Baron McBane - Day Trading: A Comprehensive Guide to Making Money with Day Trading

Day Trading

A Comprehensive Guide to Making Money with Day Trading

Copyright 2017 by Baron McBane

All rights Reserved. No part of this book may be reproduced in any form without permission in writing from the author. Reviewers may quote brief passages in reviews.

Disclaimer

No part of this publication may be reproduced or transmitted in any form or by any means, mechanical or electronic, including photocopying or recording, or by any information storage and retrieval system, or transmitted by email without permission in writing from the publisher.

While all attempts have been made to verify the information provided in this publication, neither the author nor the publisher assume any responsibility for errors, omissions or contrary interpretations of the subject matter herein.

This book is for entertainment purposes only. The views expressed are those of the author alone, and should not be taken as expert instruction or commands. The reader is responsible for his or her own actions.

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Neither the author nor the publisher assumes any responsibility or liability whatsoever on the behalf of the purchaser or reader of these materials. Any perceived slight of any individual or organization is purely unintentional.

Preface

T his book is a comprehensive guide for new day traders. Day trading has been described as a "way of life" implying that the day trader must be completely absorbed in the activity, to the exclusion of everything else in life. That is not true. Successful day traders can work only a few days a week or only a few hours a day. Most day traders have profit as their motive and how many hours each week they spend studying the market and trading, the more money they can earn. Day traders are interested in all forms of investment; stocks, foreign currency exchange, exchange-traded funds and more. Profits can be made by well-informed and savvy traders in every one of these areas.

In this book, we will generally refer to trading in stocks, implying equities. This is only for simplicity for the readers. Almost everywhere, the information applies equally to all the other financial instruments, as well. There is also an important disclaimer we must state. Day trading in Equities, Futures, Currencies and Options has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the equities, futures, currency and options markets. Do not trade with money you cannot afford to lose.

In terms of vocabulary, in this book, we use the short phrase "go long" for issuing buy orders and "go short" for issuing sell orders. Be aware that like with any other trading, you can sell instruments you don't own, by using a margin trading account.

This book is neither a solicitation nor an offer to Buy/Sell futures, stocks or options or any other financial instruments. No representation is being made that any account or trader will or is likely to achieve profits or losses similar to those discussed in this book. The past performance of any trading system or methodology is not necessarily indicative of future results. The author of this book does not hold a position in any of the stocks mentioned.

Chapter 1 Introduction to Day Trading

M ake no mistake, day traders can make money in a matter of minutes, often in small amounts but on large number of stocks, those few cents can add up to large profits. However just as you can make a lot of money fast, you can also lose money at incredibly high speeds. Not every trade the day trader makes will result in profits. Sometimes it seems that the market is completely random, not following anything resembling logic or predictability. The market is volatile and fast. Prices can change at what seems like the speed of light. However, the market for any given stock follows some well-understood patterns. It is these patterns and their predictability that day traders use to their advantage. Stocks do not always follow these patterns and when they don't, traders can lose money. But when they do and the trader is positioned correctly, day traders can and do make a lot of money.

Only a small fraction of traders on all markets are day traders. Most of them are more conventional investors. And, not all investors use the same strategies because individual investors have different objectives. Some investors are looking for security; others are looking to take advantage of the yields from options. There are as many strategies as there are investors. Day traders also have their own strategies and objectives. We will look at some of these different types of investors.

Buy and Hold

Most investors buy stocks (or bonds or other financial instruments) with the idea of buying the instruments, and holding them for an extended period of time, collecting dividends for some stocks and capital appreciation for most. This is the source of revenue and income but it requires that at some time, they must sell the holding. Most investors rely on this buy and hold strategy for building portfolios and saving for the future. Investors must pay attention to the market but daily checking is usually not necessary. Looking over your portfolio once a month or so is usually fine to keep an eye on your positions. Over the long-term, buy and hold investors can build substantial portfolios, but it is not quick.

IRA's (Individual Retirement Accounts) usually operate as buy and hold accounts. Dividends can accumulate, and these investors can set up a DRIP (dividend reinvestment program) to continue accumulating positions automatically. To a great degree, investors like Warren Buffet use buy and hold along with DRIP to build value automatically.

Buy and hold investors use fundamental analysis to judge which instruments to buy or sell. They are concerned with the quality of the company, effectiveness of the management team, the products or services offered and how competitive they are in their industry. These investors look for quality of the product or service, favorable balance sheets, strong profit and loss statements and all the other indicators of fundamental quality.

Trading in Options

Options trading is a short-term action in which the investor buys or sells call or put contracts in some financial instrument. Options have an expiration date, and are either "in the money" or "out of the money" at expiration. The investor can sell positions, puts or calls, before expiration but frequently holds them until they expire. Puts and Calls are buy and sell contracts on blocks of stocks with a specified expiration date. Option contracts are valid until the expiration date and in some cases, are 'assigned' that is, required to be acted upon or else they expire with no value.