large amount of capital is required as well as able to be lost. Capitalizing on small investments can accrue earnings but it is a much longer process when using small amounts of capital. Like most things, you've got to spend the big bucks to generate the big bucks. But not without the knowledge and safeguarding measures that brokers can provide for any investor.

Gaining a complete understanding of the Forex day trading market will bring forth personal strategies. Coupled with the tried and true strategies that are utilized in by brokers will give an individual investor the tools needed. Strategies such as swing trading, trading news and arbitrage are a few of the most common ones that are implemented by brokers and investors. Remember that these strategies that are in print are strategies that have previously tried until they showed effective limit losses and a solid history of profits consistently.

With the system rising so rapidly in popularity there has naturally been a negative connotation associated with this controversial subject. The traders that are both professional and individual investors keep the Forex market rolling day after day. Many people suggest avoiding day trading at all costs while others will state that trading is the only way to generate substantial income from the foreign exchange market. If there is not the presence of required skills to navigate the financial markets and the resources needed, it is best the amateurs leave the trading to the professionals.

Day Trading The Chart Illusion That Will Wipe Your Equity Out

Day trading in forex and shares is extremely popular, however there is an illusion that day traders fall for that can and does wipe them out.

Are you falling for this chart illusion? Read on and find out..

Successful track records in day trading are normally simulated in back testing over closing data.

The problem is in any form of trading - day trading included, you have to be careful not to curve fit. n

People selling day trading systems do this on purpose and traders testing their own system do so without realizing it.

They then get a profitable track record.

Now these track records worked in back testing and never work going forward.

Why?

Because, all day trading volatility is random and you cannot predict, or get the odds in your favour - that is why a day trading system NEVER makes profits in the market in real time.

So what is curve fitting?

Curve fitting is bending the data to fit the price history. If the system doesn't work you simply optimize it so it does, by bending the system to fit the data.

This is simply like shooting at a barn door and then going and drawing a chalk circle around everyone to show it's a bulls-eye.

Roulette systems are a bit like day trading, there both games where you cannot predict the future in, but if you look back - there seems to be an order in HINDSIGHT, but of course there is none its an illusion.

The proof of the above is you will NEVER find a day trading system that makes money in real time; simply ask any vendor to give you one to prove this.

Why Traders curve fit

Vendors curve fit on purpose to catch the mug trader who believes he can get rich day trading.

On the other hand, there are traders who think they can do it and bend the data without realising what their doing - constantly tweaking the system until it works.

Vendors know day trading is a good story and don't care if the system makes money or not as their selling systems and the trader testing his own system does not realize he is curve fitting.

Of course, if you think about day trading vendors, then if they could make as much as they claim, they would shut up and trade themselves and be millionaires, rather than try and sell you a system for a few hundred bucks.

The Illusion

What works in hindsight does not work in real time and the answer is due to curve fitting.

The Reality

If you have no reliable data you cant make money in real time trading.

Day trading has no reliable data, as all short term volatility is random and prices can and do go anywhere.

The proof of this is you never see a real time track record, the simulation of profits in hindsight is simply an illusion, caused by curve fitting.

Forex Day Trading - The Profit Illusion That Sees Traders Lose

Forex day trading simply doesn't work and you will never find a trader with a track record of real time profits, however more novice traders try this method than any other type of trading. This is desite the fact it will never work, because you can't get the odds in your favor.

If you are considering day trading then you should read this article.

First let's look at why forex day trading doesn't work.

The time period is to short!

Volatility in short time frames is random - PERIOD

This means daily support and resistance levels are meaningless and you can never get the odds on your side longer term.

Now let's look at the illusion of profits.

The Marketing Illusion

You have seen them the headlines promising you 100% annual profits or a regular monthly income - all for just a few hundred dollars.

Of course the reality is they profits do not exist and it's simply clever marketing copy.

Look at the facts and you will see no substantiation whatsoever to back up the claims.

You will of course get a hypothetical track record, done in hindsight but the key word to consider here is hindsight! The person presenting the track record knows the closing prices when they do the track record.

If I knew tomorrow's closing price today, I would be a multi millionaire but that's not the reality of forex trading.

The people who create the illusion you can make money forex day trading can never present a long term track record of real profits that's real dollars made in the market by them.

Why Create The Illusion?

These people are mostly failed brokers or marketing organizations that actually have the sense not to trade the system themselves.

Why?

Becuase they can make a guaranteed return selling the system to naive forex traders.

Patterns that don't repeat

Many traders look at back data and see patterns.

They think they can trade themselves but this is a bit like roulette wheel paterns - there appears to be an order but the same sequence never repeat again its an illusion, that fools many traders and when they try and trade for real they lose their equity.

Still Not Convinced Day Trading Doesn't Work?

Here is a simple test you can do for yourself:

Ask anyone who claims they make money day trading, to produce to you a real time track record of profits, with supporting bank statements and trades.

You won't get one.

Day trading does not make money, apart for the vendors who sell e-books and forex day trading systems and they cheerfully let you take the losses, while they bank a fee for their services thats guaranteed.

Don't fall into the forex day trading can make you money trap! If you do you will lose your equity quickly.

Day Trading Courses

Day trading is the practice of buying and selling currencies before the close of the Foreign Exchange each day hopefully for the most profit. Anyone with a little money to invest can now trade over the internet. But it's best to know a little bit about what you're doing first and there's no shortage of day trading courses to teach you about that.

Courses can be studied online or in face-to-face classes and duration differs between one day to five days - or indefinitely if you teach yourself in an internet correspondence course.

You don't need any specific paper qualifications in order to trade but you do need a few skills and a bit of knowledge that you could gain through a day trading course.

You will need to shop around, because courses can cost anything between $2,000 and $12,000 and they vary massively in quality for these prices it's not always true to say that the most expensive option is the best one; it all depends on what you are looking for.

Here are a few of your options so you can see which one might be right for you.

Online

Since Day Trading University came online, there have sprung up literally hundreds of websites offering day trading courses supposedly to university standard but be wary of these claims. These courses are unregulated, especially on the internet. You want to make doubly sure that they offer you the tuition you need.

Makes sure that the website you give your hard-earned cash to, to teach you day trading, is not simply an article directory. That's not a substitute for a proper course in day trading and is probably not something that you want to be paying too much for.
To maximize the benefit of an online course, it should offer you multimedia audio or video clips as well as downloadable activities and charts to continue and consolidate your learning.

Books

Home study courses in day trading are also available in book form. They are easy t peruse at your leisure and you can browse before you buy, so you know exactly what you're getting. But books don't have the multi-sensory approach that a good website will have, with audio and visual streaming. It works for some people though. Many are written by experts in the field.

Face-to-face courses

This is where you might be spending big bucks to learn about day trading: make sure it's worth it.

Tuition can be large group, small group or even one-to-one, although you may have to pay through the nose for one-to-one tuition. Be sure you really need it before you lay out your course fee, bearing in mind that if you are assertive and confident enough, *any* face-to-face tuition offers you the chance to ask the tutor(s) any specific questions which you might have.

Here are a few things you should be looking for in a good day trading course, whether that be face to face, online or in a book:

What to trade in

OK so that one was obvious, but how do you spot an opportunity for bigger trading profits? A good course should tell you this. On the flip side, they should inform you of what sort of trading to avoid and why, so you don't make big, costly mistakes.

Trading psychology

What is the best mindset for a successful trader? What opportunities should you look for? Who makes the most money?

Long-term and short-term trading

Now, as we're talking day' trading here, there is no real long-term, but a good trading course will differentiate between deals you strike every few minutes and ones you should sit on for a few hours. You need to recognize these in order to maximize your profits. Find out how to pick momentum stocks every day to squeeze the most out of your money.
Tools of the trade

A good course will not be trying to sell you anything, so watch out for courses and books linked to a particular product or automated trading software. Of course they'll tell you that is the best one but you know your own mind. Make it up yourself without the sales pitch.

However, day trading need not be about constantly sitting at your computer, glued to currency reports. Automated trading is a great boost to day trading, and a good course should give you some ideas of what automation software is out there and how to discriminate between the packages available.

Now you know some of the options as far as day trading courses go and what to look for, you should be able to find the right training option for you.

Learning To Profit From Forex Day Trading

Investors are always looking for ways to make money; for some this means buying and selling futures contracts, for others means buying and selling stocks. One such method is Forex day trading. Day trading in general, and specifically Forex Day Trading, is the practice of buying and selling various assets, such as futures, options, stocks and currencies, with the intention of profiting from the price volatility on a particular day. Trading Forex entails looking for variations in pairs of currencies and attempting to buy when their difference is low and sell when their difference is high.

A Specialized Form of Trading

In the beginning, day trading was only possible for financial companies such as banks because of the fact that few had access to the market exchanges and live market data. Now with the advancement of both the Internet and the processes of the stock and futures markets, individuals now have access the same market data and futures exchanges as these financial institutions. In addition, trading has become so affordable that just about anyone with a computer can make trades. Thanks to the computer age, Forex day trading is now more available than ever before.

Trading in your Bathrobe?

For many people, the year 2000 image of Forex day trading was middle-aged guys who quit their regular jobs to sit at home in their bathrobes making trades. Thanks to the Internet, we don't have to see a sight like this! While this is definitely possible, it is a broader picture; if you have an Internet connection, you can receive Forex news. If you can receive news, you are able to do the technical analysis necessary to make decisions and then to make trades, no matter whether you are at home, in an Internet caf or on the beach. It sounds simple because it is; the hard part of Forex day trading isn't implementing trades, it is knowing what trades to make.

Forex Day Trading is not for Everyone

As with any kind of trading, Forex day trading is not for everyone. The stories of great successes in day trading (which are usually sold in EBooks on the Internet) are more than overshadowed by a large percentage of people who lose money day trading Forex or any other commodity. The money that you invest is called risk capital for a good reason; when you start investing, you have put this money at risk of loss. Successful traders know that when they expose their money to risk, it takes research and experience to make Forex day trading profitable.

Forex currency trading for beginners includes some important steps. Like any other form of trading, the investor needs a trading plan to outline his or her strategy; do you plan to trade by scalping (only holding positions for a few seconds or minutes)? Do you plan to use trend trades, counter-trend trades, or ranging trades? These are the kind of decisions that come into play and you need to know what you are going to do before you do it.

In addition, Forex day trading requires the new investor to understand the importance of research and technical analysis; if you don't follow the news, you can't really know what's going to happen with the currencies you trade. These days, there is a wealth of technical analysis tools available on the Internet. Finally, beginners need to have a system for charting trends and analyzing the movement for each currency they trade. For Forex day trading (and for all other types of trading for that matter), Japanese Candlesticks offers the best system for seeing movement in the market.

Conclusion

Forex day trading is not for everyone. It can be unpredictable and it is possible to lose more than you originally invested. If you learn Forex trading and the techniques and processes involved, it is possible to profit from Forex day trading. The good news is you don't have to work in your bathrobe! (Unless you want to!)

Day Trading Commodity Markets

Traders who trade for a living are generally swing traders or day traders. If you are planning to day trade in commodities, then you need to get hold of a reliable trading system that gives good results consistently. Despite having such a system, there are a few things you may want to know about day trading in the commodity markets.

Day Trading Defined

Those who trade and complete all their trades within the period of a day's trading session are known as day traders. Day traders have to square off all their trades by the end of the 24-hour period. That is their time limit. If they hold their positions for any longer, they can then be called position traders, and not day traders. They are the most common form of traders to be found in commodity markets.

Day traders like to churn their capital on a day to day basis to maximize its return. They prefer not to lock in capital for extended periods of time. More often than not, they have very limited capital to leverage, and cannot afford to block it all. Speed is the name of the game where day trading in commodity futures is concerned.

Facts About Day Trading

It has been observed that you stand a better chance of earning money in day trading commodity markets if you are prepared to invest a bigger amount of money. This is because more money gives you the option to diversify your investment and manage the risks better.

An important component of commodity futures trading, is using charts that allow you to decide what you want to do. Secondly, those who follow trends taste success.

As in all things, there are limitations that day traders face. The most important one is that they trade in a single day's session. Hence, they cannot let their profits run any longer even if they want to they are limited by time. They prefer by choice to take the money and run. Time is money, and time is limited. Another issue that crops up at some time or another for day traders is their stops. They cannot have too large a stop for fear of losing a lot of money. Therefore, they have to keep narrow stops, and thus increase their chances of being whipsawed out of a trade early. Ask any old hand about being whipsawed, and they will tell you that it is a part of the game. Daily ranges also limit targets, as the luxury of hanging on is not available. Quick profits are targeted, and many a time commodity day traders have to get out of a trade at the end of the day having made very little or no money from it.

However, day traders are not to be under estimated in any way. They truly form the volume numbers of the commodity market. Many intraday movements are because of day traders. They cause sudden spurts in commodity prices with heavy buying or selling. An integral part of the market, they form the backbone of the commodity market.

Day Trading Chat Rooms - What to Realistically Expect

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Currency Day Trading- The 20 Day Plan

Currency day trading requires discipline and sticking to a strategy. If you have been struggling to make consistent profits, rather than looking at your strategy however, you need to pay close attention to your daily habits.

Here is a 20 day currency day trading plan which you should do for 4 trading weeks of 5 days each.

Establishing these habits will make a huge difference to your currency day trading results:

THE START ROUTINE

Step 1

At the start of each day you need to prepare the mind. Use visualization techniques and see and feel yourself following your strategy.

You only trade when there is a real opportunity. You carefully calculate your entry point, stop and limit levels. Almost mechanically you enter the trade.

You let the trade run and check back every hour or two and detach yourself emotionally from what is happening.

You take a loss as part of the deal and a gain as part of the deal avoiding extremes in emotions from joy to despair.

Playing through this sequence in your mind helps you start with the proper mental discipline.

Step 2

• You now fire up your charts and do a top down analysis. You take a look at the daily chart, then the 4 hour, then the 1 hour to get the big picture.
• You calculate your pivot points and draw them on your 15 minute or 1 hour chart
• You mark yesterday's high and low on the 1 hour chart.
• You take note of where price is in relation to the 200 EMA on the higher time frames to give you an idea of price direction.

Now you have done your preparation and your charts are prepared you can now start looking for trading opportunities.

THE TRADING ROUTINE

As you approach your trade and before pulling the trigger you make a conscious effort to relax. You monitor your breathing and you monitor your self-talk. No doubts, just confident, mechanical action is required here.

Once your trade is in you trust your technical indicators and just let the trade run. Yes price will move backwards and forwards, testing your resolve. You might get rewarded soon, or you may have to wait some hours for price to reach your target.

If after some time price has still not done what you expected and there is a volatile economic report on the horizon you now have to make a decision as to whether to take out the trade or at least move up your stop to minimize loss or protect some profit.

Again this is all done mechanically, in a controlled calm state of mind as you constantly remind yourself of the characteristics of the professional trader. Stay in control, don't panic, don't engage in any wild, impetuous actions.

THE REVIEW ROUTINE

At the end of the trading day you conduct a review and an analysis.

How did you handle your currency day trading session?

• Were you stressed at any point? Why? Did you engage in any destructive behavior such as moving stops, or adding to losing positions thinking price would turn?
• How can you avoid such behavior patterns in the future?
• If your trade(s) resulted in gains, what did you do right?
• If your trade(s) resulted in losses, what did you do wrong?
• Was the loss due to an error in technical judgment or a lapse in mental and emotional discipline?
• What steps can you take, or what reminders do you need to keep in front of you, to avoid this next time?

NOW APPLY

For the next 4 weeks apply this 3 step routine to your currency day trading. It will take discipline and resolve.

However, to do otherwise is to keep on doing the things you are doing and expect a different result!

To get out of a non-productive currency day trading pattern, action and analysis are required. Use the daily 3 step plan above to embed these productive habits into your mind and see the difference after 1 month!