Jacob Bernstein - The Ultimate Day Trader: How to Achieve Consistent Day Trading Profits in Stocks, Forex, and Commodities

The
Ultimate
Day
Trader

HOW TO ACHIEVE CONSISTENT DAY TRADING PROFITS IN
STOCKS, FOREX, AND COMMODITIES

JACOB BERNSTEIN
Chief Market Analyst, Daily Sentiment Index

Dedication

This book is dedicated to the thousands of traders all over the world who have been loyal followers of my work. Your suggestions have helped me learn and grow. Although we are all players in the most difficult trading game in existence, we have also helped each other grow by example, by learning, and by persistence.

Jake Bernstein
Santa Cruz, CA
March 2009

Acknowledgments

I thank the following individuals and/or organizations for their assistance in various forms:

To Peter Archer of Adams Media who had his patience tested to the limit with my tardiness. To my family who was also patient in the time I took from them to write this book. To the good people at Genesis Financial Technologies for permission to use their charts and software. To my office staff for their never-ending patience and help. To my literary agent Michael Steinberg who, in spite of me, remains my agent, and to the many traders out there who have used, believe in, and supported my work

Jake Bernstein

Contents

Introduction

Change creates opportunity. While investors and traders often fear the consequences of change, for day traders change in market trends creates opportunities for profit. At no time in the history of the stock and commodity markets have such opportunities been as promising or as plentiful as they are today. Why? Because never before have changes in market trends been as swift, as frequent or as large as they are today.

While the importance of long-term market trends over one year or more cannot be denied, the numerous short-term and intra-day opportunities in todays markets offer heretofore unheard of profit potential to day traders. In the case of crude oil futures, for example, the price range in one day can go as high as $6,000 per contract. The typical price range for crude oil futures in 1998 went from about $800 to $1,600 in one day. Clearly, the change has been dramatic.

The factors that have combined to nourish this seemingly best of all possible day trading worlds are several and substantially varied. They include the rapid growth of electronic order entry, fully computerized trading, the influx of substantial risk capital through hedge funds and sovereign wealth funds (adding liquidity to the markets), significant advances in Internet speed connectivity, the development of advanced trading and charting software, as well as the persistent decline in commission costs. Traders can trade faster and cheaper than ever before.

But can they trade better? Have the tools and techniques for day trading improved commensurate with profit-making opportunities? Has the lot of the typical day trader improved or stagnated? Has the advent of twenty-four-hour trading provided new opportunities for profits or pitfalls for losses? Has the foreign currency (FOREX) market truly been a new source for profits or simply a new vehicle for professional trader and broker/dealer profits?

Yes, change creates opportunity. But does opportunity create profits? No! Opportunity opens the door to potential profits but we must still walk through that door safely, sanely and with clear direction. The Ultimate Day Trader will show you that door and give directions on how to walk through it. After all, youre the one whos doing the walking.

NEW ERAOLD ISSUES

We have entered a new era of trading and investing that, although promising, is fraught with risk. Instead of a two-sided coin on which one side is change and the other side opportunity, we need to think of a multifaceted polyhedron that reads change, opportunity, risk. I emphasize this because many traders and investors, blinded by the lure of profits and inspired by the promise of technology, have either ignored or underplayed the risk side of the equation. In and of itself such myopic behavior is not unusual. In todays markets, more than ever, to ignore risk is an invitation to disaster. Truth be known, I believe that many brokerage houses and trading platform providers have, in their fervor to promote day trading, significantly under-represented the risks.

To ignore risk and focus only on potential reward is hardly unique in market history. During the Dutch Tulip Mania of the 1600s, speculators bought and sold tulip bulbs of minimal intrinsic value. Nonetheless speculators paid the equivalent of thousands of dollars for a single bulb. Without a doubt they were focused on the opportunity while underplaying the concomitant risks and realities. In their never-ending pursuit of profits, many market players have embraced day trading as their vehicle to riches. Much to the chagrin of many, their dreams rarely become realities. The reasons for their failure are clear and unmistakable. Lets examine two of the most prominent reasons:

1. There is the simple and undeniable fact that most day tradersare nothing more than amateur gamblers. They bring to the business of day trading an orientation that is not consistent with the necessary principles of solid risk management and profit maximizing strategies.

2. Most aspiring day traders lack a consistent and logical trading methodology, a functional knowledge of order placement, sufficient funds, and self-discipline, as well as the hands-on experience essential to succeed in the most demanding of all financial games.

Given this sad but true situation, the aspiring trader must overcome numerous obstacles to achieve consistent profitability. While this book will provide you with a number of technical tools that I believe will assist you in your quest for profits, I will also attempt to address issues that may impede your progress. Recognizing the fact that even the best tools can be rendered less than effective by limiting factors such as the two reasons stated above, I will offer you some cogent solutions and directions that will facilitate your success if you apply my methods properly and consistently.

PROMISES, PROMISES

Day trading has always been a favorite arena for purveyors of hype and hope. In late 2007, an Internet search of the phrase profitable trading returned 376,000 results. Among the lines:

Learn successful trading

How to Develop a Profitable Trading System

Profitable Trading System Secrets

Options Made Easy: Your Guide to Profitable Trading

Profitable Trading Techniques

135% 07 Return so Far

Day Trading 90% Accurate

Big Profits Up and Down

The list drones on with the same theme for literally hundreds of pages.

An Internet search of the phrase day trading returns 8.1 million results! The promises, guarantees, profit potential, and claims range from the utterly absurd to the downright impossible. Sadly, there are far too many gullible investors who, enticed by the pandering pitch, are ready to part with their hard-earned money to learn the art and science of day trading. Lured by the prospect of making a living from the financial markets, they have become victims of what I call the Great Day-Trading Robbery.

But lets not throw the baby out with the bath water. Its not all bad. Somewhere within the haystack of outrageous claims are a few precious needles of truth. It is my goal to share some of these with you within the pages of this book. What I am about to share has been acquired through hands-on trading experience over the last forty years, combined with extensive research on trading methods and systems.