The Everything Guide to Day Trading

All the tools, training, and techniques you need to succeed in day trading

David Borman

• Publisher: Everything
• Year: 2010
• Print ISBN: 9781440506215
• eBook ISBN: 9781440506222
• Topic: Personal Development
• Subtopic: Trading

Expert advice on becoming a successful day trader!

Day trading can be perilous or profitable—depending upon the expertise of the trader. In this no-nonsense, take-no-prisoners guide, you learn how the market works and how to make it work for you. From screening stocks to conducting technical analyses, you learn everything active traders need to succeed in this tumultuous world, including:

-What goes on behind the scenes in the market

-How things can go wrong and how to reduce risk

-Which kind of technical analyses work—and why

-The best research and trading services to turn to for help

-The ins and outs of chart patterns, like Candlesticks, Triangles, and Head and Shoulders

With real-life examples that illustrate the ups and downs inherent in this high-risk, high-profit business, this guide is all you need to trade wisely, quickly, and lucratively, no matter how new you are to the challenging game of day trading.

APPENDIX A

Glossary

2 percent rule

A method of building in stop-loss settings (automatic closing of a position) to limit the overall loss of a position to 2 percent of the cash balance of your total day trading account.

American Depository Receipt (ADR)

An ADR is a share of stock that is directly tied to the price of a share of stock of a company that is listed on a non-U.S. exchange.

Annual report

An audited listing of a publicly traded company's financial statements and statements to shareholders.

Arbitrage

The buying and selling of securities on different exchanges at the same instant in an attempt to gain on the price difference between the two markets.

Arms index

Attempts to read the conditions of the stock market by looking at the number of shares on the NYSE that have fallen and risen and the volume of these shares.

Asset valuation

A method of determining the value of property or claims on property without the actual sale of the property. To arrive at an effective valuation, the two pieces of property must be similar in nature, quality, and quantity.

Available margin

A form of a credit card for buying stock or other tradable sector.

Balance sheet

A financial document that shows the assets, liabilities, and owner's equity of a business. A balance sheet is divided into two parts; the asset side must equal the liability and equity side.

Bear market

A market condition when the investor's and trader's risk sentiment is low; also when a market is falling in overall price.

Beta (ß)

A measure of a securities' volatility in relation to the overall market. A beta of 1.0 would indicate the security moves in tandem with the market, while a beta of 2.0 would indicate the security's movement is twice as volatile as the overall market.

Basis point

The commission in FX accounts, equal to .01 percent.

Big Mac Index

A term coined by the publishers of the periodical The Economist. The Economist publishes their version of a PPP measurement by recording the cost of a McDonald's Big Mac in several countries around the world. The thought is that the Big Mac is a good measure of PPP, as it is the same commodity worldwide.

Book entry format

Accounting entries made to record the transfer of gold reserves from vault to vault.

Bourses

A European term for a trading area, usually where financial products, art or numismatics are traded in an organized exchange-like arena.

Bretton Woods system

Financial system in which the U.S. dollar was linked to gold. Foreign nations could easily exchange the dollars they had in reserve for the gold that was held in the vaults of the U.S. government.

Broker

The financial intermediary required in order to trade securities. A firm that holds trading and investing accounts for clients.

Bubble in the market

A condition of securities that are greatly overpriced due to ease of credit, allowing greater and greater price expansion in the market.

Bull market

A market where there is an overall good feeling; usually indicated by rising prices over an extended time.

Buy and hold

An investment strategy that uses security selection as its main requirement; usually for longer timeframe investors.

Buy on the dips

A method of allocating a certain amount of your portfolio to one security and adding to your position of this security when the price naturally hits low points throughout the trading horizon.

Capital gain

The money made on an investment when the sales price is higher than the purchase price.

Capitalization

The sum of the long-term debt and the stock in the set up of a company. This is often called the structure of the company, and the amount of debt in relation to the amount of equity in the company will tell you how conservatively the company is structured; the lower the amount of debt, the more conservative.

Carry trades

Trading long, high-yielding currencies versus low-yielding currencies.

Cash flow

A measurement of the inflows and outflows through a company for a given length of time.

CBOE Volatility Index

An intraday index; its main use is as an indicator of traders' and investors' emotional feelings about the market. The higher the VIX number is, the greater the negative feelings in the market. A normal reading is anywhere from 15 to 25. Also known as the VIX Index.

Certificate of Deposit (CD)

A financial product sold by a bank that operates much like a savings account, only with a maturation date.

Coffers

A term from the Italian Renaissance referring to the chest in money traders and banker's vaults that held the actual gold and silver coinage.

Combination brokerage firms

Firms that have trained licensed brokers available to assist in the setting up of a trade or a hedge trade. They have two types of pricing structures, one for online trading at the discount rate, and one for broker-assisted trades, at a higher, full-service rate.

Commodity

Any raw materials that are fully interchangeable and uniform and used in the manufacture of processed goods.

Commodity currencies

Currencies of commodity-producing economies.

Deep-discount firms

These brokerages will offer a discount on the price if you exceed a certain amount of trades, usually above fifty in a monthly period.

Defensive cash account

The mindset that your cash account is the source of your paycheck and the source of a day trading business's self sufficiency. You should get to the point that your day trading business is completely self-sufficient and in no way harms your total picture of economic well-being.

Depreciation expense

A deduction allowed by the IRS that spreads the cost of fixed assets over an assigned lifespan of three, five, or seven years depending on the classification of the equipment or fixed asset.

Discount firm

Discount firms offer the same back office, order entry, and market access as a full-service firm. The only difference is that you will not have a representative to speak with, and most likely the discount firm will not offer its own research, but will rely on outside sources for this critical information instead.

Dollar cost averaging

Buying at regular intervals, at high points of the market and at low points of the market.

Dow Theory

A method used to plot the future movement of a security using the Dow Jones industrial 30 average and the Dow Jones transportation averages as base lines.

Earnings per share (EPS)

Found by taking the net earnings and dividing it by the total number of shares outstanding. The relative value of the market as a whole, measured by comparing the ratio of the S&P 500 average earnings per share to the percentage yield of a ninety-day U.S. government T-bill.

Earnings season

During earnings season, companies can exceed or miss what the market expected their profits to be, and this can lead to exaggerated and unpredictable price movements in a stock's price.

Elliott Wave Theory

Employs past information of a security movement to predict the securities future direction. The basis is that securities in the market have five distinct steps, and these steps form three separate waves. The theory is that once all of the five of the different parts of the wave have worked their way through, a top (or bottom) is in play. When a top or bottom is reached, this also marks the beginning of a fresh trend.

E-mini futures contracts

Futures contracts that are structured much like the full-sized contracts, except the they have much smaller lot sizes. Because they have smaller lot sizes, they are easier to manage, and it is easier to have multiple positions in your account at any one time.

Endowments

Often referred to as “institutional investors” or “inst...

Table of contents

• Cover Page
• Title Page
• Copyright
• Contents
• The Top 10 Tips for Successful Day Trading
• Introduction
• 01: Introduction to Markets and Trading
• 02: What Is Day Trading?
• 03: Is Day Trading for You?
• 04: Getting Set Up for Trading
• 05: Sectors to Day Trade
• 06: Deciding What to Trade
• 07: Choosing a Brokerage Firm
• 08: How to Navigate the Online World of Day Trading
• 09: Listening to the Market
• 10: Reading the Fundamentals
• 11: Adding Charts to Market Analysis
• 12: Cash and Margin Management
• 13: Preparing for Your First Trade
• 14: Building Positions and Risk Management
• 15: Developing Your Own System
• 16: Advanced Trading
• 17: Evaluating Your Performance
• 18: Emotions and Trading
• 19: Accounting and Taxes
• 20: Making Day Trading Your Job
• Appendix A: Glossary
• Appendix B: Additional Resources
• Appendix C: What to Trade When
• Appendix D: Financial Publications