If you have $25,000 or more, then I still recommend that you open up a Roth IRA first, then when you’re ready, you can open up an Individual account at Ameritrade.com, InteractiveBrokers.com, TradeStation.com. I started out at Ameritrade, but I just recently switched over to InteractiveBrokers.com because they have the per share commission schedule, which will save me a crapload of money in commissions in the long run. Interactive Brokers also has a tight integration into Medved Quotetracker which is the trading system that I use.
Click here for a picture of my daytrading desktop.
What books would you recommend to people interested in learning how to daytrade? To be honest, I haven’t read very many daytrading books myself. Mainly because when I got started, there weren’t very many books written on daytrading. Most of what I know, I’ve learned through the various websites. Pristine.com is hands down the best site out there. I don’t have any type of partnership with them, so I tout them because I owe most of what I know to them.
If you really want to read some books, then you can check these out:
Thinking about it now, I’d definately recommend reading one or all of the books above before you do any trading at all. Or, if you’d like to accelerate the learning process, then follow blogs like mine or pay for a professional trader to teach you all that they know. READ, READ, READ and STUDY, STUDY, STUDY….these are the keys to success. Remember, in order to become great at something, you have to eat, sleep, and breathe it.
Which daytrading websites would you recommend?
- Pristine.com – Sign up for their free newsletters. Buy their books. Buy some of their DVDs. And if you’re really serious, then sign up for their 2-week trading lab. I guarantee you that you’ll learn more in 2-weeks with them than you would in 2 years by yourself. Don’t be scared to spend the money because in the end, it’s just an investment.
- Trading Blogs – Read as many daytrading blogs as possible.
- EliteTrader.com – They have one of the best forums available to traders on the net. I don’t visit the site myself, but other traders love the site.
- DecisionPoint.com – They have newsletters from a lot of trading professionals offered for free. Personally, I go there to read Tim Ord’s The Ord Oracle. He knows his shit.
- Daytradeteam.com – Three professional daytraders in a chat room making calls. The cost of a yearly subscription is $995. They offer a $5 for 5 days trial subscription. If you’re interested in learning how day trade, then this is the place to go.
- TradeTheMarkets.com – I just started using these guys. They offer a free daily video newsletter that provides some great insight into the minds of professional daytraders. Sign up for this video and sign up for their free 2-week trial of their real-time chat room. And buy John Carter’s book. This dude is sick, he knows his shit.
How about DVDs? Here were the four DVDs that were most instrumental in my learning process:
- Core Trading Tactics with Oliver Velez – $49
- Swing Trading Tactics with Oliver Velez – $49
- Guerilla Trading Tactics with Oliver Velez – $49
- Intra-day Trading Techniques with Greg Capra – $49
I just bought this one as well:
- Market Internals with Greg Capra – $245
I recommend getting them all. Both of the Oliver Velez and Greg Capra seminar series will cost you a total of around $700, but if you’re serious about daytrading, then scrounge up the money and get em. You’ll thank me later.
What software would you recommend? This is all based on preference. I’ve been using Medved Quotetracker for as long as I can remember. You can download and use the software for free. I opted to pay the $60/year fee, which is peanuts compared to how much I make and lose on each trade. The software is tightly integrated with Ameritrade, Interactive Brokers and a slew of other brokerages.
Other options would be TradeStation or Cybertrader. I haven’t had any experience with either of these platforms, so I can’t recommend either of them.
How much have I made in daytrading? Well, I made $22,976.54 in 2005. And, as of April, I’ve made over $43,000 in 2006, all from an initial starting bankroll of $20,000. How much you make is going to be relative to how much risk you’re willing to accept and how much money you start off with. I know some professional daytraders who fund their account with $100,000 at the start of every year and that’s all that they’ll use for the entire year. I’m sure some daytraders make millions a year, but most of us are just here to make a decent living at something that we love doing.
What’s the most that I’ve ever made in one single trade? +$17,977.08. I bought some GOOG calls in March 2006 and sold them in April 2006 for hefty gain. But I ended up losing double this amount after I got greedy and reentered the position after earnings.
What’s the most that I’ve ever lost in one single trade? -$34,757.99. Easy come, easy go. Yeah, worst mistake ever! I bought some out-of-the-money calls on GOOG for $35/contract in April 2006. I sold them in June 2006 for a $1/contract. If you play with fire, then you will most likely get burned by the fire. Make sure that you stick to your stop losses. And most importantly, don’t do anything stupid.
Can you offer any advice to a beginner? Yeah, don’t start trading until you know what the hell you’re doing because it’s going to be an expensive lesson if you try to learn by trial and error. If you’re one of those guys who wants to throw their money out there and learn the hard way, then make sure you’re smart about how you go about picking the stocks that you buy (i.e. read my blog, or read some books first).
Fundamentals: It’s okay to understand the fundamentals behind a stock, but I wouldn’t rely on them, unless you are investing in the stock for the long term.
Fundamentals are earnings, p/e ratios, debt to cash ratios, book to sales, etc. These things are important to investors, but not to traders. I think it’s great to know what these things are, but I can honestly say that fundamentals mean crap to me when I’m trading. I think it’s important to understand that emotions drive stocks up and down, not fundamentals. Learn how to read charts and analyze the “emotions” of the traders from what the chart tells ya.
What else? Try to focus a core group of stocks. I only have about 20-30 stocks that I keep track of on a daily basis. That’s plenty of stocks for me to trade. If you have too many stocks to watch, then you are just going to overextend yourself and lose focus. It’s better to be the master of one stock, than to be mediocre at trading 100 stocks.
Do your homework. Making money doesn’t come easy. Trust me when I say that anyone and everyone making money in this business does their homework on a daily basis. Things don’t always work out the way that you plan them to, but the important thing, is to be right when it counts. Study, research, and analyze.
Can you offer some tips on reading charts? Yeah, this is my specialty. I use the 20 and 40 period simple moving averages, so make sure you have those on your chart. Volume is important as well. Definately go with the candlesticks and not the line charts. Candlesticks give you more information. That’s it. That’s pretty much all of the indicators that I use. Everything else, you can just forget about (bollinger bands, stochastics, MACD, etc.). As long as you understand price action, then you are golden.
Now, once you have the type of chart defined, then you can skip to the various time periods. I use everything from monthly to weekly to daily, all the way down to the 2-minute charts. The longer the time frame, the more important the support and resistance levels are. So, if you see a major resistance on the monthly chart, then it will also be major resistance in all lower time frames. On the other hand, if you see resistance on the 2-min chart, it doesn’t mean that it is also resistance on the daily chart.
So, what is support and resistance? Well, they’re basically areas in which there is a lot of supply or demand in a stock. If it’s a resistance area, then there’s a lot of people who own the stock overhead and it will most likely cause a pause in an uptrending stock or cause the stock to go down from that point. The reverse is true for support. Support means that a lot of people will be looking to buy the stock at a certain level, which will cause the stock to stop going lower or possibly reverse to the upside. Remember that supply and demand are the only two things that cause a stock to go up or down or sideways, nothing else.
Here’s a quick example:
Here’s a weekly chart of CSCO from 2004 to the present day. Resistance is represented by the top blue line and support is represented by the bottom blue line. The idea is simple, buy the stock when it touches the bottom blue line and sell when it touches the top blue line. If it breaks one of those lines, then you can buy after the first pullback from the breakout. Simple as that.
Another important tip to remember is to try to buy strong stocks when they’ve gone down 3-5 days in a row and try to sell weak stocks when they’ve gone up 3-5 days in a row. Strong stocks are defined as stocks that are trading above their 20 and 40 period moving averages. Weak stocks are those that are trading below their 20 and 40 period moving averages.
Here’s a quick example:
GOOG is obviously in a strong uptrend here as seen by the rising 20 and 40 period moving averages (yellow and blue lines going upwards). You should be looking to buy GOOG any time when the stock has gone down 3-5 days in a row, even if it’s intra day. The closer to the 20 period MA, the better. Look for signs of a double top and avoid the stock when a double top has been made.
If you don’t understand some of the terms that I’m using, then you can just do a google search on them. Or perhaps you can pick up a book on Japanese candlestick analysis.
One last tip. Always keep your stops. I have a big problem with this as seen from my blogs, but basically, the idea is to keep a mental note of where you will take a loss on the trade if it hits that set price. Ultimately, this will keep your losses small, which is most important when daytrading! Not keeping stops will be the end of you. Trust me, I’ve been there.
Added 5/2/2006
One important technical indicator that I failed to mention is the fibonacci lines. I use them frequently to determine entry and exit points. They work wonders and every good technician uses them. I’m not going to go into detail about how they work, but the basic idea is that stocks always tend to retrace back to certain level when consolidating. The standard retracement levels are 40%/50%/60%. Anyways, make sure you understand fibonacci lines.
Added 7/18/2006
I’ve been using RSI (relative strength index) more and more. It’s an essential part of my technical analysis now. Make sure you have this indictor on your intra-day charts. A reading above 70 means that we’re overbought and a reading below 25 means that we’re oversold.
For longer term analysis, I found that the McClellan Osciallator is a huge factor in determining the overall short term market direction. Make sure you have this indicator when viewing your daily charts. A reading above 200 means that we’re overbought. A reading below -200 means that we’re oversold.
What are Options? There are two types of options, calls and puts. Buying calls gives you the option to buy someone else’s stock at the certain price by a certain date. Puts are just the opposite. They give you the option of selling someone else’s stock at the certain price by a certain date. Many traders like options because they cost a whole hell of a lot less than their corresponding stocks do, but the drawback is that they are a lot more volatile than stocks are.
I’m not going to go into detail about all of the different options strategies, as information can be easily found by doing a google search. Here’s a link to an article on options for the lazy.
Which brokerage do you use? I use Interactive Brokers as my main daytrading broker. However, I also have several accounts at Ameritrade, which was my old brokerage. If you’re serious about daytrading, you must open an account at a brokerage that offers the per share commission plan. Trust me, it’ll save you a ton in commissions. I spend anywhere from $100-$300 per day in commissions alone!
What is the YM? YM is the ticker symbol for the Dow Jones Industrial Average e-minis futures. Futures are binding contracts that allow the buyer to purchase a commodity at a certain date in the future. Your brokerage must allow the trading of futures before you can even get a quote on them. Ameritrade, Scott Trade, E-Trade, none of these brokerages allow futures trading. An alternative to trading the Dow futures is the to trade DIA, which is the Dow ETF (Exchange Traded Fund).
How do I go about trading futures? Sign up to one of the following brokerages: Interactive Brokers, Cybertrader, Trade Station, ThinkorSwim. Futures trading requires a lot less equity than a regular daytrading account does. A regular daytrading account requires a minimum of $25,000. Futures trading requires a minimum of $2,000.
How much does it cost to trade the YM? Generally speaking, you need about $2000 per contract to trade the YM futures. In actuality, the cost of futures is calculated using Standard Portfolio Analysis of Risk (SPAN). Basically, they use price and volatility to calculate the amount of cash required to buy one contract. I think it varys on a daily basis. Here’s the website that explains the calculation: CBOT SPAN Here are the actual margin requirements for each of the futures contracts at Interactive Brokers: Interactive Brokers Margin Requirements Right now, at Interactive Brokers, you must have at least $1219 cash in your trading account to buy 1 contract of the YM on a intraday basis. You need more if you plan on holding overnight.
How do I get quotes on the YM and other futures contracts? You need a brokerage that allows futures trading. If you don’t have a brokerage account, then you can view the live book at the cbot website: http://cbot.com/cbot/pub/page1/1,3248,432,00.html
What is your goal? To buy one of these…all cash…with my first million in profits:
And one of these with my second million:
What do you think about sportsbetting? The only people that make money in sportsbetting are the bookies and the handicapping services. If you want to make money, then stick to poker or trading. If you want action, then play blackjack or bet on sports. It’s just way too hard to make consistent money in sportsbetting.
