What is a day trade?

Transcription

1 Greg Weitzman

2 DISCLAIMERS THERE IS SUBSTANTIAL RISK INVOLVED IN TRADING AND IT IS NOT SUITABLE FOR ALL INVESTORS. A LOSS INCURRED IN CONNECTION WITH STOCK, FUTURES OR OPTIONS TRADING CAN BE SIGNIFICANT AND YOU CAN LOSE ALL OR MORE OF YOUR INITIAL INVESTMENT. ALL INFORMATION CONTAINED IN THIS DOCUMENT IS FOR INFORMATIONAL AND EDUCATINAL PURPOSES ONLY. WE ARE AN EDUCATIONAL COMPANY AND MAKE NO CLAIMS WHATSOEVER REGARDING PAST OR FUTURE PERFORMANCE. ANY REUSLTS SHOWN ARE HYPOTHETTICAL. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. WE ARE NOT REGISTERED AS INVESTMENT ADVISORS AND NO INFORMATION PROVIDED SHOULD BE CONSIDERED INVESTMENT ADVICE. ALL INFORMATION IS IMPERSONAL AND NOT TAILORED TO THE NEEDS OF ANY SPECIFIC PERSON. THE INFORMATION SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE AND IS NOT MEANT TO BE A RECOMMENDATION TO BUY, SELL OR HOLD ANY SECURITIES. ANY MENTION OF THE TERMS PROFITS, SUCCESS OR SUCCESFUL ARE NOT MEANT TO BE INDICATIVE OF ANY PAST OR FUTURE PERFERMANCE OR PROFITS. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS AND NO PROFITS OR RESULTS CAN BE GUARANTEED IN ANY WAY. INDIVIDUAL PERFORMANCE DEPENDS UPON EACH STUDENTS UNIQUE SKILLS, TIME COMMITMENT EFFORT AND CAPITAL. STUDENTS SHARING THEIR STORIES HAVE NOT BEEN COMPENSATED. STUDENT RESULTS HAVE NOT BEEN INDEPENDANTLY VERIFIED. RESULTS MAY NOT BE TYPICAL AND INDIVIDUAL RESULTS MAY VARY.

3 What is a day trade? Essentially, a day trade is when somebody buys or sells a financial instrument and completes both sides of the transaction in a single day. You would buy a stock or a futures contract or a Forex pair, whatever that instrument is, and then you would complete the other side of the transaction. In other words, sell it before the close of business on that same day which means that you don t hold positions overnight and every day when you come to work as a trader, you start fresh with no positions. That s essentially what a day trade is. 1

4 Can I really make a living just day trading? That s probably the biggest question out there, the $64,000,000 question as they call it. Can I make a living day trading? Do people actually make their livings day trading? Of course, the answer is both yes and no. As in any business, day trading is fraught with risks. You have to understand and be aware of those risks before going in in order to earn a living as a day trader. Otherwise, there are certainly many people who do earn their livings as day traders, many of whom I ve worked with over the years, many of whom I ve coached and educated since I started in this business almost two decades ago. The statistics though, are such that most people who attempt to day trade without the proper knowledge, tools and education will fail at it. Those who take the time to understand the parameters of day trading and the inherent risks can achieve success. And of course like anything else, the better educated you are, the better tools you have, the better knowledge you have going in, the more you re going to increase your chances of success. 2

5 There are certainly a lot of people earning their living as day traders. Just as in any other business, there are also those who go in with their eyes closed. They try to run before they walk and end up making some costly mistakes. 3

6 How did you get started in day trading? My story is an interesting one actually. I was educated in Macroeconomics back in the 1980s. When I graduated, I decided that I perhaps wanted to investigate the exciting world of currency trading. I looked into becoming a currency trader. It was a very unknown field at the time. Of course now it s a lot more popular with Forex trading, which is just a derivative of currency trading. I became a self-taught currency trader at a pretty young age. I was 24 years old at the time. It took me about a year to get the proper study guides and materials which were very hard to find back then. I pretty much sequestered myself for an entire year until I got the education I felt I needed to put on some trades. When I first began to trade in the early 1990s, day trading didn t exist because the internet didn t exist. I started off as a trader doing what we call Swing Trading which are positions that can last from a few days to a few weeks. Then towards the end of the 1990s with the advent of the internet and all kinds of automated trading tools and trading systems and 4

7 platforms, what became interesting was the ability to take your capital and make it work much harder for you. Before, you had a certain amount of capital and it would be locked up in a trade for five or six days. There really wasn t too much else you could do. You couldn t take any other trades because your capital was being used on that particular trade. Now, introduce day trading which allows you, as I mentioned earlier, to enter and exit a trade in the same day. You can turn that same capital two, three, four or five times a day, as many times as you want or as many times as the market and your particular trading set ups allow. I transitioned my career in the late 1990s from what was a Currency Swing Trader to an active day trader. That s a little bit of my background. 5

8 Did you have any early successes at Swing Trading? Actually, my story is probably the opposite of what most traders experience. Most traders experience failure and then a realization that they need to get better educated. Those who end up sticking with it, who have the tenacity to move forward and the capital in their account to move forward, will go to that next step, recover from the early failures and end up either deciding that this is not for them and moving on or that they want to pursue it and becoming successful. I had a bit of a reverse story in that I was actually immediately successful. My very first trade was being short the Japanese Yen. It was a thrilling time if you are interested in macroeconomics. At the time, it was a scenario where the Japanese economy was in trouble. The Bank of Japan had decided to float their interest rates which essentially means allow the interest rates to fluctuate with market conditions. So because their economy was in trouble, the interest rates kept dropping. This is a very similar situation to what we ve seen in the US in the past five years. At a point when your interest rates can t go any lower, 6

9 money no longer seeks the opportunity because money always seeks a higher rate of return. What happened was it created downward pressure on the Japanese Yen. As I mentioned, I was trained in economics and it took me a whole year to devise my strategy in terms of what I wanted to trade and where the opportunity was. There was this opportunity to be looking at the Japanese Yen. I put on my first trade when I was in my early twenties. It was a successful trade. I essentially focused on trading just that one instrument, Japanese Yen, for about the next two years. I had some really early successes on the Swing Trading basis, which like I said, is a bit of a reverse story because then I experienced some setbacks and some losses and had to readjust and reorient myself. 7

10 With your initial success, would you attribute it to the time you put in to the education component, learning how to do this correctly? If you had to identify one key factor for traders who are successful and who have longevity in their careers, it is giving themselves enough time to understand what they re doing, enough time to learn the markets that they want to trade and having reasonable expectations. I m in the trading education business. Every day I see traders who want to do too much too soon. They don t give themselves the time that they need. They jump right in. They start taking trades before understanding what they re doing and they end up having losses. I can tell you stories of traders who have gone in that direction, who have gone in too much too soon and experienced a lot of trouble. I can tell 8

11 you stories of those who were slow and steady, had reasonable expectations and said, Hey, this is going to take X amount of time. This is the amount of time I m going to put into it, and ended up having tremendous success. That s how it is with a lot of things in life. You see people jump into a business without really having the right training or education. They find out it s not exactly what they thought it was all wrapped up to be. You can make the statement that trading is not really any different than any other business or any other entrepreneurial venture that you re going to go into. If you go in without having the right tools, your competitors, who are a lot more experienced, have a better knowledge of the industry, have better retail locations, are going to be more successful. Obviously, the more knowledge, experience and capital you have, the better your chances of success. Yes, I would agree. That statement is pretty much true in every business. 9

12 I heard that day trading has a huge risk. A friend of a friend knew a guy whose uncle s brother lost everything with day trading. Is this true? I know the same guy actually. The reality is that yes, it s true and no, it s not true. The reality in trading is that there are risks. Yes, you can lose as much money as you invested, and because of how quickly the markets move in which you can take trades, you can lose all that money almost instantly. Certainly, we ve seen it happen. There is one interesting thing about trading that is somewhat overlooked. The most interesting thing about trading at any level, day trading or Swing Trading is that it s the one business where you can build in insurance and you can quantify your risks. What I mean by that is the following: Every time you take a trade, if you ve gone through the proper business planning like we suggest and the way we educate our traders, if you ve gone through those steps and those processes, what you re going to learn is that every trade has a certain amount of risk. What you re going to do is you re going to build a business plan that says, This is how much risk I m prepared to take on a per 10

13 trade basis. This is how much risk I m prepared to take on a per day basis, per week and per month. You build yourself a trading plan. Now that you have the trading plan, you can quantify certain things. You can take those incremental risk amounts and you can calculate what your ultimate daily, weekly and monthly risk is. The difficult part, of course, is being disciplined enough to follow your own rules. That s where a lot of traders can get into trouble. Some traders get into trouble even before that because they haven t taken the time to actually build a trading plan. One of the things that I always think about is this. Imagine if you were to open up a new business. I give this example quite often when I m doing webinars and seminars. Let s say you ve got a great idea. You want to open up a sandwich shop. You ve got all these great recipes and whatever. You go to the bank to get a loan. The bank manager says to you, Can I see a business plan? You say, Well, I don t have one. Then the bank manager asks you, How much do you hope to make with this business venture? Your answer is, As much as possible. Well, how much is the equipment going to cost you? Your answer is, A whole bunch. 11

14 The chances are you re not going to get the loan because you re not prepared. You haven t given it the time and research that it needs. This is where the trader fails and gets into trouble, not building this trading plan that takes maybe a couple of hours. We provide our traders with templates and the tools to do it. By not doing it, you re essentially making the same mistake that people make in every business, which is not being properly prepared. So, yes, it s true that your friend s uncle s cousin possibly lost everything. That similar situation can exist in many different businesses. If you take the time to properly quantify your risk, then the interesting component about trading is that the risk is 100% quantified. What I mean by that is you can attach a number to it that says, If things go terribly wrong, this is exactly how much I m going to lose. That s not necessarily so in other industries or in other businesses. You may hope to have X amount of walk-in traffic in your retail location. You may have bought too much inventory. Your inventory may be perishable. You can t necessarily quantify down to the last dollar what your exposure is. By building a proper business plan for your trading, you can. You can say, Listen, I m going to take a maximum of three trades a day and I m never going to risk more than $100 per trade. Then you multiply that out and you build yourself a business plan. Then from there, you can look at it and say, Okay. These are numbers that I can live with. This is a loss component that I can take ownership of. Now I can move forward and find the successes in day trading. 12

15 It s the one thing that I think comes before all else, building that trading plan so that you can clearly and quantitatively identify your ultimate risk. That s like the foundation for everything that you do. That s where you start. You start with your plan for how you re going to do day trading. It comes before everything else. Preparing that business plan. 13

16 Do you share how to do that with your program? Yes, exactly. As a matter of fact, it s the place where we would expect every trader to start. Those who take the time to do it have done the one thing that will give them a much better probability of success. 14

17 What s the difference between fundamental analysis and technical analysis? I ve heard those terms before. That s a great question actually. Fundamental analysis is when you would evaluate a company based on its ability to earn money and generate profits for shareholders. You would look at things like: What is their revenue? What are their sales and their cost of goods sold? How does that translate after expenses to profitability and how is that profitability then distributed among shareholders? (That is what they call Earnings per Share.) Then you would make a judgment call and say, Well, this company is solid because it s been earning X amount of profits for the past few years. It has strong management in place. I like the products that it s coming out 15

18 with. Then you would then decide to either invest or not invest in that company based on your research. There are a lot of tools involved in performing that analysis. It s more accounting based. You would look at things like their income statements and their balance sheets. Technical analysis, by contrast, does the following. It says, If this is a good company and people, meaning investors, traders, large institutions, believe that it is going to earn more profits in the future, and then they will have already put money into it. They would have already bought up the shares of this company. Their actions of buying shares in this company are going to be revealed on what we call Stock Charts. Technical analysis opens up a chart of the company and says, Let s use some mechanical mathematical tools, not to predict whether or not a company is going to be profitable in the future, but rather to determine if the investors are currently buying into this company, because if they are, then the psychology of the masses, the fact that everybody wants to own something, is far more powerful from a trading perspective than whether or not a company actually earns or doesn t earn money. In other words, our stock price goes up because people are buying it, not because the company will eventually earn money. It s the actual actions of the individual investors. What we do in technical analysis is we take a chart of the company and we measure the recent past in order to have a greater probability of what the near future is going to look like. 16

19 The recent past, depending on the timeframe on which you trade, can be a couple of hours, a couple of days or a couple of months. You re going to look at things like if the market slopes upwards or downwards. One of the very basic things in chart analysis is noticing if the chart you re looking at is moving from the bottom left to the top right. If this is the case, then the buyers are moving in. If it is moving from the top left to the bottom right, then the money is moving out of this particular stock. Then you use other indicators on the same chart to evaluate things like, Well, if it is going up and money is coming in, is it doing it an increasing or decreasing rate? Are more buyers coming in or less buyers coming in? That s what we do in technical analysis. We use a set of tools to measure what s happened. In other words, all the information that we re measuring is what we call Market-Generated Information. These are things that have happened. We re not predicting what s going to happen in the future. What we re saying is, based on the recent past, a set of conditions have happened in order to make the chart look a certain way. Historically, whenever the chart looked like this, the result was the following. It s not a certainty that we re going to have the same result, but trading is based on probabilities and not certainties. The technical analysis allows us to use these tools which are not complicated to use in any way. Measure what just happened and then that allows us to take a trade based on the probable outcome, in other words the probability of the near future is based on information that we gathered from the recent past. 17

20 Want more? The full book includes: The one key factor that day traders do to have a long, successful career. (Ignoring this one step can lead to frustration and determine your success.) Exactly why you need to have a day trading plan to manage risk and keep you focused. (Your plan will help you calculate what to do daily, weekly, monthly.) The truth about making a living as a day trader. Can it be done? (Get the straight facts about day trading BEFORE you spend a dime.) Why an entrepreneurial mindset can help you become a successful day trader. (Successful business people know the value of education and use it to win. Learn how to use the right knowledge to minimize risk.) The one trait you must develop to stay out of trouble in day trading. (This one trait will allow you confidently move forward with day trading and quantify your risk.) Exactly where to start before your first day trade that will 1) provide the foundation for all your trades 2) give you a much better probability of success and 3) never lose more than expected. How to virtually eliminate getting overwhelmed by the sheer volume of stocks available to day traders today. (Follow this simple rule of thumb and you ll greatly reduce the likelihood of human error which could lead to failure.) The #1 BIGGEST misconception about choosing stocks and how to avoid it. (Our approach will help you focus and learn how to stay on target.) Why becoming a specialist in a few markets is the best path to success. (Generalists tend to get involved in too many stocks and fail - don t make this mistake.) The three success tools you ll need to do day trading as a business. (And where you can get each tool for free.) as well as...

21 The two biggest reasons for failure as a day trader. (Don t worry, you ll learn the two reasons and what you can do to avoid ever making them.) How to overcome the emotional impact of a losing trade. (Learning how to deal with this removes the fear out of making day trades on a week by week basis.) How to make trades when the market goes up or down. (Discover how you can sell a stock before owning it.) The completely un-scientific (yet accurate) way to decide on how many stocks you should focus on. (Ignore this number and likelihood of human error greatly increases.) How learning technical analysis is as easy as doing a puzzle with your kids. (Heck, i taught my son to do this when he was eight years old.) The success story of a guy that started with zero trading knowledge and became so good he was eventually hired by one of the world s largest trading firm. (His secret is shared on how he did it.) And a whole lot more including... How to get started doing trades without ever spending a dime of your own money. The greatest thing about becoming a day trader is that you can practice without risking your own money. What other profession can you practice until you get it right? I cannot promise you any specific results. But I can show you what steps, techniques and strategies successful day traders use on a daily basis and you ll learn how to mitigate risk, control it and make sure you do The Truth Is in The Book Buy It Online!

22 AUTHOR GREG WEITZMAN Greg s career in trading and the financial markets began in 1992 as an independent currency futures trader. Today Greg operates and manages 2 trading- related companies that he founded. He is a self starter is self taught and has built his business from the ground up. His experience has touched on many facets of the trading industry including; education, strategy design, management and the development of algorithmic systems. In 2003, Greg founded TheTradingZone, an educational firm that specializes in teaching independent traders how to trade commodity futures. On a daily basis Greg oversees approximately 200 traders who were educated through his firm. In addition Greg works closely with 4 managers, including a former CBOT floor trader, as they share the dayto-day duties of running the operations of TheTradingZone. Greg is a CME Education Partner through his association with Infinity Futures in Chicago. He provides regular monthly educational events both online (webinars) and in person (seminars). He has presented to as many as 1,300 attendees at a single session. He has also been a contributor to various trading publications over the years, including Traders-Mag, Futures Trader, Trader Kingdom, and esignal Learning. Greg strongly believes that there are no shortcuts in trading and investing and the greatest opportunities are found by those with a solid educational foundation and a complete understanding of the markets.