GUIDE TO DAY TRADING

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Carmel Powell
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1 THE GUIDE TO DAY TRADING All the tools, training, and techniques you need to succeed in day trading David Borman /ladams c i Avon, Massachusetts

2 Contents The Top 10 Tips for Successful Day Trading x Introduction xi ifl 'Ql Introduction to Markets and Trading / 1 Day Trading and the Knowledge Factor 2 Functions of the Markets 3 Commonly Traded Products 4 IPOs and Brokerage Basics 6 The Players 8 Modern Trading and Going Global 9 What Is Day Trading? / 13 Day Trading Defined 14 Trading Terminology 16 Day Trading versus Position Trading versus Hybrid Methods 17 The Benefits and Downsides of Day Trading 20 A Typical Good Trading Day 22 A Typical Bad Trading Day 24 Is Day Trading for You? / 27 Emotions and Temperament 28 Time Commitment 29 Risk Tolerance 30 Available Funds 31 Can You Work Alone? 32 Support Groups 34 Other Responsibilities 37 Backup Plan 38 Getting Set Up for Trading / 41 Writing a Business Plan 42 Setting Up an Office 43 Equipment 44 Computer Hardware and Software 45 Periodical and Newspaper Subscriptions 48 Trading News Feed Services 49 Studying the Market's News over Time 51 Sectors to Day Trade / 53 Stocks 54 Exchange Traded Funds 57 Foreign Exchange 58 Gold as a Currency 60 Commodities 62 Futures 64

/ 13 Day Trading Defined 14 Trading Terminology 16 Day Trading versus Position Trading versus Hybrid Methods 17 The Benefits and Downsides of Day Trading 20 A Typical Good Trading Day 22 A Typical

3 The Everything Guide to Day Trading, Deciding What to Trade / 69 Trade What You Like 70 Become an Expert 71 What to Trade if You Work 73 What to Trade Seasonally 75 When to Trade the Hot Market 77 A Good Trader Trades It All 78 Choosing a Brokerage Firm / 81 Types of Firms 82 Commissions and Fees 84 Advantages of Certain Accounts 85 Disadvantages of Some Accounts 86 Types of Accounts 87 Is This Broker Good for You? 89 How to Navigate the Online World of Day Trading / 93 Short-Term and Long-Term Perspectives 94 What Software Tells Traders 95 The Benefits of Practice Accounts 97 Getting Smooth with Order Entry 98 How to Try Out Ideas 100 Paper Profits, Real Emotions 101 Listening to the Market / 103 How Much Information Should You Listen To? 104 Where to Get Information for Trading Ideas 105 Information versus Noise 107 Can You Believe What You Hear? 108 Internet Forums and TV 109 Good or Evil: The Market and "News Days" 110 Reading the Fundamentals / 113 Knowing the Company or Sector 114 Looking at Financial Statements 115 Structure, EPS, P/E, and Growth 116 The Supply and Demand of Commodities 118 Currency Fundamentals 119 The Problems with the Fundamentals 121 Adding Charts to Market Analysis / 123 Security Timing Approach 124 Chart Patterns and Dow Theory 125 Elliott Wave and Moving Average Deviation 126

4 Contents Other Charts, Technical Indicators, and Money Supply 127 More Indicators 129 Market Breadth, Oscillators, and Others 131 Cash and Margin Management / 133 Your Trading Account as a Cash Account 134 The Defensive and Offensive Cash Account 135 Strengthening Your Cash Account Through Trading 137 What Is Margin and Your Buying Power? 139 The Mathematics of Margin 140 Margin Limits 141 Margin Call 142 Preparing for Your First Trade / 145 Getting a Feel for the Market 146 Making a Plan 147 Setting Your Profit and Loss Limits 149 Risk Management and Moving Stops 150 Know When You Are Ready 151 Some Goals of Day Trading 153 T I Y\ Building Positions and Risk Management / 155 Buying the Cheaper End of the Trade 156 Risk Management 156 Using Stops Effectively 158 Using the Pyramid System 160 How Many Positions at One Time? 161 Profits, Losses, and Your Buying Power 164 Developing Your Own System / 167 Treat Trading Like a Business 168 Study the Market, Then Trade the Market 169 Looking for Setups for Higher Returns 171 Switching Markets to Get Refreshed 172 Learning from Each Trade 174 When to Walk Away from the Markets 175 Advanced Trading / 179 Time Length and Overall Returns 180 Short Time Length "Squat" Trades 181 Overnight Trades 183 Long Time Length Trades 185 vn

$Risk Management and Moving Stops 150 Know When You Are Ready 151 Some Goals of Day Trading 153 T I Y\ Building Positions and Risk Management / 155 Buying the Cheaper End of the Trade 156 Risk$

5 The Everything Guide to Day Trading Scalping while Watching the Evening Movie 186 Programming Your Trades for Automated Entry Points 188 Evaluating Your Performance / 191 Remember, That's Money You're Talking About! 192 The Mathematics of Calculating Returns 193 Realistically Looking at Your Performance 195 Breaking Even Is Okay 196 Is It Enhancing Your Income? 198 The Day Trading Learning Curve 199 Emotions and Trading / 203 The Emotions of Winning and Losing 204 Do the Opposite of What You Feel 205 Don't Trade When the Market Upsets You 207 Use the Market's Emotion to Your Advantage 208 Tax Planning 220 Bookkeeping Software 222 Getting an Accountant 224 Making Day Trading Your Job / 227 The Philosophy of Building Up an Account 228 Developing Skills 229 Slowly Going Pro 231 More about Budgeting 232 Defining Your Ultimate Goals for Day Trading 233 Living the Day Trading Lifestyle 234 Appendix A: Glossary / 237 Appendix B: Additional Resources / 261 Appendix C: What to Trade When / 269 Appendix D: Financial Publications / 275 Index / 279 Risk versus Rewards 210 Know Your Risk Limits 211 Li. Q Accounting and Taxes / 215 Basic Record Keeping 216 Recording Gains and Losses 217 Expenses, Net Income, and Taxes 218 vm

198 The Day Trading Learning Curve 199 Emotions and Trading / 203 The Emotions of Winning and Losing 204 Do the Opposite of What You Feel 205 Don't Trade When the Market Upsets You 207 Use the

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