T Nation

Day Trading?

I have my long term investments, but would like to dabble a bit in day trading. If anyone here actually does a fair bit and could point out some educational materials, or some things to avoid, perhaps I can make a go of it.

I do know that I should use only a portion of my available capital, risk only a portion of it per trade, and set max loss and profit targets are some starting points, but how about some others?
Ideally I would like to have about 55% of everything in strong dividend payers/growers, 33% in growth stocks, and maybe 11% in speculative. 1% for beer and strippers, of course.
Any books, courses, advice?

I do a bit of day trading before and during work. The idea behind it all is risk management. Keep your losses small and don’t get greedy. Set the amount you are willing to lose and how much you want to gain. For example, you may cap your max loss at $100 and settle for 2-2.5% for a gain. You want all that pocket change to add up at the end of the day.

You also need to be proficient at using indicators. I typically use a 9, 20, 50 and 200 day moving averages along with a tight bollinger band and trend lines.

You do not want to use a large broker like Etrade or ScottTrade. The commissions will eat away most of your profits at $10/trade. I use just2trade which is only $2.50 commission. You need a margin account, obviously.

The last thing is to be aware of the pattern day trading rule. Unless you are with a prop firm, you need $25k of equity in your account to day trade.

EDIT: I believe Dr. Pangloss does this for a living. I’m sure he will have some great input.

The short answer: It’s a bad idea for most people.

Only a small percentage of people are successful at independent day trading, and most are the ones with lots of inside experience.

If you think you’re smarter than every MIT, Harvard and Berkley mathematics PhD who works for HFTs/hedges funds which have unlimited access to capital and co-locate servers on the NYSE for a 1 millsecond latentcy advantage to execute statistical arbitrage strategies, then by all means, go for it.

[quote]Ripsaw3689 wrote:
I do a bit of day trading before and during work. The idea behind it all is risk management. Keep your losses small and don’t get greedy. Set the amount you are willing to lose and how much you want to gain. For example, you may cap your max loss at $100 and settle for 2-2.5% for a gain. You want all that pocket change to add up at the end of the day.

You also need to be proficient at using indicators. I typically use a 9, 20, 50 and 200 day moving averages along with a tight bollinger band and trend lines.

You do not want to use a large broker like Etrade or ScottTrade. The commissions will eat away most of your profits at $10/trade. I use just2trade which is only $2.50 commission. You need a margin account, obviously.

The last thing is to be aware of the pattern day trading rule. Unless you are with a prop firm, you need $25k of equity in your account to day trade.

EDIT: I believe Dr. Pangloss does this for a living. I’m sure he will have some great input.[/quote]
I have enough equity where the pattern day trader thing would be OK. I also use moving averages, only in the direction of the predominant day trend. Commissions are reasonable. $2.50 on thinkorswim.
I did set a trailing stop loss and a take profit, one order cancelling the other. I am only going to do one lot on the emini 500 or dow for now.
Just have to figure out how much of a trailing stop I want to use. I am thinking something along the lines of the AvgTrueRange of 5 days? Take profit of 1.5 of this? Max risk of less than .5% until I get a feel.
Just curious if I need to find a way to let profits run longer, and add to a winning position ala turtle trading. So many questions…

[quote] wrote:
[/quote]
Yeah, I get it, but don’t they have the disadvantage of having to manage a lot of cash?
Just want to play a bit. capture a few hundred per trade, with a batting average of 55% - 60 %

I appreciate the concern, though, thanks.

[quote]jp_dubya wrote:

[quote]Ripsaw3689 wrote:
I do a bit of day trading before and during work. The idea behind it all is risk management. Keep your losses small and don’t get greedy. Set the amount you are willing to lose and how much you want to gain. For example, you may cap your max loss at $100 and settle for 2-2.5% for a gain. You want all that pocket change to add up at the end of the day.

You also need to be proficient at using indicators. I typically use a 9, 20, 50 and 200 day moving averages along with a tight bollinger band and trend lines.

You do not want to use a large broker like Etrade or ScottTrade. The commissions will eat away most of your profits at $10/trade. I use just2trade which is only $2.50 commission. You need a margin account, obviously.

The last thing is to be aware of the pattern day trading rule. Unless you are with a prop firm, you need $25k of equity in your account to day trade.

EDIT: I believe Dr. Pangloss does this for a living. I’m sure he will have some great input.[/quote]
I have enough equity where the pattern day trader thing would be OK. I also use moving averages, only in the direction of the predominant day trend. Commissions are reasonable. $2.50 on thinkorswim.
I did set a trailing stop loss and a take profit, one order cancelling the other. I am only going to do one lot on the emini 500 or dow for now.
Just have to figure out how much of a trailing stop I want to use. I am thinking something along the lines of the AvgTrueRange of 5 days? Take profit of 1.5 of this? Max risk of less than .5% until I get a feel.
Just curious if I need to find a way to let profits run longer, and add to a winning position ala turtle trading. So many questions…
[/quote]

Remember that stop losses do not work if there is a gap down past your stop loss.

I’ll give you Monday for an extra Saturday.

Nyuk nyuk nyuk

[quote]jp_dubya wrote:

[quote]Ripsaw3689 wrote:
I do a bit of day trading before and during work. The idea behind it all is risk management. Keep your losses small and don’t get greedy. Set the amount you are willing to lose and how much you want to gain. For example, you may cap your max loss at $100 and settle for 2-2.5% for a gain. You want all that pocket change to add up at the end of the day.

You also need to be proficient at using indicators. I typically use a 9, 20, 50 and 200 day moving averages along with a tight bollinger band and trend lines.

You do not want to use a large broker like Etrade or ScottTrade. The commissions will eat away most of your profits at $10/trade. I use just2trade which is only $2.50 commission. You need a margin account, obviously.

The last thing is to be aware of the pattern day trading rule. Unless you are with a prop firm, you need $25k of equity in your account to day trade.

EDIT: I believe Dr. Pangloss does this for a living. I’m sure he will have some great input.[/quote]
I have enough equity where the pattern day trader thing would be OK. I also use moving averages, only in the direction of the predominant day trend. Commissions are reasonable. $2.50 on thinkorswim.
I did set a trailing stop loss and a take profit, one order cancelling the other. I am only going to do one lot on the emini 500 or dow for now.
Just have to figure out how much of a trailing stop I want to use. I am thinking something along the lines of the AvgTrueRange of 5 days? Take profit of 1.5 of this? Max risk of less than .5% until I get a feel.
Just curious if I need to find a way to let profits run longer, and add to a winning position ala turtle trading. So many questions…
[/quote]

Booking profits too early is infinitely better than too late. I’ve been burned many times trying to squeeze more out of a stock. Also, scale out of winning positions (sell off 1/3 at a time usually) as well as losing ones. Again, risk management is key.

You can make pretty good money day trading one or two $5000 positions a day.

i use options for day trading. big name stocks that move minimum $2 a day. names like google, apple, amazon, netflix. other companies you can find that are approaching new 52 week highs or breaking out of resistance on heavy volume.

read “how to make money in stocks” by william o’neil as well as “technical analysis of stock trends” by edwards and magee.

i myself only use a simple bar chart with a 20,50 and 200 day moving average as well as volume. i dont use moving average crosses or any of that nonsense though, i just use them as a gauge of support and resistance. i got rid of every other indicator, theyre just noise and lag price action.

darvas and livermore are also fantastic reading.

basically keep a watchlist of stocks that are consolidating, and go long when they break resistance on heavy volume and short when they crack support on volume.

oh and “the trend is your friend”

[quote]NAUn wrote:
I’ll give you Monday for an extra Saturday.

Nyuk nyuk nyuk[/quote]
rimshot. Well played!!

Hate to brag, but I am up $75 for the week

Hate to brag but my mutual funds are up $8,000 for the past week. I probably have more money than you in the market, but just sayin. I personally am starting to take some money off the table, but you do not go against the FED when they keep pumping money into the market. I will probably keep 75% in the market.

Market is at all time highs in Cash Indexes and now everyone wants to be a Day Trader.


I could start writing and not stop all day… but here it is in short:

Best advice I can give for Day Trading. Not a timeframe longer than say a Day or Two (My assumptions for most that want to daytrade):

Don’t use any indicators or moving averages. Each day is different, new…past data has no significance.
Only use price. Previous close, current prices.

Key off intra day highs and lows. How does price act or react when it reaches those points.

There are “filters” or correlations you can use to help confirm…but that takes experience and education.

Avoid shorting until you’ve gained considerable experience.

Use some sort of stop (based on volatility is what I do) and let your profits run with the direction of the trend if it goes in your favor…raising your stop as it does. Essentially “hope” it goes up to infinity. You will miss the big moves if you don’t. Take quick satisfaction in selling at a loss…and procrastinate selling when at a profit. If you cant do that, I think someone mentioned selling in increments. That way some of it can “run”.

I personally don’t “risk” a certain amount based on a percentage or profit target… instead I use oscillations of “exposure” based on my levels of “aggressiveness” depending on my filters or how well things are correlating that I look at.

Trade infrequently. As a boxer may go several rounds before taking a knockout oppoertunity. Or letting strikes go by until you get a fat pitch. That comes with experienc too. SO your first objective is to survive in trading while you learn, and pay the tuition costs.

For what its worth.


Although these sources are more focused on currency trading, they’re applicable on all markets. Did you know the currency market is the biggest market with most liquidity, leading to very small spreads (and more often than not no commissions). I’ve been through a ton of educational material and I highly recommend the following book:

The Universal Principles of Successful Trading: Essential Knowledge for All Traders in All Markets (Wiley Trading) by Brent Penfold

I don’t know if you use a discretionary or a mechanical approach but if you use the former the obvious question is whether your results can be attributed to luck or to a positive mathematical expectancy. Statistics can help you get a better idea of the long term viability of your strategy. For this I highly recommend www.asirikuy.com . For a basically irrelevant fee you get access to an enormous amount of educational material (you also get access to automated systems, but these are useless without a thorough understanding). This site is run by Daniel Fernandez, a successful mechanical trader and contributor to the Currency Trader Magazine.

Good luck.

[quote]Hold Up wrote:
Market is at all time highs in Cash Indexes and now everyone wants to be a Day Trader.


I could start writing and not stop all day… but here it is in short:

Best advice I can give for Day Trading. Not a timeframe longer than say a Day or Two (My assumptions for most that want to daytrade):

Don’t use any indicators or moving averages. Each day is different, new…past data has no significance.
Only use price. Previous close, current prices.

Key off intra day highs and lows. How does price act or react when it reaches those points.

There are “filters” or correlations you can use to help confirm…but that takes experience and education.

Avoid shorting until you’ve gained considerable experience.

Use some sort of stop (based on volatility is what I do) and let your profits run with the direction of the trend if it goes in your favor…raising your stop as it does. Essentially “hope” it goes up to infinity. You will miss the big moves if you don’t. Take quick satisfaction in selling at a loss…and procrastinate selling when at a profit. If you cant do that, I think someone mentioned selling in increments. That way some of it can “run”.

I personally don’t “risk” a certain amount based on a percentage or profit target… instead I use oscillations of “exposure” based on my levels of “aggressiveness” depending on my filters or how well things are correlating that I look at.

Trade infrequently. As a boxer may go several rounds before taking a knockout oppoertunity. Or letting strikes go by until you get a fat pitch. That comes with experienc too. SO your first objective is to survive in trading while you learn, and pay the tuition costs.

For what its worth.


[/quote]

Strongly agree with only using the price and no indicators.

However I disagree with 2 important points you make.

1.The time frames. Why avoid higher time frames? I avoid lower time frames. If the time frame is lower the impact of market noise is way more important.

2.Avoiding shorting? Why would you do that? By avoiding shorting you build a directional bias in your trading. In the 90s with bullish markets this would have worked. However since 2008? Not so much.

[quote]dmaddox wrote:
Hate to brag but my mutual funds are up $8,000 for the past week. I probably have more money than you in the market, but just sayin. I personally am starting to take some money off the table, but you do not go against the FED when they keep pumping money into the market. I will probably keep 75% in the market.[/quote]
My “brag” was only about the little day trading I am doing. I am up just about as much as you for the month over all, 7.3.
I too am beginning to take things off the table. My dividend stocks I am looking to sell 15% or so in the money calls if and when this unbelievable rally starts to reverse or stall. I am at about 55% equity, with spot position trades here and there. Some option positions I grabbed my profits. I was fortunate enough to sell some calls against AAPL before the nosedive.
I have a friend that is trying to convince me to get into precious metals. Not funds, but actually taking possession of silver. Thinking about it.
Some good advice in here thusfar. Thanks all

[quote]Xav wrote:

[quote]Hold Up wrote:
Market is at all time highs in Cash Indexes and now everyone wants to be a Day Trader.


I could start writing and not stop all day… but here it is in short:

Best advice I can give for Day Trading. Not a timeframe longer than say a Day or Two (My assumptions for most that want to daytrade):

Don’t use any indicators or moving averages. Each day is different, new…past data has no significance.
Only use price. Previous close, current prices.

Key off intra day highs and lows. How does price act or react when it reaches those points.

There are “filters” or correlations you can use to help confirm…but that takes experience and education.

Avoid shorting until you’ve gained considerable experience.

Use some sort of stop (based on volatility is what I do) and let your profits run with the direction of the trend if it goes in your favor…raising your stop as it does. Essentially “hope” it goes up to infinity. You will miss the big moves if you don’t. Take quick satisfaction in selling at a loss…and procrastinate selling when at a profit. If you cant do that, I think someone mentioned selling in increments. That way some of it can “run”.

I personally don’t “risk” a certain amount based on a percentage or profit target… instead I use oscillations of “exposure” based on my levels of “aggressiveness” depending on my filters or how well things are correlating that I look at.

Trade infrequently. As a boxer may go several rounds before taking a knockout oppoertunity. Or letting strikes go by until you get a fat pitch. That comes with experienc too. SO your first objective is to survive in trading while you learn, and pay the tuition costs.

For what its worth.


[/quote]

Strongly agree with only using the price and no indicators.

However I disagree with 2 important points you make.

1.The time frames. Why avoid higher time frames? I avoid lower time frames. If the time frame is lower the impact of market noise is way more important.

2.Avoiding shorting? Why would you do that? By avoiding shorting you build a directional bias in your trading. In the 90s with bullish markets this would have worked. However since 2008? Not so much.
[/quote]

1 - Wasnt trying to advise to avoid higher time frames. My understanding is the OP question was in regards to lower time frames.

2 - For less experienced traders I don’t advise shorting. Mainly to avoid whipsaw action, increased trade frequency, resulting higher odds of substantial drawdown. If good discipline is used…it is very hard to lose money at a higher rate than chance when you take a directional bias to your trade and that bias is wrong…because then you shouldnt have a trade on in the market. Also, of course the stock market has a built in edge of a historical uptrend and shorting is going against that bias.

Now, I don’t have anything against shorting and I do short… but I just believe MOST should avoid it until they have enough time behind the wheel. I think shorting is a different ball game in the stock market than going long. If you’re talking currencies, commodities, etc, etc. Well…have at it. Everyone needs to find their niche and everyone has their own particular strengths and weaknesses.

[quote]jp_dubya wrote:

[quote]dmaddox wrote:
Hate to brag but my mutual funds are up $8,000 for the past week. I probably have more money than you in the market, but just sayin. I personally am starting to take some money off the table, but you do not go against the FED when they keep pumping money into the market. I will probably keep 75% in the market.[/quote]
My “brag” was only about the little day trading I am doing. I am up just about as much as you for the month over all, 7.3.
I too am beginning to take things off the table. My dividend stocks I am looking to sell 15% or so in the money calls if and when this unbelievable rally starts to reverse or stall. I am at about 55% equity, with spot position trades here and there. Some option positions I grabbed my profits. I was fortunate enough to sell some calls against AAPL before the nosedive.
I have a friend that is trying to convince me to get into precious metals. Not funds, but actually taking possession of silver. Thinking about it.
Some good advice in here thusfar. Thanks all
[/quote]

My brag was just being sarcatic, but the numbers were true. I am 40% Stocks, 10% Cash, and 50% Real Estate. I bought silver at $10-16 an oz, and hoping to sell soon in the $30-40 range. Once the Fed stops printing money the precious metals are going to dive. They are up so much because people are afraid of inflation. I love my income producing Real Estate. About to buy a 60-100 unit apartment complex this year.

I’ve been wanting to come back to this thread for some time now, but haven’t had the time to do it justice.

First, my bona fides: trading for nearly 20 years, exchange member, spent most of my career on the trading floor and made the transition off-floor about 8 years ago, yada, yada, yada…

There’s a ton of information so I’ll try and give some basic background and I’d be happy to answer more specific questions you might have. It sounds like what you’re interested in is short-term position trading. The term “day trading” is usually reserved for those who are trying to make trading (especially stocks) their vocation.

To be honest, the trading landscape absolutely sucks right now. Equity volatility is at 17 year lows, central banks are acting in concert to orchestrate lending rates, and most major currencies are range-bound. The case for actively trading individual issues is even worse. The advent of penny pricing and HFT’s have decimated the ranks of day traders who can no longer compete on speed or cost.

That being said, if you really had some money set aside and wanted to risk it, I’d recommend trading the following futures products:

ES - Emini future on the SP index
Mini and micro FX futures
Physical commodity futures

All of these products off decent volatility, excellent liquidity, high levels of transparency, and protection of customer funds. You can easily find an online broker who will allow you to trade these products.

Regarding trading strategies, I’m often asked which indicators work. The truth is they all do, the problem is they may work for short periods of time before they no longer work and the signals are nearly nonexistent. Therefore, as others have said, money management becomes of utmost importance.

Let me know if you have any other questions.

Maybe the day traders here could tell us how profitable day trading is for them or in general and thus, if it’s worth it for newbies.