Day Trading

Automated day trading is when a trading system places orders in the market without any human interaction.  These systems work best for traders who are unable to manage their emotions and or have poor money management techniques.  With a number of direct access brokers providing automated trading, it is no longer just an option for large banking institutions.

Benefits of Automated Day Trading

There are very few traders that can handle the emotional runs that come with actively trading in the market.  Day trading requires you to have a constant conversation about risk, entries, exits, etc.  Since the market is actively moving, you have to constantly react as an active trader.  This is where an automated trading system will help.  The system will identify the trading opportunities and execute the orders.  This allows the day trader to step back and simply watch their system at work.

What is a Day Trading Coach

A day trading coach provides guidance to new and seasoned traders, to assist the trader in achieving their goals.  The trading coach should be someone that has already obtained some level of success in the market.  The trading coach is much like a coach in sports.  This person provides you with a trading plan and reviews your trading performance, all in hopes of making you a more profitable trader.

Losing Streaks Overview

Losing streaks are a part of any trading system and must be mastered by the day trader in order to trade in the zone.  Any veteran trader has been through a slump.  Trading slumps are the same bad streaks that any sports player may go through during their career.  The key to dealing with a losing streak is to first identify when you are on a streak and two coming out of a losing mentality.

A day trading journal is the only part of your trading arsenal required to succeed at active trading.  Your journal contains each trading transaction and a brief summary of the trade.  Much like a traditional journal, a day trading journal takes you into a deep intrapersonal conversation that leads to the road of consistent profits.

How to Create a Day Trading Journal

The simplest method for creating a day trading journal is to setup an Microsoft Excel spreadsheet.  Within the spreadsheet should be the following columns:

Type of Trade: Long or Short

Date/Time

Symbol

Price

# of Shares

Profit

Commissions

Net Profit: Profit - Commissions

% Profit

Run-up/Drawdown: Displays max paper gain/loss

Did I follow all my rules?

What was done right in the trade?

What was done wrong in the trade?

Tick Charts Definition

Tick charts display a certain number of trades before printing a new bar chart.  Unlike other charts which are based on time, tick charts are solely based on trading activity.  Tick charts are a favorite for day traders who need to make quick trading decisions and do not have the time to wait for a 5-minute bar to close before making the call to sell their stock.   Tick charts can provide a wealth of information about the details of the trading activity, but it can also create a lot of noise.

Rebate Trading Definition

Rebate Trading is the act of buying or selling short a stock directly from an Electronic Communications Network (ECN) and receiving a rebate from the ECN for the transaction.  Rebate trading is mostly used by day trading as the transaction can list for seconds.  The rebate trader hopes to make money off the rebate provided by the ECN, instead of attempting to make money solely on the price movement of the stock.  The rebate trader must first look for a stock that trades with high volume.  This ensures the day trader will be able to purchase or sell short a large number of stock without moving the price.  The rebate trader receives a rebate for buying from the ECN, on the order of $2.5 per thousand shares purchased.  Once the trader is up on their position, even by a cent or two, the trader will close out the trade, and take the small profits from the stock, as well as the rebate from the ECN.  Most ECNs require that day traders maintain a minimum amount of trading act

Market Scanners Overview

Market scanners are a vital component to any day trading strategy.  Successful day trading comes from trading the most volatile stocks in the market.  Since day traders have only a few hours per day to trade, it is best to focus on a limited number of stocks.  Thus, market scanners provide the day trader the easel for which to paint their masterpiece.

Simulation Trading - Definition

Simulation trading is the act of trading stocks in real-time or delayed with fictitious or paper money.  Simulation trading is helpful for testing out trading methodologies, but is most helpful for assessing a day trading system.  Simulated trading is one of the first steps a day trader will take on their long journey to becoming a master trader. 

5-Minute Bar Definition

The close on the 5-minute bar gives insight into the immediate direction of trend for a stock.  This is an important sign when day trading that very few traders discuss openly.  When a stock closes at the low or high of the 5-minute bar, there is often a short-term breather where the stock will go in the opposite direction.  The psychology behind this is that the stock has been pushed to an extreme as other active traders chase the price trend.  This breather can mark a major reversal, but in the majority of cases, it creates the environment for a .25% - .5% counter move. 

Day Trading – Getting Ahead Early

10-Run Rule

My mom recently sent me an article from my high school baseball games from my senior year when we won our conference championship. In the clipping it described how we ran through our division dishing out 3 10-run rule spankings. I thought to myself, every day trader needs a 10 run rule. This 10-run rule is the point you set per day that tells you that the game is over. If you do not know your 10-run rule, a ugly day will turn into a debacle and you are not ready to trade on a professional level.