EBOOK @PDF How To Day Trade Stocks For Profit PDF Click button below to download or read this book. Description Would you like the. Editorial Reviews. About the Author. Harvey Walsh quit his day job with the idea of day trading from home. His friends thought he was crazy, but not only did he. Trade in an office, or from a beach hotel, you choose when and where you work when you're a successful day trader. This book will Ask it above. How To Day Trade Stocks For Profit Electronic publishing was limited to PDF files. For the.
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Day. Trader's. Trader's. Bible. Or My Secrets of Day. Trading In Stocks. By Richard . started to play the bear side of the market, using his profits as additional. day traders, brokers, and others in the investment business, including. Jack Alogna Because they close out their positions in the stocks, options, and futures contracts they day, and nothing can happen overnight to disturb an existing profit position. .. org/content/Files/ditaremcico.tk, did not include. Day Trading: Strategies and Techniques to Identify the Best Trading Stocks, Options and How to Avoid information to make profitable day trading decisions.
The iPad and iPhone have helped Apple turn their own iBooks store into a serious contender. New electronic stores and reading devices seem to launch every week. One thing has remained constant throughout all these changes. The stock markets continue to provide opportunities to make straightforward and sizable profits, every day of the working week.
Entire economies may well be collapsing in smaller indebted nations, but the major world markets keep chugging along, not exactly oblivious to the turmoil all around, but neither derailed by it. Quite the opposite in fact. As more and bigger financial stories continue to hit the headlines, the markets react by offering up increasingly more profitable trading opportunities. As you will learn in this book, news - good or bad - means opportunity. As long as the world continues to change, creating a flow of news, so the markets remain constant in presenting possibilities for profit.
Whilst it can be tempting to jump ahead and go straight for the good stuff - the nitty gritty on specific trading setups, I urge you to be patient and read through everything in order. Like building a new house, building a set of skills requires solid foundations.
For example, in case of bankruptcy, preferred stock holders are paid first, before common stock holders. Many times, these stocks are not even listed on the exchanges, and the volume is typically only a few thousand shares per day. After these stock picking services download tens of thousands of these shares, they start recommending it to their subscribers.
And, if you ask your broker to download this stock for you, you might end up paying times more than normal in commissions. The stock picking service is now hoping that many of their subscribers will start downloading this stock. Since stock traders are greedy by nature, many will probably start downloading this stock, and since there is a sudden demand, the stock prices will go up — initially.
But, before the stock hits the predicted exit price, the stock picking ser- vice starts selling or dumping the shares that they bought BEFORE they recommended it to you. Since they bought such a large amount of this stock, there's suddenly an enormous supply available again, and prices start falling.
More and more investors panic and sell their stocks, which drives the stock prices even further down. After a massive sell-off, the stock is generally trading at the same level it was BEFORE the stock picking service started recommending it. So, investors are losing their money, and the only winner is the stock picking service.
When you open a margin account, you can trade stocks on margin. downloading on margin is borrowing money from a bro- ker to download stock. You can think of it as a loan from your brokerage. Margin trading allows you to download more stock than you'd be able to normally. This deposit is known as the minimum margin.
In this case your leverage is 1: Currently there are more than 10, stocks available on U. Around stocks have an average daily volume of more than 2,, shares traded, and more than of them are traded with over 3,, shares per day. Volatility has NOT been a problem in the stock mar- kets, especially in Just like any other type of trading, the basic rule in the forex market is that you have to download when the market is going up and sell when the market is going down.
Forex trading involves the downloading and selling of currencies. All the currency of the world is involved in the forex market. It may be confusing to choose which one to trade, but all you really need to know are the major currencies, which are the most frequently traded.
Dollar USD 2. Japanese Yen JPY 3. British Pound GBP 4. Swiss Franc CHF 5. Australian Dollar AUD 7. Canadian Dollar CAD. The next thing you need to know is that forex is traded in currency pairs. You can easily make or lose thousands of dollars in a single day.
Many forex brokers offer "free quotes and charts" and "no commissions," but keep in mind that nothing is for free. You are paying a spread — i. The same concept applies when trading forex: And that's why your broker is giving you the quotes for free: Take a look at these forex quotes.
All three of the following screenshots were taken on Tuesday, January 1st, , at 3: Easter Time. The first data source reports it at 1.
The second data source shows 1. The third data source reports a high of 1. Do you see the problem? Forex prices are completely subjective. Although the capital requirements for trading the forex markets are al- ready low, "Mini-Forex Trading" has become very popular recently.
On this account, you can trade up to 5 mini lots. Instead of trading in , units, you are trading in 10, units. Even with just a small stake involved, you still get to enjoy benefits such as a free trading platform — just like regular forex traders.
A few other benefits include state-of-the art trading software, charts, and resources. In this way, you can build up your confidence in your trading skills while slowly increasing your profits and trading position in the market. You get to manage your money on a small scale before going for the higher stakes in regular forex trading. You can also develop a sound trading strategy without getting too emo- tionally involved in possible profits or losses. For practice, newbies can start with paper trading; in the real market, they can start small with mini-forex trading.
Mini-forex trading requires a smaller amount of capital and less emo- tional investment, and it provides the perfect opportunity for you to slowly build up your skills and confidence as a trader. In a way, it pre- pares you for the higher stakes of the more advanced world of foreign exchange trading. The typical leverage in the forex market is 1: Recently, forex brokers started offering leverage of 1: This is certainly not a problem in the forex market.
Here are the daily averages of turnover on the forex market over the last 15 years:. You will find decent volatility in the forex market. Here are the average daily movements for three dif- ferent currency pairs:.
The leverage is at least Overall, forex seems to be a good market to trade, but keep in mind that there are some disadvantages, too, as mentioned earlier in this section. Futures trading continues to grow in popularity, and many traders are jumping into this type of investing. People often think that futures are extremely risky and difficult to trade.
Thanks to high leverage, futures trading IS more risky than stock trading. So what are futures? Futures contracts, simply called futures, are ex- change-traded derivatives.
Currencies — The currency market is probably the best-known commodity available, dealing in the British Pound, the American Dollar, the European Euro, etc. Interest Rates — Interest rates are traded in two ways on this market: Energies — A variety of fuel commodities are traded on this mar- ket, including natural gas, heating oil, and crude oil futures. Food Sector — Sugar, coffee, and orange juice are just a few of the regular goods traded in this sector. Metals — Commodities in this market are fairly well-known, such as copper, gold, and silver.
Agricultural — Futures in this market include wheat, corn, cof- fee, and soybeans. Futures are not borrowed like stock, and therefore initiating a short posi- tion is just as common and easy as downloading the futures. Trading on commodities began in early 18th century Japan, with the trading of rice and silk, and similarly in Holland, with tulip bulbs. Trad- ing in the U. All contract trading began with traditional commodities such as grains, meat, and livestock.
Exchange trading these days has expanded to include metals, energy, currencies, currency indices, equities, equity indices, government interest rates, and also private interest rates.
Contracts on the financial instru- ments were introduced in the s by the Chicago Mercantile Ex- change. These instruments became hugely successful and quickly over- took commodities futures in terms of trading volume and global accessi- bility in the markets.
Each futures contract is characterized by a number of factors, including the nature of the underlying asset, when it must be delivered, the currency of the transaction, and at what date the contract stops trading, as well as the tick size, or minimum legal change in price. It can be traded electronically five days a week, almost 24 hours a day. The margin amount required to trade is sig- nificantly smaller than a standard contract, and since not all traders have the funds to trade on the regular NASDAQ , this E-mini is the perfect solution.
Light Sweet Crude Oil — Oil futures are one of the most well-known commodities out there. Gold — The gold futures contract is also popular. Since that time, the gold price has gone through regular, dramatic changes, and those changes are usually in the opposite di- rection of the U.
The gold futures contract follows the changes in price per ounce of gold, and gold investments are frequently used in hedge funds. The growing popularity of futures trading stems from the fact that only a relatively small amount of money, known as initial margin, is required to.
By definition, these futures margins are a good faith deposit to ensure that the market participants are legitimate. Whenever you open a position by downloading or selling futures, you will pay a small initial margin.
The advantage is that the initial margin on a stock future is much less than the cost of downloading the actual stock outright. This index could rise from to As of October 12th, , it is trading at around In order to make it affordable for pri- vate traders, the SPY is divided by ten.
And how much capital is needed in order to trade one share? So, for dollars, you will be rewarded with a one dollar profit if the whole index moves by 10 points. And, if you were trading shares of the SPY, then you would make dollars on a move of 10 points.
Obviously, the capital needed for shares is much higher than for one share. The capital needed is actu- ally dollars per share times the shares that you would want to trade. The thing to look at here is your return on investment, which is what most traders use to measure their success. If you make five hundred dollars after investing 78, dollars, the re- turn on that investment would be 0.
This is exactly why we have the futures markets. And how much of an investment is required to make dollars off one contract in this move? So, you can deposit 4, dollars and participate in a point move for a profit of dollars.
Instead of 0.
Of course, this can be a double-sided sword. You can easily make dollars, but if the trade goes against you, you would lose dollars. As you can see at the bottom of the previous chart, there are small Rs.
These Rs indicate expiration dates. A futures contract is only valid for a certain period of time. You might know this concept from options. Op- tions also have an expiration date. After the expiration date, a new futures contract starts trading and the old contract expires. You might have heard horror stories that if you are holding a position and the futures contract expires, then you will have to take delivery.
So, according to these tales, if you are trading the grains — corn, for example — and the contract expires, you will get the corn deliv- ered to your doorstep. Basically, what will happen is this: We should get rid of this position or roll it over. So, you can see that it goes from to and a quarter, and a half, and three quarters, and then up to Very easy. There are four quarters in one point, so you just have to divide the 50 dollars by four. So, why is that important? Keep in mind that you can also LOSE 50 dollars per point.
Now, just think about this for a minute: Well, you could download shares of the SPY stock. Or you could trade 20 futures contracts in the ES. You can see the difference. There are two types of margins. The initial margin sometimes called the original margin is the sum of money that the customer must deposit. Initial margin is paid by both downloader and seller.
Additionally, the maintenance margin is the minimum amount which an investor must keep on deposit in a margin account at all times for each open contract. Typically, the maintenance margin is smaller than the ini- tial margin.
Another important thing to be aware of when dealing with margins is something called a margin call. If the margin drops below the margin maintenance requirement established by the exchange listing the futures, a margin call will be issued to bring the account back up to the required level. Another difference in trading futures vs. Any day that profits accrue on your open positions, the profits will be added to the balance in your margin account automati- cally, not just when you close the position.
When you are downloading stocks, all the money that you make or lose will be either added or subtracted to your account only when you close the position. So, when profits occur on your futures contracts, they will be added to the balance of your margin account, and on any day losses accrue, the losses will be deducted from the balance of your margin account.
Keep in mind, if the funds remaining in your margin account dip below the maintenance margin requirement, your broker will require that you deposit additional funds to bring the account back to the level of the re- quired margin. Again, this is called a margin call. Due to the low margin requirement, futures trading offers everyone an equal opportunity to make a fortune even with a small bank account. It allows traders to build up their accounts. But, as stated before, if you take futures trading lightly, you could also wipe out your trading account in a matter of days.
There are a lot of options! The best approach would probably be to start with the more popular commodities, until you have a better idea of which contracts most fit you and your trading.
The more you know about the basics of futures contracts and commodi- ties like this, the better your chances of trading success. In order to trade a futures contract, you need to deposit an initial investment into your futures trading account. Each contract requires an initial mar- gin. Here are some examples for the most popular contracts as of January Again, the liquidity depends on the futures contract you are trading.
Here are some numbers:. As you can see, the liquidity varies, and therefore you MUST check the volume of the futures market you are plan- ning to trade. You will find decent volatility in the futures markets. Like in the forex markets, the high leverage will allow you to make decent profits, even if the markets move just a few points.
Here are some average daily moves:. The leverage is at least 1: Futures markets are regulated and the spread is typically 1 tick mini- mum movement of the contract. Make sure to check the volume and liquidity of the market you want to trade, since there are huge differences between the markets. Stock options trading is quite similar to futures trading — they both in- volve the process of downloading stocks at a pre-determined price and then selling them when the price rises above its original amount.
When you download an option you have the right — but not the obligation — to download call or sell put a specific underlying asset at a prearranged price on or before a given date. The reverse of this is a put right to sell option on an underlying asset. You might feel that the market is overheated at the present time, and you want to download a put right to sell option.
This will give the individual who bought the put option the right to sell that option at an agreed upon price strike price on or before a specific date expiration date. Options are one of the oldest trading vehicles which man has ever used.
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Around B. When the harvest did in fact prove to be a great one, Thales was able to rent the presses out at a significant profit.
The leverage depends on the option you choose. Options are typically not very liquid. Even if you trade options on the Dow 30 stocks, you will notice that only a few thousand options are traded per day. The reason for the low volume is the broad choice of options: Fortunately, option prices are NOT subject to market manipula- tion since the value of an option is not determined by supply and demand, but by a mathematical formula created by Black and Scholes.
The liquid- ity is very low compared to the other markets, and the volatility is scary. Stock options are a fantastic instrument to trade when traded on daily or weekly charts. Day trading stock options is extremely risky and difficult, and not for the novice trader.
Spend four more hours learning about the market you choose. Surf the Internet and read articles. Try to find out as much as you can about your preferred market without being overloaded with information. Selecting a Timeframe. Popular intraday timeframes are minute, minute, minute, minute, 5-minute, 3-minute, and 1-minute.
When you select a smaller timeframe less than 60 minutes , usually your average profit per trade is relatively low. On the other hand, you get more trading opportunities. Smaller timeframes mean smaller profits, but usually smaller risk, too. You might think that you see an emerging trend just to realize that it was only a short manipulated move and that the trend is over as soon as you enter the market. Therefore I recommend using minute charts. When developing a trading strategy, you should always experiment with different timeframes.
Selecting a Trading Approach. A fter selecting a market, you need to decide which trading ap- proach you would like to use. A good deal of reliance is placed on annual and quarterly earn- ings reports, the economic, political and competitive environ- ment facing the company, as well as any current news items or rumors relating to the company's operations.
In other words, fundamental analysis is the study of basic, underlying factors that affect the supply and demand of the contracts which are be-. In addition to this company-specific data, you need to take the overall economic environment into consideration and start looking at various macroeconomic indicators, such as economic growth rates, inter- est rates, inflation rates, and unemployment rates. As an example, interest rate hikes are seldom good news for stock mar- kets. This is due to the fact that many investors will withdraw money from a country's stock market when there is a hike of interest rates, causing the country's currency to weaken.
Knowing which effect prevails can be tricky. When the Fed announced an interest rate cut in December of , the Dow Jones Index dropped points. Fundamental analysis is not easy. Big trading companies like Goldman Sachs are employing analysts with Ph. Therefore technical analysis involves the study of a stock's trad- ing patterns through the use of charts, trendlines, support and resistance levels, and many other mathematical analysis tools, in order to predict future movements in a stock's price, and to help identify trading opportunities.
Market action discounts everything. Regardless of what the fundamentals are saying, the price you see is the price you get. All three of the points above are important, but the first is the most criti- cal. The markets are driven by greed and fear, and not by supply and demand. An economic report itself is meaningless: IBM announces that it will meet the projected sales targets, and the shares drop like a rock, because traders hoped that IBM would exceed its goals.
You can learn the basics by reading a couple of books, whereas you need to study micro- and macro-economics to master funda- mental analysis. And even then, you might be fooled by the mar- ket. On Friday, April 7th, , the unemployment rate for March was pub- lished. The market expected an unemployment rate of 4. For Treasury traders, the in-line data essentially provided no evidence that the Fed will be inclined to soon end its monetary tightening cycle.
So the stock traders thought there was good news and the market was moving up, but the treasury trader in the other room thought the un- employment data was bad news.
So treasury instruments were rallying, causing the stock market to drop like a rock. But don't stocks lead the treasuries? Or do treasuries lead stocks? And more important: Will they cease increasing interest rates or even lower the rates again? This would provide a boost for the stock market. Or will traders fear that there's an economic slowdown which might re- sult in lower company earnings?
This would move the market down. As you can see, it's not the news that moves the market — it's the reaction of the traders to the news that makes the prices jump up and down.
You sim- ply believe that the factors which affect price — including fundamental, political, and psychological factors — have all been built into the price you see.
This means that anything which can affect the price of a financial in- strument has already been factored into the current price by the market participants.
Technical analysts look at charts the same way a doctor would look at x-rays: The most basic charts are bar and line charts. These charts are simply indispensable. Any market has four different trading points throughout one day.
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They are: All of these points appear on the charts. The opening price O is the first trade of the day. The closing price C is the last trade of the day. Unlike the opening price, the closing price will normally be representative of deci- sions made by reason and research — not gut feel. The difference between the high and low on the charts is referred to as the Range. The fifth variable displayed on a chart is typically the volume V , speci- fying the number of shares, lots, or contracts traded during the time pe- riod between the open of the market and the close.
Purely looking at these five points on the charts will not be enough to plan future trades. You need to look at them over a series of time in order to evaluate trends in the market. Day traders use trading charts to watch the markets that they trade, and decide when to make their trades.
There are several different types of trading charts, but they all show essentially the same trading information, such as the past and current prices. A bar chart, also known as a bar graph, is a chart with rectangular bars whose lengths are proportional to the value they represent. Bar charts are used for comparing two or more values.
The bar chart is one of the most common charting methods. A bar chart indicates a single bar that extends from the high to the low of the trading period it is meant to depict. In addition, the opening and closing price levels could be displayed as small branches coming away from the main bar at the appropriate level. Closing prices are put on the right side of the bar. Opening prices are put on the left side. Bar charts consist of an opening foot, a vertical line, and a closing foot.
Each bar includes the open, high, low, and close of the timeframe, and also shows the direction upward or downward , and the range of the timeframe. Open — The open is the first price traded during the bar, and is indicated by the horizontal foot on the left side of the bar. High — The high is the highest price traded during the bar, and is indicated by the top of the vertical bar. Low — The low is the lowest price traded during the bar, and is indicated by the bottom of the vertical bar.
Close — The close is the last price traded during the bar, and is indicated by the horizontal foot on the right side of the bar. Direction — The direction of the bar is indicated by the locations of the opening and closing feet. If the closing foot is above the opening foot, the bar is an upward bar, and if the closing foot is below the opening foot, the bar is a downward bar. Sometimes a charting software allows you to color these bars, in which case the upward bars are typically colored green, and the downward bars are colored red.
Range — The range of the bar is indicated by the locations of the top and bottom of the bar.
In the s, Homma, a Japanese trader in rice, noticed how the price of rice was influenced by human psychology as much as by the supply and demand situation. Homma used candlestick charts to trade rice and amassed a huge fortune in the markets.
In fact, it was rumored that he never had a single losing trade! Human psychology has never changed; it has remained constant over time — candlestick charting is just as useful today as it was hundreds of years ago. Even though they may look a little complicated, there are some great rea- sons to use candlestick charts.
You can use candlestick charts as you would use the common bar chart, and you can combine them with traditional market in- dicators. Candlestick charts are a great way to spot opportunities, filter, and time trades with other indicators. Because of the way candlestick charts are viewed, they can give you visual warnings of market reversals much more clearly than traditional bar charts.
A Detailed Guide to Day Trading Strategies,
If you look at candlestick charting, the human psychology of the move literally jumps out of the page at you. The different candle names are also easy to remember. The way the candlestick chart is drawn not only gives the direc- tion of price, but also the momentum behind the move.
Candlestick charts consist of a wide vertical line, and a narrow vertical line. Each candlestick includes the open, high, low, and close of the time- frame, the direction upward or downward of the timeframe, and the range of the timeframe.
Open — The open is the first price traded during the candlestick, and is indicated by either the top or bottom of the wide vertical line the bottom for an upward candlestick, and the top for a downward candlestick. High — The high is the highest price traded during the candle- stick, and is indicated by the top of the thin vertical bar the wick of the candlestick. Low — The low is the lowest price traded during the candlestick, and is indicated by the bottom of the thin vertical bar the upside down wick of the candlestick.
Close — The close is the last price traded during the candlestick, and is indicated by either the top or bottom of the wide vertical line the top for an upward candlestick, and the bottom for a downward candlestick. Direction — The direction of the candlestick is indicated by the color of the candlestick specifically the wide vertical line. Usu- ally, if the candlestick is green, the candlestick is an upward. In the following chart, the upward candlesticks are colored black, and the downward candlesticks are colored white.
Range — The range of the candlestick is indicated by the loca- tions of the top and bottom of the thin vertical lines the wicks. The candlestick has a wide part, called the "real body. If the real body is filled with red, it means the close was lower than the open. If the real body is green, it means the opposite — the close was higher than the open. Above and below the real body we see the "shadows.
The shadows actu- ally show the high and the low of the day's trading. If the upper shadow on the green filled-in body is short, it indicates that the open that day was closer to the high of the day. On the other hand, a short upper shadow on a red or unfilled body shows the close was near the high.
Plus, they provide greater insight into market moves, along with the versatility to be used in any type of trading. A simple line chart draws a line from one closing price to the next clos- ing price.
Line charts show the general price movement over a period of time. Some investors and traders consider the closing level to be more important than the open, high, or low. By paying attention to only the close, intraday swings can be ignored. Line charts are also used when open, high, and low data points are not available. Sometimes only the closing data is available for certain indi- ces, thinly traded stocks, and intraday prices.
Line charts consist of individual points that are connected with straight lines. Usually, each point shows the close of the timeframe, but this can be modified to show any info — open, high, or low.
Line charts also show the direction upward or downward of the timeframe. Most charting software supports bar, candlestick, and line charts. Nor- mally, you can customize the display and colors according to your wish. You can use any reliable online charting service you want.
Just make sure they provide the basic analytical tools e. There are so many charting services out there that it would be hard to mention any one in particular. Charts do not foretell future market behaviors or predict market prices. They offer you a concise and accurate history of the price movements of a particular market. In that history lays a trend, and it is from this trend that you can extrapolate data on which to base your future projections of probable market behaviors and price changes.
Finding the prevailing trend will help you become aware of the overall market direction and offer you better visibility — especially when short- term movements tend to clutter the picture. The rest of the time, prices will trade more or less in a sideways range. Our job is to recognize trends early, as they emerge from non-trends, or as reversals of prior trends. Our goal is to download or sell our security early in these new trends, exiting the trade profitably when the trend ends.
This identification of trend, both its beginning and end, is the most important task we have as traders. A simple definition of trend is basically the general direction of price movements. An uptrend is present when prices make a series of higher highs and higher lows. A downtrend is present when prices make a series of lower highs and lower lows. When prices move without such a discernible series, prices are said to be trading sideways in a range, or trading trend-less.
Once a trend is dis- cernible, then trendlines can be drawn to define the lower limits of an uptrend or the upper limits of a downtrend. It is essential that trendlines be drawn correctly.
It is the recognition of the trendline and the violation of this trendline that is your key to suc- cessful trading and fortune building. I know that these simple definitions sound mundane, and that many trad- ers would like to jump right into complicated indicators and complex trading strategies.
Trading can be simple: So you MUST find an easy way to identify the direction of the market. The trading day is December 20th, As you can see, prices have been moving down all morning, and then they started moving sideways during the lunch break. Prices have found resistance at In an uptrend, trendlines are drawn below the prices, while in a downtrend, trendlines are drawn above the prices.
In order to draw a line, we need two points. The first point is the low of the day and the second point is the first retracement, when prices are no longer making higher lows. The first time prices are not making a higher low occurs at the The dark part of the line is the confirmed trend and the light part of the line is the projected trend. As a rule, trendlines can only become flatter, not steeper. Adjusting the trendline to the second lower low would make a steeper trendline; therefore, no change is made.
All previous prices are above the trendline, so the trend is still intact. The next lower low occurs at 1: Ten minutes later, we get the next lower low, and we adjust the trendline accordingly.
See how beautifully the previous lower lows are almost touching the trendline? A perfect trend. Remember the rule: In this next chart, we see a series of lower lows, but only the lower low at 2: The series of lower lows indi- cates that the trend is coming to an end. Fifteen minutes later, we have another lower low, but at the same time, we are experiencing a higher high after a series of lower highs.
It seems that our uptrend has come to an end. The uptrend line is broken, and we have another higher high that confirms our downtrend line. The uptrend was in place from During this time, prices moved from The uptrend was broken at An uptrend line is always below the price bars. A downtrend line is constructed in a similar way to that of the uptrend line.
The opening price is also the highest price, and 15 minutes after the opening, at 8: So we can draw our downtrend line. The market keeps falling, and at 9: We see another higher high at 9: The 9: Ten minutes and two bars later, we have another higher high, and we can adjust our line. See how beautifully our trendline captures this downtrend? The trend continues, and at The trendline is still very close to the previous higher highs.
Fifteen minutes later, we get the next higher high, but if we adjust the trendline, it will move it too far away from the previous higher highs; the downtrend is broken.
Adjusting the trendline would move it too far away from previous higher highs, and we risk missing a change in the trend. The longer the trendline has been in effect and the more times it has been successfully tested, the more important the trendline becomes. Conse- quently, when a trendline of long duration — which has been successfully tested many times — is violated, then an important reversal of trend is likely to have occurred.
This is a trading pattern that occurs in between an uptrend and a down- trend. It points to equilibrium in supply and demand.
Sideways trends follow a horizontal direction, where the price stays relatively constant. Trading patterns are also used in order to set support and resistance lev- els, which are very useful for the technical analysis of charts. Support and resistance levels are points where a chart experiences recur- ring upward or downward pressure.
How To Day Trade Stocks For Profit
A support level is usually the low point in any chart pattern hourly, weekly, or annually , whereas a resis- tance level is the high or the peak point of the pattern. These points are identified as support and resistance when they show a tendency to reappear. Once these levels are broken, they invariably reverse their roles. Previous support becomes resistance and previous resistance becomes support. In uptrends, every time the price drops to the uptrend line and then re- sumes its advance, the trendline has acted as support to the price uptrend.
Support can also be found at prices of previous support or resistance. In downtrends, every time the price rises to the downtrend line and then resumes its decline, the downtrend line has acted as resistance to the up- ward move of market prices. Consider the following: Similar to support, a resistance level is the point at which bears the sell- ers take control of prices and prevent them from rising higher.
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The price at which a trade takes place is the price at which a bull and bear agree to do business. It represents the consensus of their expecta- tions. The bulls think prices will move higher and the bears think prices will move lower. Support levels indicate the price at which a majority of investors believe that prices will move higher, and resistance levels indicate the price at which a majority of investors feel prices will move lower.
The development of support and resistance levels is probably the most noticeable and reoccurring event on price charts. As you can see from the following chart, prices have been in a down- trend. On the same bar that broke the downtrend, prices went to the re- sistance level at For the next 2 hours and 30 minutes, prices never go above the resistance level of , but they repeatedly test this level, eventually breaking out. Whenever you can draw a resistance line, you can typically draw a corre- sponding support line, as shown in the following chart.
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, downloaders become more inclined to download and sellers become less inclined to sell.
Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and downloaders become less inclined to download. Trendlines are simple, yet helpful, tools in confirming the direction of market trends. An upward straight line is drawn by connecting at least two successive lows.
Naturally, the second point must be higher than the first. The continuation of the line helps determine the path along which the market will move.
Conversely, downward lines are charted by connecting two points or more.
The validity of a trading line is partly related to the number of connection points. Yet it's worth mentioning that points must not be too close together. A channel is defined as the price path drawn by two parallel trendlines. The lines serve as an upward, downward, or straight corridor for the price. Trend channels are typically constructed to derive entry and exit points in an uptrend or downtrend.
By now, you know that any market is either trending or moving side- ways. Trend-following — when prices are moving up, you download, and when prices are going down, you sell. Trend-fading — when prices are trading at an extreme e. Moving Averages 2. Crossover of Moving Averages 3. Turtle Trading 4.
Bollinger Bands and Channels. If you believe in the "trend-is-your-friend" tenet of technical analysis, moving averages MA are very helpful. Moving averages tell the aver- age price in a given point of time over a defined period of time, typically the closing price. A weakness of moving averages is that they lag the market, so they do not necessarily signal a change in trends.
To address this issue, use a shorter period, such as a 5- or day moving average, which will be more reflective of the recent price action than the or day moving averages. The concept is simple:. Every day, a great deal of traders attempt to use strategies based on moving averages. Keep in mind that this is a trend-following strategy — you should only apply it in trending markets. Another very popular approach is to use two moving averages: The amount of days used for the slow-moving average needs to be larger than the amount of days used for the fast moving average.
The upper line is the slow-moving average 20 bars , and the lower line is the fast moving average 14 bars. Basically, the turtles look at the high and the low through the past 20 days and generate the following signals:. Prices moved below the bar low at 1. Prices moved as low as 1. Please note that we just defined an entry signal. You still need to apply profit targets and stop losses see the next two chapters.
This indicator shows the relationship between two moving averages of prices. This difference is then plotted on the chart and oscillates above and below zero.
Traders utilize the MACD in different ways, but the most popular is to use the signal line for entry signals:. This indicator was developed in by Larry Williams to help traders identify overbought and oversold positions in the market. The formula is quite simple: This computation tells us where, within the next day range, to- day's close is located.
The index has many uses, but the simplest one is just allowing it to iden- tify or suggest an overbought, oversold zone. The index can be used in all markets and in all timeframes. Most traders use it successfully on intraday bar charts with a parameter of 14 bars. As stated above, the indicator shows the relationship of the closing price to a high-low range over a specific period of time, typically 14 bars.
The result is plotted on a chart and oscillates between 0 and The basic idea is that if prices are trading at the high of the high-low range indicator reading close to , then the market is overbought, and if the current prices are trading close to the low of the specified range indica- tor reading close to 0 , then the market is oversold.
The RSI compares the mag- nitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number which ranges from 0 to It takes a single parameter — the number of time periods — to use in the calcula- tion. In his book, Wilder recommends using 14 periods. The RSI dips below 30 and a download signal is generated, coincidentally at the low of the day. By applying stop loss and profit exit strategies see next chapter , profits could be realized quite quickly.
Bollinger Bands consist of a moving average and two standard devia- tions, one above the moving average and one below. The most popular setting is a bar moving average solid dark grey line and 2 standard deviations for the upper and lower band dotted grey line. After lackluster trading in the morning, prices move above the upper Bollinger Band and generate a sell signal. Before deciding on a trading approach, you need to identify whether the market is trending or moving sideways.
Many traders simply decide on one trading approach and trade it all the time, whether the market is trending or not. Successful traders use multiple trading approaches: Using the basic principles outlined on page , you can determine the direction of the market and use the right trading approach.
Learn to identify whether a market is trending or not and adjust your trading strat- egy accordingly. One of the most important skills of a trader is being able to iden- tify the direction of the market.
Practice on as many charts as you can, until you can spot a trend within a couple of seconds. Make sure that you understand what the indicator you are using is measuring: WHY should you sell when it goes above 80? As you know you should have one for a trending market and one for a market that is going sideways. Which approach will you use when? Defining Entry Points. A s you saw in the previous examples, most of the trading ap- proaches or indicators already provide you with entry rules.
When defining entry points, you want to keep it simple and specific. A market is constantly moving, and you have to make your trading decisions fast. Most trading approaches and indicators require a decision at the end of the bar. Use as few entry rules as possible and be as specific as you can.
The best trading strategies have entry rules that you can specify in only two lines. When should you enter? Only mark the entry points. Defining Exit Points. T his chapter is probably the most important chapter in the entire book. I once heard the saying: Most traders are right about the direction of the market when they enter a trade, but they end up taking a loss because they fail to capture profits at the right time.
Read this chapter again and again until you understand ALL of the con- cepts outlined here. Time-stops to get you out of a trade and free your capital if the market is not moving at all. A percentage of the volatility e.
A stop loss is used to limit the potential loss if the trade goes against you. A good trader will know when to take a small loss and go on to the next trade. This safeguards you from losing your entire account. It's important to ensure that your stop is canceled if you close your posi- tion. I mention this because I happen to know a trader who is very disci- plined, who always enters a stop loss and a profit target order once he has established a trade.
A few years back, this trader suffered a number of losses over the course of several days. So, naturally, he was quite happy to see that a trade finally moved in his direction. According to his strategy, his stop losses were very small and his profit target was rather large, so if this trade reached the profit target, he would make up for all the losses of the past couple of days PLUS bring in a small profit on top of it. He was so happy that he jumped up from his chair, ran into the kitchen, and told his wife all about the fantastic trade.
And when he returned to his computer an hour later, he found himself in a losing position. After a few minutes, it dawned on him: While he was celebrating his win, the market retraced and filled his order, and then continued to go up. The stop loss order was a sell order, and now the trader had a short posi- tion in a rising market. All of his profits were gone.
Your broker can explain these terms to you in detail. Easy, fast, and simple. You entered the market at 1. When applying this stop loss strategy, simply multiply the entry price by 1 - your stop loss in percent form to get your exit point. This exit strategy is another way to specify stop losses in volatile mar- kets. The underlying idea is to adjust your stop loss based on the volatil- ity of the market: Multiply it by the percentage you specified, e.
This strategy is perfect for markets with high changes in volatility, like the grain markets. As you can see in the chart below, corn prices are more volatile in summer months than in the winter. Many traders like to use major support or resistance points on the chart to determine their exits. Instead of support and resistance levels, you could use Pivot Points, Fibonacci Levels, upper or lower levels of trend channels, or Bollinger Bands, just to name a few.
This strategy is perfect for traders who use technical analysis for their entry points. The main problem with taking profits is that, by our very nature, we hu- mans and especially traders are greedy.
After all, we want to make money. A lot of money. And we want to make it fast. This is a definite problem, and many traders are way too greedy. They want to get rich on just one trade. Consistency is the key, because if your profits are consistent and predict- able, then you can simply use leverage to trade size.
Therefore you MUST know when to exit with a profit. This is the easiest way to exit a trade. Simply specify a dollar amount that you would be happy with, add it to your entry point, and place a profit target order in the market. You should apply this exit strategy if you are trading multiple markets or different stocks.
The reason is simple: IBM would only have to move 0. The following charts illustrate how easy it will be for IBM shares to reach the target price, and how difficult it might be for Ford shares to do so.
It would make more sense to specify your profit target as a percentage of the price — e. The same applies to markets with a high volatility, like gold or energy futures.Trading success will not happen overnight. This is normally a long-term investing plan and too slow for daily use. Trading patterns are also used in order to set support and resistance lev- els, which are very useful for the technical analysis of charts.
Low — The low is the lowest price traded during the candlestick, and is indicated by the bottom of the thin vertical bar the upside down wick of the candlestick. This is where the rubber meets the road. Now, after you set up a chart in a way that you're comfortable with — which is done by customizing sizes, colors, indicators, etc. As outlined above, certain types of investments require an initial deposit amount to get started.
Do you see the problem? Is it really possible to make a living as a day trader 4.