Learning How to Day Trade

There is a lot of intimidation with new trader who are eager to learn how to day trade. Obviously, just about everybody's dream is to be able to make money from home, but a lot of traders are scared of the process of day trading. I have a feeling that traders think they have to be "experts" at the market in order to succeed. They think that only a select few can be successful.

Believe it or not, you don't have to be a trading genius to be able to day trade. If you ever got a chance to meet the "average Joe" day trader, you'll realize that intelligence is not a prerequisite to making money online. Quite a high percentage of them never even went to college. Successful day trading can be achieved by anybody!!

You've got two schools of traders. You've got the trader who uses technical analysis, and you've got the trader who uses fundamental analysis. The vast majority of day traders use technical analysis. The problem is people misconstrue the term "technical analysis". They think this means using several indicators to create a mechanical trading system. This is in fact, the opposite of analysis.

After all, if your indicators are the ones telling you when to trade, what exactly are you analyzing??? The trader analyzes the market, not the indicators. If more traders took personal responsibility for their trades, instead of just outsourcing it to their indicators, you'd see a much higher percentage of winning traders.

John Templeton has been a successful forex trader after learning how to trade price action. Once he understood that all he needed to trade forex was on a plain chart with no indicators, his profits soared.

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Choose Your Weapon and Choose Carefully - Trading Among the Various Asset Classes

With so many different securities to choose from, investors have a vast array of options with which to trade and boost their portfolios' returns. But with so many choices, how is an investor to decide? The next part of that question is figuring out if it's even prudent to limit yourself to just one asset class. Of course we recommend having a diversified portfolio and with some diligent research, you'll be able to find the right mix of securities to fit your personal comfort level. To do that, your research should include a brief analysis of the advantages of stocks, options, forex, futures and exchange traded funds (ETFs). Let's take a look at each right now.

Stocks And ETFs: Good Starting Points

Owning stock is the most basic form of investing and even if you don't stocks directly, you probably own some through a mutual fund or retirement plan. Owning a share of stock essentially makes you one of many owners in a company's business. When the stock rises, you make money. When it falls, you lose money (unless you've sold the shares short). It's that easy and the simplicity of stock ownership has made it the investment option of choice for millions of investors.

ETFs take stock ownership a step further. Considered a twist on investing in mutual funds, ETFs give investors exposure to a group of stocks in a specific sector or index. That's a feature many investors love about mutual funds, but ETFs are much more liquid, trading like shares of stock. ETFs are great for investors that want to make long or short bets on a particular sector, but don't want to pick just one or two stocks.

The bottom line is investors should have both stocks and ETFs in their portfolios. Another advantage of ETFs is there are hundreds of ETFs designed to give investors short exposure without directly shorting a single stock, so ETFs can act as a great hedging tool in your portfolio.

The Leveraged Investment Vehicles

There are certainly advantages (and pitfalls) of using investment choices that thrive on leverage. Futures, forex and options all fit the bill when it comes to using leverage. As leverage pertains to options, investors can control a good chunk of a company's stock for the life of an options contract without the expense of buying the shares directly. For example, you might be able to buy a call option on Coke for $1 a share and that would equal $100 (100 shares per contract x $1 = $100) when the stock is trading for $50.

Best of all, access to leverage with the most basic options strategies limits risk. When buying a put or call contract, the biggest loss you can sustain is the cost of the contract, but stock ownership (or a short sale) increases our risk profile dramatically.

Don't forget about leverage with futures and forex. These two trading arenas are home to some of the biggest potential winners and losers you'll see in trading and that's due to leverage. Most forex brokers grant traders 50:1 or 100:1 leverage on their capital deposits. That means if you deposit $10,000 in a forex trading account, you'll have as much as $500,000 (if not more) to trade with. Remembering that each pip on a standard forex lot is worth $10, you quickly see how big money can be made or lost in a heartbeat in forex trading.

Futures instruments trade in a similar fashion to forex and it is important to note that investors can lose more than their initial deposit while trading both futures and forex. Since it is a good idea to have some commodities exposure in your portfolio, we like the use of Emini futures, which come with lower risk, as a way of integrating futures into your investment arsenal.

So What Asset Is Best For You?

If you're a long-term investor, a mix of all of the aforementioned assets might benefit your portfolio. To get futures and forex exposure, consider managed futures or currency ETFs. For active traders, start with stocks and mix in some basic options strategies on the side before working your way up to futures and forex.

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No Such Thing As a Free Lunch - Fees Are a Fact of Life in Trading

There are very few certainties in life. We all know the old adage about death and taxes being among life's only guarantees. Add to that list the fact that brokers are in business to make money for themselves, not you. Hence, there's no such thing as commission-free trading. It simply doesn't exist in any asset class. Sure, some brokers may give you a set amount of free trades to get you in the door, but once you hit that set amount, you'll be paying from that moment forward.

For better or worse, there is little in the way of uniformity when comes to the commissions various brokers charge us. We're going to take a look at some of the basics of brokerage fees for stocks, options and forex to get you prepared for the cost of trading.

Stocks: Fees Galore

When it comes to trading stocks, there really are too many fees and since there are so many brokers competing for your business, it's hard to discern where the best deals really are. If you're an independent trader or investor and don't need a lot of handholding beyond getting an order placed, your best bet is a discount broker. Previously, discount brokers didn't offer much in the way of frills and extra services, but since they want to take business from traditional brokers, their suite of services and tools has expanded over time.

If you're buying or selling a stock through an online broker, you shouldn't be paying anything more than $15 a trade and even that is pretty high. In reality, you should be paying $7 to $10 a trade with an online broker. If you're using a traditional broker like Morgan Stanley or Fidelity and you like to call someone on the phone to get a trade placed or get some advice on stocks, etc., it's going to cost you. This is "full service" and full-service brokers charge for the privilege. Trades here can cost $20-$25 each or more. So if you can avoid it, don't use traditional brokers just to buy and sell stocks. Use them for more advanced portfolio planning and services like that. In another trading nuisance, every broker is going to charge more and different prices for limit, market and stop orders.

Options: Contract Costs

With the boom in options trading in the recent years, there are more options brokers than ever competing for your business. The fee model that most options brokers use is to charge you a fee to place a trade and then a fee per contract that you're buying or selling. For example, if you want to buy 10 calls, the broker may charge you $5 for the trade and then a fee of 50 cents per contract, so the total cost of your trade is going to be $10.

If you like to trade more advanced options strategies like spreads and condors, keep in mind that many brokers have a limit on many legs you can add to a trade (usually it's enough to accommodate spreads and related trades) and since you're adding to an existing trade, you'll be dinged for the cost of a new trade and the cost of the new contracts, too.

You really shouldn't be paying anything more than $10 a trade and 75 cents per contract. Those figures are on the high side and you'll likely be able to find far better choices than a broker that has high fees like that.

Forex: The Best Fee Structure

One of the best things about trading forex is the straightforward fee structure. Part of the reason that trading options and stocks is more expensive than forex is because there are centralized markets that execute stock and option trades. Your broker has to pay the Nasdaq, New York Stock Exchange and Chicago Board of Options Exchange to make your trade happen. Guess what? That cost is passed along to you.

Since there is no equivalent market center for forex, the fee you pay per trade is the difference, or spread, between the bid and ask prices in the currency pair you're looking. Let's say the Euro/US Dollar is bidding 1.3938 and offering 1.3940. That's a difference of two pips and that's the cost of your trade. This is the way most forex brokers charge for trades and we'd be leery of any broker that uses another method.

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Options 101 - Another Leveraged Tool to Make Big Profits

Interest in options trading has grown considerably in popularity in recent years. If done properly, options trading can put the trader in a position to make some massive gains without the risks that are present in other markets. For too long, investors associated options with risk and danger, and while some options strategies are accurately described by those two adjectives, the more basic options trades that beginners should focus on are not. In fact, options trading is the most cost-efficient way to control large amounts of stocks or other underlying assets without lots of risk. We're going to show you some of the basic strategies that you can use to do just that.

Puts, Calls And More

For rookie options traders, it's best to keep your focus limited to the most basic options strategies and that includes buying puts and calls. When we buy puts, we are bearish and we want the underlying asset to decline in value. Calls are the opposite. When we buy calls we are bearish and want the underlying asset to appreciate. Either way, our risk is limited to the premium we pay for each contact. An equity options contract is equal to 100 shares of stock and quote in prices such as $1, 2.50, $5, etc. So if you buy one call contract on Microsoft when the contract is trading at $2, your total is $200. ($2 x 100 shares = $200)

Here's the beauty of options. Let's say Microsoft shares were trading at $25 when you purchased that call. To buy 100 shares of Microsoft, you'd have to risk $2,500, more than 12 times more than the cost of the call contract. Best of all, the returns with options are usually far greater than with just owning stocks. Price action for options contracts is measured by delta, that is, the measure of how much an options contract moves in relation to the underlying security. A contract with a delta of 0.5 means that the contract moves 50 cents for every dollar the underlying asset does. That puts you in a position to gain 50% on a $2 options contract. If you buy a $30 stock, it needs to go up $15 to net you a 50% return. See how powerful options can be?

Other Conservative Options Strategies

There are a couple of other conservative options strategies that beginners should explore. They are covered calls and married puts. Covered calls and married puts are both income-generating strategies that allow us to collect premiums on stocks we own that either aren't very volatile or are going through a period of choppy, range-bound trading. A good rule of thumb with both strategies is to write one contract for every 100 shares of stock you own.

Here's how they work: Let's say you own 1,000 shares of Pepsi and want to write (or sell) 10 covered calls at 50 cents each when Pespi is trading at $60. You will collect $500 in income for writing these calls (50 cents x 100 shares x 10 contracts = $500). Sounds good, but what's the risk? The risk is that if Pepsi soars above $60 before the contract's expiration date, the buyer of the calls is going to call away your Pepsi shares at $60 and sell them for a profit at whatever the market price is.

Married puts function in the same fashion. We can collect premiums, but we want our shares to stay ABOVE the strike price before the option expires. On the other hand, if we own married puts and the stock falls below the strike price, we exercise the option and sell the shares at the strike price. This is a nice option to have, so consider married puts to be an insurance policy against your stock position.

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Know Your Orders and Know Them Well - A Primer on Various Order Types

Unbeknownst to many investors is the fact that are multiple order types when it comes to buying and selling securities. There is a dizzying array of ways to get into or out of a trade and knowing the difference between these orders and how to apply them can not only save you some money, but make you some as well. We're going to take a look at three of the more basic order types and define them for you. Learn the lingo and you'll sound smarter than your broker as result.

The Easiest Order Isn't Always The Best

The most basic of all securities orders is the market order and this is what you're placing if you don't verbally instruct your broker otherwise. If you're using an online brokerage, there should be a box giving you options about the various orders you can use and if you don't select one of those, you'll be getting a market order as well. Market orders simply get you into or out of trade without much consideration for price you want. Market order a buy or sell order in which tells your broker to execute the order at the price currently available. You're not likely to get the best available price with a market order because market makers interpret market orders as a trader saying "Just get me in or out, I don't care about price."

So market orders are great if you desperately need to get into or out of a trade quickly, but they're not very precise. The pros hardly ever use market orders and the problem with them comes when a market maker shuffles your order down the priority line. You may see a stock trading at $25.50 and you want to buy it, but if volume starts to pop and the offer price starts to rise, you could end up with a price like $25.57 or $25.59. And the same thing goes for selling or going short, so only use market orders if you absolutely have to.

Stop Orders: A Potential Life-Saver

You can use protective stops to either lock in profits or prevent big losses, but stop orders can also be placed to enter trades as well. In fact, placing stop orders to go long or short near your desired entry points is a great way to ensure you get into a trade that you want to be in. The market moves faster than you can click your mouse and saving a few seconds here and there can get you better pricing.

Here's what you need to remember about stop orders: Unless you are using a stop limit order (we'll get into limit orders later) you're using a stop market order. This means that while you may place at a stop at $25.50, when the stock crosses that price, your order becomes a market order. There is no guarantee that you'll get $25.50 as the exact entry price of your trade. Once $25.50 is printed your order is activated, but not necessarily filled at that price. In a fast market you might get filled at $25.75 or even much higher. If your stop order isn't filled at your desired price, you will likely get one of the next available prices, but the slippage won't be as bad as you might experience with a traditional market order.

Limit Orders: The Best Of All

Limit orders are great, especially when you're exiting a profitable trade. A neat benefit of limit orders is that many exchanges actually give traders a small rebate on their trading costs when they use limit orders because these orders keep liquidity flowing and don't upset the balance of the bid and ask spreads.

Here's how limit orders work. Let's say you're already in a profitable long trade, and you want to exit at $25.50. That's the price you absolutely want, not a penny less. You send your limit order through and if you have real-time quotes, you'll see your order pop in the ask column (assuming you're selling). If that stock goes to $25.50, some or all of your position should be taken out. But here's the risk: By using limit orders, you're saying you won't accept another price other than the one you've entered. If that stock goes to $25.49, but falls back, your $25.50 limit order just sits there and doesn't get filled. The price you want has to print for your order to be filled. The moral of the story is be careful with your limit orders and be prepared to pull them back if a trade goes against you.

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Why is it Important to Keep an Eye on a Stock's Moving Average?

A 'moving' average (MA) is the average closing price of a certain stock (or index) over the last 'X' days. For instance, if a stock closed at $21 on Tuesday, at $25 on Wednesday, and at $28 on Thursday, its 3-day MA would be $24.66 (the sum of $21, $25, and $28, divided by 3 days).

Since the most recent X-day period changes every day, so too will the value of the stock's MA. The ongoing updates to the MA values are also sometimes called a 'rolling' average.

Moving averages are usually plotted on a stock's chart by those who are analyzing them, since their physical position in relation to the stock's price is the key to using them effectively. As for how many daily prices a MA should incorporate, the chosen moving average length (or X days) should reflect the investor's intended holding period and time frame.

How is it Interpreted? First and foremost, investors should understand the purpose of a MA is to 'smooth out' erratic day-to-day price changes into something more discernible and consistent. With that in mind, there are several ways to use them as an investor. There are the three basic, core strategies though:

1. Momentum Indicator - Is the MA pointing upward, or downward? It does indicate the bigger trend, after all.

2. A 'Signal' Line - A stock that crosses above or below a selected MA line could be considered a simple 'buy' or 'sell'.

3. Support or Resistance Levels - A stock that moves back towards a MA line may not necessarily cross it again; that moving average could also be a reversal point.

Kapitall is an online investing platform that combines the world's friendliest investing experience with powerful yet simple tools. Click here for a demo video, or visit us at Kapitall.com.

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Managing Risk is Key to Successful Trading

Your long term success as a trader depends on how you manage risk in the market. The golden rule of trading, "let your profits run and cut your losses short", is all about managing risk and taking measures to limit your losses. Risk is an essential part of trading and in order to protect your capital, you need to avoid risks that will put you out of business.

Risk and money management form the most critical parts of your trading plan. Just like any business, in order to survive, it needs to have a plan. This plan is individually based and is a blue print of your trading future. It should set out your trading style, goals and objectives, strategies and tactics and most importantly risk and money management.

When starting out amateur traders are mostly interested in entry methods, yet it is money management that is the key to survival. You can get almost everything else in your plan wrong, but if you have strict money management rules that you adhere to, then you are on the right path to success.

With every trade you undertake in the stock market you are opening yourself up to risk and 'you' are the only person that can control this. The key to controlling risk in the market is to use some simple money management techniques that aim to protect your trading capital and quantify your risk. You need to consider the following in your plan:

* What type of instrument and time frame are you prepared to trade in the market? This depends on what instrument you choose to trade, such as shares, options or futures, as well as the liquidity of the chosen instrument. Some instruments are more volatile and shorter term in nature than others, which gives them higher risk profiles. You need to select one that suits your personality and style of trading.

* How much risk are you prepared to take on each trade? Position sizing is a money management tool you can use to control this and determine how many shares you can buy based on the percentage risk that you are prepared to undertake on any one trade.

* How will you limit your losses and protect your open profits once in a trade? Stop losses are your key to survival when entering a trade and allow you to protect your open profits once the trade moves your way.

* When should you add more money to an existing trade? Successful traders use a technique called pyramiding to add to profitable trades.

* What is the maximum position size you will take on any one position? You want to ensure that you are not putting all of your money into one trade, because if that trade fails, then your chances of success are a lot lower than having your capital spread between multiple positions. As a general rule it is best to ensure that the maximum size of a position (including pyramiding) does not exceed 25% of your total equity.

* How will you manage your total open market risk? Portfolio heat is a method used to manage your overall risk in the market at any one time. So if all your trades were to hit their stops tomorrow, you know up front your worst case loss.

Getting back to the golden rule of trading. It does not matter how many winning trades you have, if you can't manage to keep your profitable trades larger than your losses you will not survive in the market. You only need to have one or two bad trades in your portfolio that you let go (such as a Onetel or HIH), and do not exit at a small loss, and your entire portfolio could be in a losing situation. There is no such thing as hanging on to a losing trade in hope. You may have heard it from someone else or said it yourself - "don't worry the share will come good again and I will get my money back". Then again maybe it won't!

Justine Pollard is the best selling author of Smart Trading Plans. She is a successful private Australian stock market and CFD trader, experienced trading educator and sought after trading mentor. Justine specializes in supporting traders to become peak performers in the market.

Justine has been interviewed in many media articles and included in top trading books such as "20 Most Common Trading Mistakes", by Kel Butcher and "Real Traders, Real Lives, Real Money", by Eva Diaz. If you are looking to start trading or have been struggling in the markets visit Justine's site http://www.smarttrading.com.au/index.php?q=1.html and get a special report on 10 Tips to Smarter Trading for free.

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