Getting Started

Getting Started In Day Trading
The Fastest Way To Learn Everything You Need To Know To Get Started As A Day Trader
2011 TradeCrushers.com
Table Of Contents
Disclaimer ..................................................................................................................1 Introduction ................................................................................................................2 What Is Day Trading? ................................................................................................2 How Is Day Trading Different Than Investing? ........................................................3 Why I Love Day Trading ...........................................................................................4 Setting Your Goals .....................................................................................................6 What Equipment Youll Need ...................................................................................7 Why Stocks Are The Best Day Trading Market ........................................................8 How Much Money Do You Need To Get Started? .................................................10 Mentorship ...............................................................................................................10 Understanding The Day Trading Process: The Trader As Scientist ........................11 Conclusion ...............................................................................................................13
DISCLAIMER This material is being provided for educational use only and doesnt constitute a recommendation or solicitation to buy, sell, or hold any security mentioned therein or to engage in any particular investment strategy. The investment ideas and opinions expressed may contain forward-looking statements and should not be viewed as recommendations or personal investment advice. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed. The past performance of any particular trader or trading strategy is not necessarily indicative of future results. Active trading involves significant risk of loss and is not suitable for all investors. Dont trade with money you cant afford to lose. You are fully responsible for any investment decisions you make. Such decisions should only be made after evaluating your own personal financial circumstances, investment objectives, time horizon, and risk tolerance. The employees of TradeCrushers may hold positions in the stocks or industries discussed herein. Matt Nadell is affiliated with Great Point Capital, a FINRAregistered broker-dealer.
For more day trading information, visit http://www.TradeCrushers.com
INTRODUCTION While many people are interested in learning more about day trading, getting started as a day trader can seem daunting. With the plethora of information available, conflicting answers, and questionable sources, a beginning day trader will likely be left confused and frustrated. I created this guide to help aspiring day traders avoid that frustration and learn the critical information they need to get started. This guide will teach you what day trading is, why day trading is one of the best careers around, what equipment youll need to get started as a day trader, how to choose a day trading mentor, and how to conceptualize what exactly a day trader does.
WHAT IS DAY TRADING? Day trading is the buying and selling of a financial instrument in the same day in hopes of making a profit. There are a number of different financial instruments to day trade, including stocks, futures, currencies (foreign exchange), and options. Day traders will typically exit their positions before the close of trading each day, in order to go home flat (without any positions). Day traders can range from making just a few trades per day to hundreds of trades per day, with a typical day trade lasting anywhere from a few seconds to a few hours. Day traders can profit when a stock goes up by buying it and then selling it at a higher price, or they can profit when a stock goes down by short selling a stock and then buying it back at a lower price. Day traders dont need the markets or a particular stock to go up in order to make money.
HOW IS DAY TRADING DIFFERENT THAN INVESTING? Day trading is different than investing in that investors will hold stocks for the long-term (many years) in hopes that their investment will appreciate in value. Day traders, on the other hand, will place many trades throughout the day in order to profit from the short-term gyrations of the stock market. This difference in timeframe between day trading and investing is what makes them distinct. In order to find a profitable investment, investors tend to use fundamental analysis to analyze and predict the future value of a company. Theyll focus on how fast the company is growing (earnings and revenue growth percentages), how much the company earns (earnings per share), how the company is currently valued (PE ratio), and how much the company pays out to investors (dividends). Investors use these metrics to hopefully identify solid companies to invest in. Day traders, on the other hand, base their decisions on the behavior of the stock itself as opposed to the underlying company. Because of the short timeframe of day trades, fundamental analysis is basically useless for day trading. Instead, day traders rely on factors such as the underlying price trend of a stock, the order flow and price action in that stock, and key technical levels of support and resistance to spot profitable trades. Unlike investors who seek to profit over the long-term, day traders seek to make money each and every day in the markets.
WHY I LOVE DAY TRADING I truly believe that day trading is the greatest career in the world, and I get up every weekday morning energized and excited to get to work (how many people can say that?). Let me share with you why Im so passionate about day trading:
Its One Of The Most Lucrative Careers In The World
Consistently profitable day traders can routinely make six figures per year, with the superstar day traders pulling in seven figures per year. Think about that incredible income potential for a second: day trading provides the potential to make not just a million dollars in your lifetime, but a million dollars per year. Now while its certainly no cakewalk to achieve that level of success as a day trader, day trading is one of the few careers where thats even a possibility. Unless you happen to be a professional athlete or famous rockstar, day trading will probably represent the largest potential income opportunity available to you. Unlike those fields, you dont need to be blessed with a beautiful voice or born with any special talent to be a day trader.
Day Trading Allows You To Be Your Own Boss
As a professional day trader, youll be running your own trading business without a boss telling you what to do. While you may choose to work at a proprietary trading firm (as I do), that firm operates as a vendor providing your business a service. One of the things I love about being my own boss is the ability to set my own schedule. I can take vacations without having to ask for permission, I can head to the gym for a quick workout in the middle of the day, and I can take the afternoon off if the markets happen to be slow or the weather is especially nice (we dont get
too many sunny days in Chicago!). Another thing I love about being my own boss is not having to dress up to go to work. I head to work every day in jeans, sneakers, and a t-shirt or sweatshirt. Not only does this save me a ton of money buying clothes, but it also means I get to spend the day in comfort as opposed to wearing a suit and tie all day long.
Day Trading Has Defined Hours
All the money and freedom in the world doesnt really matter if youre stuck working all the time, and fortunately, day traders have an incredible schedule. Because the stock market closes at the same time every day and is only open during the week, Ive never had to work a night or weekend in my trading career. In fact, I get home from work every day at around 3:30 p.m. and have the rest of the day to do whatever I want. Compare this schedule to that of a typical entrepreneur, where the work never ends and 80-100 hour weeks are common. Day trading allows you the freedom to spend time with your family and pursue your other interests.
Day Trading Is Fun
One of the reasons I love day trading is because I have so much fun doing it. I view day trading as a complex strategy game where the rules and techniques are constantly shifting. No two days are alike as a trader as every situation is unique, meaning youll never be bored. The thrill of making a winning trade is not only that youve created money for yourself through a couple of keystrokes on your computer, but also because you did so using only the power of your mind. Many former athletes become traders because the rush and competition is similar to that of playing a sport.
Only Your Performance Matters
Trading is like being a professional athlete in that its a performance activity. Unlike other jobs, where you have to have the right background and deal with office politics, trading is perhaps the most equal opportunity job around. Your age, sex, race, and even education dont matter as long as you can identify and execute consistently profitable trades. There are profitable day traders of every imaginable age and background, so dont feel like there is something about yourself that prevents you from being a successful day trader.
SETTING YOUR GOALS The first step to getting started in day trading is to determine your trading goals. Writing down your trading goals will crystallize what youre trying to accomplish and motivate you to take action. Do you want to quit the job you hate to become a professional day trader? Are you looking to make a little extra income on the side to take a nice vacation? Do you want to spend more time with your family and doing the things you love? Having clearly defined trading goals will make the process of learning how to day trade easier because you can structure your trading education around your particular objectives.
WHAT EQUIPMENT YOULL NEED While day trading doesnt require expensive or complicated tools to get started, its important to have the right equipment to give yourself the best chance for success. Heres what youll need: Computer Your computer will be the tool you use to analyze market information and place trades, so make sure its fast and reliable. Trading applications are notoriously resource-intensive due to the volume of market data, so be sure your computer can run them with ease. You dont want to skimp on your computer only to have it lag or crash while youre in a trade. Monitors While its possible to day trade using only one computer monitor, my recommendation is for beginning trades to use two monitors to avoid having to waste time minimizing and maximizing application windows. Having two screens will allow you to have entire screens dedicated to both your trading platform and charting software, making it easier to quickly analyze market data. Ergonomic Chair As a day trader, youll be spending lots of time at your computer. Investing in an ergonomic office chair will allow you to focus on the markets as opposed to your aching back. Trading Platform This is the software you use to enter and exit trades. It can either be provided by your broker or a third-party software company. Whatever platform you choose, be sure that its fast and continuously being updated. You dont want to be caught using outdated software that the software developer has given up on. Charting Software While many trading platforms will contain charting functionality, some traders like the power and customization of a dedicated 2011 TradeCrushers.com
charting program. If youre looking for an excellent free charting program, I recommend FreeStockCharts.com, which will allow you to create and customize charts using a variety of tools. WHY STOCKS ARE THE BEST DAY TRADING MARKET While a full breakdown of all the possible markets to trade is outside the scope of this guide, I highly recommend that day traders focus on the U.S. stock market. Heres why stocks are the best day trading vehicles: The Number Of Stocks To Trade The most significant advantage that stocks have over every other market is the number of stocks available to trade. There are thousands of stocks listed on the three major exchanges (New York Stock Exchange, NASDAQ, and the American Stock Exchange), and each one of these stocks represents a potential opportunity for a day trader. Even on days when the overall stock market may not move that much, youll be guaranteed to find at least a handful of stocks with excellent volatility and volume. With other day trading markets (such as forex and futrues), youre stuck with a handful of markets to trade so on days when those markets arent moving, there may be little opportunity for day traders to make money. Access To Nearly Every Asset Class With the rise in ETFs (Exchange-Traded Funds), stock traders now have access to a variety of different asset classes for the very first time. Whereas before a stock trader who wanted to trade Treasuries or the spot price of gold had to do so in other markets, now they can simply place a trade in TLT (the 20-year Treasury ETF) or GLD (the gold ETF) without having to venture into the bond or futures markets.
The beauty of these ETFs is that whereas before stock day traders could only trade the price of individual companies, now they can trade the price of nearly any major market or asset class in the world. In other words, being a stock day trader can still grant you access to ways to trade most futures and forex markets, whereas traders in those markets dont have ways to trade individual stocks. Professional Support There are more professional trading firms that cater to individual stock day traders than any other market. These firms provide training, high-speed direct connections to the exchanges, access to ultra-cheap commissions not available to retail traders, office space, and a host of other benefits to a day trader. In my opinion, trading at one of these proprietary trading firms is the best way to start your career if youre serious about becoming a professional trader. Institutional Participation I also think stocks represent such great day trading vehicles due to the amount of institutional participation in the stock market. By institutions, Im referring to those pension funds, mutual funds, and hedge funds with large stock holdings. Why is this important? Because when these behemoths want to buy or sell a particular stock, you can bet that the price of that stock is going to move! Unlike an individual investor that may purchase a handful of shares of a company, these institutions may purchase hundreds of thousands or even millions of shares of that same company. A large part of my own trading and the methods I teach my students revolves around identifying and taking advantage of these large institutions.
HOW MUCH MONEY DO YOU NEED TO GET STARTED? In order to get started as a stock day trader, you traditionally would need at least $25,000 in your trading account because of the Pattern Day Trader Rule (For more information on the Pattern Day Trader Rule, please go to http://www.tradecrushers.com/uncategorized/understanding-the-pattern-day-traderrule-and-how-you-can-avoid-it). However, if you dont have $25,000 in your trading account, dont fret! You can still become a day trader by working for a proprietary trading firm. These firms allow day traders to use their money to day trade for a percentage of the profits generated. They also provide ultra-cheap commissions, technology resources, office space, and a great learning environment that cant be matched if youre trading out of your house. I work at a proprietary trading firm called Great Point Capital in Chicago, and highly recommend them if youre looking for a prop firm.
MENTORSHIP If youre interested in becoming a day trader, its absolutely essential that you find a day trading mentor that will show you the ropes and guide you on the path to becoming consistently profitable. When I started trading, I had a mentor that taught me the fundamentals of trading and answered my many questions. Without that mentorship process, I would not have achieved anywhere near the success that Ive achieved as a day trader. Relying on free information found on the Internet to learn day trading is a recipe for disaster as the information available is of poor quality and spread over a variety of sources. In fact, I was motivated to start TradeCrushers precisely because I was
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disgusted with what passed for trading education. Now, in terms of choosing the right mentor for you, my advice is to be sure that whoever you choose as your trading mentor is willing to show you their complete verified trading results that prove their profitability (my complete verified results are at http://www.tradecrushers.com/my-trading-results). The sad reality is that most of the so-called trading gurus that are teaching day trading techniques arent actually profitable traders themselves and dont know what theyre talking about. If your mentor wont show you his trading results, you should run in the other direction. Would you trust a surgeon to operate on you when he refuses to show you his medical degree? I didnt think so.
UNDERSTANDING THE DAY TRADING PROCESS: THE TRADER AS SCIENTIST The Power Of Observation In order to understand the essence of what day trading is, I want you to think of a day trader as a scientist. Now, much like a scientist that may study the behavior of animals or individual cells, the day trader studies the behavior of stocks. Day traders observe the behavior of stocks to look for patterns that may help them to predict future price movements. Just as all science starts with observation, so too does all trading start with observation. By observing the behavior of stocks, youll get a feel for how they move and when theyre behaving unexpectedly. For instance, lets say you were observing the behavior of Google (GOOG) and noticed that the stock was behaving strongly even though the market wasnt going 2011 TradeCrushers.com
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down. As a day trader, this is important information that you can use and may clue you in to a possible up move in the stocks future. Crafting Your Hypothesis Continuing the scientist analogy, all trades are basically hypotheses born out of your initial observation. You identify a profitable situation and place a trade to test your hypothesis. Remember that a scientific hypothesis is written as an ifthen statement. So how would you craft a hypothesis for a particular trade? Using our GOOG example and noticing its relative strength compared to the market (meaning the stock isnt going down as much as the market), we may hypothesize that GOOG will be unusually strong once the overall market ticks back up. Heres the hypothesis we would use: If the overall market ticks back up, GOOG will be an attractive long position as it was showing relative strength as the market fell. Managing Your Risk Now that you have a hypothesis for your trade idea, your work as a day trader is not done. The critical step that too many traders overlook is to manage risk in the event that your hypothesis proves not to be correct. You do this by setting a stop, which is the price you will exit the trade if it moves against you. You can even think of your stop as an ifthen statement as well. Heres an example: If GOOG moves a point against me while I am in the trade, I will get out with no questions asked as this would mean my trade idea proved false.
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Reviewing Your Trading Finally, just like a good scientist, day traders must constantly review their work. Its not enough for you to execute a trade and then forget about it. Every trade you make will provide lessons both about the market and, more importantly, yourself. If youre not gaining the insight from your past trades by painstakingly reviewing them, you will never improve as a trader. Here are some sample questions you should ask while reviewing your trades: What was my trade hypothesis? Why did I enter the trade? Did I do a good job of managing my risk on the trade? Where did I place my stop, and did I adhere to that stop? What was the overall market doing at the time I placed the trade? Did I account for this while trading? What did I do well in this particular trade? What could I have improved on?
CONCLUSION Thanks for reading, and I hope you found this guide helpful. If you know of anyone else who might benefit from reading this guide, please send it along! For more great day trading information, be sure to check out http://www.TradeCrushers.com.
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Only Your Performance Matters

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