How Day Trading Works?

  • Day Traders make profit from volatility.
  • When stocks are moving we can find opportunities to trade and profit.
  • Our job is to find volatility in the market by hunting for catalysts such as quarterly earnings, press releases, and other types of news.
  • A good set up means that we are confident to loose nil or very less money on the trade setup.
  • A good setup means a $100 trade can make $300 profit. This is called 3:1 profit to loss ratio.
  • A bad setup means a $100 trade can make $10 profit is called negative risk to reward ratio.
  • Always hunt for volume and volatility.
  • Find stocks and decide on exact entry and exit levels completing the setup for each trade
  • High trade means more commission to the broker
  • High trade means more losses due to slippage. For example, we exit on $5 but order filled in on $4.9. So 10 cents for 1000 shares is $100 dollars.
  • One popular strategy is Pattern Trading
  • Over 60% of the volume in the market is Algorithmic High Frequency Trading (HFT)
  • Focus on Retail stocks that involve actual traders and on actual news. For example, an FDA approved drug notification.
  • So always look for a catalyst that can drive the price up.

Pattern Trading / Gap and Go / Momentum Strategy

  • When price action is plotted on a chart, patterns are formed
  • One recommendation is to use Candle Stick Charts
  • Each Candle represents a period of time and we can choose which time frame we want on our charts
  • Better to use 1 min and 5 min candle stick charts
  • Some traders focus on technical indicators like Relative Strength Index (RSI), Moving Average Convergence Divergence, Moving Average Cross Overs
  • Scalp or scanning for Volume Spikes and High of Day Spikes
  • Focus on Counter Trend Trading, buying Low RSI or Shoring High RSI
  • Look for relative high volume trading of stock
  • Look to buy the Breakout. Buy at APEX point when the stock has to Breakout or Breakdown
  • Avoid buying during Consolidation. This is boring and ties money up for too long.
  • This is also called Momentum Trading.

Reversal Pattern

  • Wait for a clear reversal confirmation and then buy with a stop at the low of day
  • This only works on stocks selling off on heavy volume
  • We need that quick snap in momentum from seller to buyers
  • Think about the Rubber Band

Setting Stops

  • Always ask yourself whats my stop
  • I set my stop at the low of the previous 5 min candle by default
  • Is the stock moving up?
  • Are we still trending up?

Stocks Trend with Market

  • Stocks will trend with the overall market UNLESS they have a reason not ot
  • It is our job to Find the Catalyst for a stock to MOVE
  • Scan for earnings, News, Activist Investors etc

Retail Traders Vs Institutional Traders

  • Retail traders are your regular traders, part-time, full-time but not working for a firm
  • Institutional Traders represent large amounts capital, they are trading the accounts of their clients. They are extremely aggressive and have huge positions
  • We want to trade on the same side as the institutions

What do we need to Trade

  • Charts (eSignal software and TAS market profile)
  • Broker (speedtrader, SureTrader, light speed trading, )
  • Stock Scanners (trade-ideas)
  • Stock news (Social media, streaming news)