Daytrading---Straight answers!

[Naz]

I could write a book on this but here's a little just a little piece.

Scalping is taking 20c--30c out of a move and getting out,but only loosing 10c when your wrong.Is this tough yeah you bet,could i do it straight away?no you couldn't.So how could i do it?Being taught by a scalper and shown how to do it on a live market.The 2 US scalpers who taught me earn over 1million dollars yr/each.So you see if you get it right it can be very rewarding.

Is scalping exciting? Let me tell you its like a drug, for the first two hours of the day in fast stocks its lightening,its the buzz its like trading should be,its driving 200mph down one of our Motorways,making sure you get to your destination without hitting a slower car and getting wiped out.

How do you trade it? We take all our trades off a level 2 screen,with direct access into movements on that screen no third party is involved you are part of the market.

Could i paper trade it? Yes you could and at the same time youcould learn by writing a log explaining why you got in,what happened and why you got out

Are there slower stocks i can look at? Yes there are,every trader finds the stock that suits themselves.So if you want to trade a stock that goes at 30mph down to Teco's it will be there somewhere.

Does practice imrove my trading? Yes it does.There are far more oppertunities to trade than most markets and the more you learn the level 2 screen by watching it the better trader you become.

NOW FOR SWINGING

You dont have to be a manic scapler to daytrade the Nasdaq.You do need to understand the level 2 screen but you look for 1%--10% runs.The level 2 tells you the story of the stock whos moving it,How the market feels at every level it passes.The strength of the momentum.It allows you to add to your position on pullbacks,scale out slightly into run ups.Its like art its smoooth and beautiful and its great to trade at a slower pace.

You may look more at your technical analysis first to look for those important levels to trade off.Once you have your plan then you trade it of the level 2 screens.

OK you say give me some examples.
Well the Nasdaq very often has two trends one all morning then side ways over lunch and another trend all afternoon.The afternoon trend is quite often opposite to the morning trend and happens at 7pm gmt when most uk people are back from work.

So if we look at our intaday graphs we may spot one or two potential candidates.How about using a scanner to look for potential stocks? (VRSN VRTS EBAY)are quite good at doing this.Wait for the stock moving up and look for the first pullback on the level 2 screen.Are they supporting the pullback,if its yes get in.Now manage your trade and see what you can trade out of it.
Typicaly an afternoon move after a morning fall can be worth 6%.

VRSN did 10% last Fri and i traded EBAY on 21/8 for 6.5%,VRSN on 17/8 for 6% and VRTS for 6% on 15/8.

I hope this post may help it is only a personal opinion and not intended as any financial advice.

 

[ChartMan]

I , ( and many more I guess) really appreciate your obviously generous and experienced input.
A question. It seems you are heavily dependant (obviously) upon L2 screens. Is this to the exclusion of TA? Most of us in the Chat room ( I think) rely solely on TA for our trades, not having an L2 USA platform ( One or two notable exceptions excluded).

 

[Naz]

Hi Chartman thanks for the feedback.

There are different styles of Nasdaq daytrading.There are different levels of level 2 trading (although many people dont realise this).The trouble with the bad press started because people were taught to scalp(doing many small trades during the day)This was great for brokers commissions but very hard on aspiring daytraders.So many of them fell to the way side because of commisssion costs and the fact that they couldnt lift the size of their trades to cover these costs and if they did the fear got to them and they couldnt trade as well as they did with smaller amounts.

For me it took a trip to Las Vegas to see a scalping superstar.While he traded we talked and i wrote and wrote and we hung out together and i learnt.He told me he gave up once,thought about things and changed his style of daytrading to suit his personality.That is the key, learn level 2 (because that is where it happens)then adapt it to your own style.
If that is technical analysis thats great.Many Nasdaq daytraders look for an entry on an intaday chart first and then get confirmation from the level 2 screen and trade it from there using a combination of both to get out, and to manage the trade.

I hope this helps.

 

[Rhythm]

This is the first time I've heard of scalping.

I think I've scalped my first 3 daytrades. Made a loss on the 4th (which went up 10% after 2 days). What I've noticed:

All trades were within an hour of the market opening (Australian Stock Exchange). I bought only after looking at the longterm chart and then bid/ask gaps. I came across the stocks after reading ASX announcements and guessing the market 'emotion'. End result: Turned $5000 to $7000 in 2 weeks.

I'm now investigating developing a Trading Plan.

 

[CYOF]

Naz,

I swore that I would not write long posts ever again - but what the hell.

I daytraded full time for over 1 year - with all the setups for daytrading Nasdaq Tech Stocks.

When I made the decision to go fulltime, I was committed to learning what was required and allowed for 1 year fulltime trading without expecting to make any money worth talking about for the full year - this was my training commitment.

I traded using multimonitor setup (10 monitors) for sector based trading and using E-signal datafeed with broadband connection - IB as broker for low commissions required in learning stage.

In order to raise capital I formed a trading company and brought in a partner, which looking back was a mistake.

During the fulltime year of trading I traded Nas Tech Stocks and the E-mini ES (I had to revert to trading the ES when I got rid of the partner and his capital).

Only when I had gained the experience to actually increase the size (as all my trades were only 100-200 shares until I was happy that I could make money every week) my capital was running out so I had to return to a "real job" to earn some money contracting - which I am still doing at the moment. I plan to return to trading when the contract work finishes.

Stopping trading was the best thing that I done - as I was able to reflect on what I was "actually doing". From this experience, which I believe very few have (some people will call you an entrepreneur, others will call you a fool - but how you feel yourself is all that matters) my personal opinion (which most people will probably not be able to associate with, as you have to have similar experiences to understand the reasoning of what I am talking about) in relation to trading the markets is as follows:

1. Daytrading is the best approach - as you are in control at all times and not using any stops that shows what your opinion is - market makers gun for these stops at certain times of the day and this is why most people get taken out with a loss in their swing trading positions.
2. You don’t need any TA what so ever, as they are based on historical information and with daytrading (we will consider daytrading to be in a trade from 30sec to 3-15 min depending on momentum) you need to react to what is happening "NOW", as it will more than likely only last a few minutes.
3. You do need to understand Level II and how to read the size of the bid and offers at the first 4-6 levels either side of the inside -current - B/A - this is ensure that you can get out at your desired mental stop if need be.
4. More importantly, you need to learn how to read the tape - Time & Sales - as your main objective is to enter a trade just prior to a significant movement (which can last from anywhere from seconds to minutes). The last thing you want is to be in a trade that is going nowhere. This has the potential to 1) Loose you money and 2) Miss other opportunities - these are the 2 main factors that prevents traders from making money - common sense I would think.
5. Position sizing is crucial to making money in daytrading - a typical metaphor to describe why this is required is as follows: what happens when you dip your toe into a basin of hot water - you instinctively pull it out of course. The same with daytrading - test the water first to ensure you don’t burn your big toe, as a big red toe can be very sore.

This is not to say that traders don’t make money swing or position trading, but the fact that you have your money in the market overnight means that you have to be able to accept the associated risk - along with the wide stops that are required to stop those market makers running the prices up and down to these stop levels that are like shining beacons for them. This is a totally different approach, which requires different tools and money management techniques.

Then, of course, you have the Options and the Commodity Futures markets to trade. You can even combine Options and Futures to limit your risk further, if you want to learn how to do that.

What style of trading one decides to embark on is entirely a personal decision, and should be considered based on some simple facts like, risk capital, available time, patience, commitment level, family matters, etc.

In relation to teaching people “How to Trade”, this is where it gets a bit hairy fairy. If I was asked by an individual to teach them what I have learnt to date, I would have several suggestions and conditions noted before any decision is made by either party.

1. I would not do it for free – no free lunches in this world as we all know too well.
2. I would not expect anyone to pay me any monies until I first proved to them that I am successful –i.e., show them my trading statements.
3. I would get them to answer a simple questionnaire to ensure that they know what they want to do and in what timeframe – as most people don’t have any idea of what are the basic requirements needed in order to learn how to trade the markets.
4. I would stop any further training if the person demonstrated that they were only wasting their time, and more importantly, my time. It is better to tell someone up front that trading is not for them, based on their actions.

Overall, in the absence of someone teaching you how to trade, I think it would be more beneficial for an individual to open an account with a cheap broker like IB, where they can trade 100 share lots for $1 (.005 per share with a minimum of 1$ per trade – so you can trade 200 shares for 1$ if you feel adventurous) and say to themselves that I am allocating $2k to $3k dollars to learn how to trade – and take that this money is already “GONE”. Your goal should be to make this money last as long as possible –for this is where the real learning is done.

I traded 100 share lots for 6 months, day in and day out, until I was comfortable with what I was doing and I was able to react to the market when needed. I am embarrassed to say how many times I got it wrong starting off, but that is the only real way to learn – DO ACTUAL TRADES WITH SMALL SIZE . By the end of the six months, I was correctly able to dip my toe in the water, get out with a very small loss if the water was too hot ( $10 - $20 max) and guess what, when I was correct the movement was such that you would have 500 – 1000 shares on a stock that has just run up 40 – 80 cent. Your average win / loose ratio can be in the region of + 10/1, figures that you will not be able to achieve with longer term trading strategise.

Again, there are numerous books on Position Trading and System Trading, but unfortunately they are all signing the same tune, in a different key.

Summary:

• There is no easy way to make money in the markets.
• Trading for a living is 10 times harder than a normal job – but the rewards can also be 10 times as much.
• Make a commitment and do some basic study on the markets – there is enough good free information on the internet if you spend the time searching – some of the best material I got was for free – not the numerous books and courses that I purchased over the years.
• Put aside some money for trading tuition fees – papertrade first to get familiar with the software and then start trading 100 share lots – if swingtrading use the SSF’s at OneChicago – which I think is now up to 168 stocks – as the margin requirements are lower and the commissions are still only 1$ per contract (100 shares).
• Draw up some simple rules – and stick to them – like always use a stop when swingtrading, trade in the direction of the trend (buy the pullbacks when UP, sell the rallies when Down), only trade 100 share lots until you are confident that you know something about what you doing, use a time limit to exit if the stock stalls (you can always watch it and get back in)and move on to the next trade – remember missed opportunity is one of the main reasons why traders don’t make money.
• Don’t consider daytrading unless you have at least $30K dollars (margin requirements) and you can monitor the markets full time between 09:00 and 10:30 US time – some days you may need to watch until 11:00 depending on news releases and events – but as a general rule you can shut down the PC after 10:30 – another reason why daytrading is so attractive as a fulltime job.

Glad to share my experiences and I hope that someone may benefit form my humble opinions.

CYOF

 

[insight2]

I agree with what you said. But how do you acheive 10 to 1 win / loss ratio? Can you give us an example of how you make entry decision?

cheers, dejan

 

[andycan]

10-1 win loss are considered home runs they will happen sometimes but most of the time you wont get that certainly not in day trading and certainly not as a newbie trader

Andy

 

[CYOF]

I forgot all about this post and got an e-mail from a member which has led me back to the post.

Win ratios of 10:1 are not the daily norm, as Andy rightly says, and it will depend on the day that is in it, the stocks you decide to trade and the strategies you use.

There are numerous ways to daytrade stocks:

1. Buy / Sell gaps in the opposite direction of the gap - depending on gap amount and time from open + volume - secs to minutes.
2. Scalp quick breakouts of the daily H/L using Level 2 and TOS - secs to minutes.
3. Buy / Sell consolidation breakouts of the daily H/L using 5 min bar chart and volume - minutes to hours.

Each strategy will have its own R/R ratio:

1. Risk no more than 12-20 cent with target just below the low/high of the bar just before the gap bar.
2. Risk no more that 12cent > 20cent max with average target of 40cent > $1.20+ (average is 16Cent :80cent or 1:5).
2. Risk no more than 25cent with a target of at least $1+ - once you are in a winning trade your trailing stop will depend on the stocks wiggle - average of 50 cent - and profit target will be determined by S&R levels, chart patterns and sector performance.


Each strategy will also require different setups for monitoring the trade:

1. Level 2 and TOS with 1 min candle chart and volume.
2. Level 2 and TOS with 5 min bar or candle chart
3. 5 min bar or candle charts with 50 & 200 day moving averages and volume.

Now, the question is, which one of the 3 strategies do you trade.

All of course - depending on what is setting up from your ticker list.

1 is normally traded on the open - as the stock has gapped.
2 is traded depending on the Level 2 levels and TOS momentum - also depending on time of day as the market normally reverses every 10 minutes from 09:30 to 10:00 - and also on a 5 min consolidation break of the daily H/L.
3 is the same as the 5 min consolidation break on 2, but with larger target depending on time of day and other "things" to watch.

CYOF

 

[econ604]

NASDAQ II trading

CYOF
You talked about traders
1- Just trade off the NASDAQ box
2- That there are different styles of trading off the NASDAQ level II

I enjoy spending many long hours watching the price action on the level II and the tape , and would like Professional instruction

Is there any personal mentoring, book, or other materials that I could learn the different types of NASDAQ box trading?

 

[firewalker99]

I agree with what you said. But how do you acheive 10 to 1 win / loss ratio? Can you give us an example of how you make entry decision?

cheers, dejan

Anybody can achieve a 10:1 ratio. Just put your stop 20 points away and your target 1 point.
Targetting your Win:Loss ratio has no real meaning, unless you have any idea of what your profit factor is.

 

[firewalker99]

Is scalping exciting? Let me tell you its like a drug, for the first two hours of the day in fast stocks its lightening,its the buzz its like trading should be,its driving 200mph down one of our Motorways,making sure you get to your destination without hitting a slower car and getting wiped out.

Anybody looking for excitement in the stock market, will more likely see his account getting depleted faster than his excitement will last. In fact, looking for the 'buzz' will get one in an emotional rollercoaster and most likely have an inversely proportional effect to the money left in his account.

 

[vergis92]

I agree with what you said. But how do you acheive 10 to 1 win / loss ratio? Can you give us an example of how you make entry decision?

cheers, dejan

Having traded various methods and techniques since 2000, my personal opinion
is that any form of daytrading has adverse risk/reward ratio,
The only time frame I can make consistent profits on is from days to months,
yet daytrading cannot work for me in any shape or form,
my fundamental time frame unit is the day
daytrading techniques can last for a while, then the market changes and overpowers
that method

here's some Daytrading myths:


1)daytrading is less risky, WRONG! daytrading is about 3 times more risky than
longer term trading, you risk getting stopped out unessarilly for the day just because
of a single day deviation (caused by daily news) even though you have predicted
the longertem trend right.


2) technical analysis and some indicators can accurately predict price turning points:
BIG FAT LIE! no one can , and no single indicator is of any use on its own

indicators such as moving averages, slopes, MACD are the worst of indicators
they can be more useful if you invert their meaning


3) don't trade during the first hour: even though the market is more risky in the morning
than it is in the aftrenoon, you cannot possibly catch big moves on the SP500 or simiar
market if you are not in the market long before it opens, in fact I open a position
(on quartely contarcts) when the market closes in order to catch the whole next day,
if right on the speculation the next close will be limit up on a big range day.


I still use certain daytrading techniques for improving my entry / exit but I only
trade quartely contracts.

The most important indicators on the SP500 is the actual close, the move of the
Value Area, and the close relative to the value area, these among other things
are closely watched by floor traders who in their majority do hold overnight positions.

 

[seancass]

Having traded various methods and techniques since 2000, my personal opinion
is that any form of daytrading has adverse risk/reward ratio,
The only time frame I can make consistent profits on is from days to months,
yet daytrading cannot work for me in any shape or form,
my fundamental time frame unit is the day
daytrading techniques can last for a while, then the market changes and overpowers
that method

here's some Daytrading myths:


1)daytrading is less risky, WRONG! daytrading is about 3 times more risky than
longer term trading, you risk getting stopped out unessarilly for the day just because
of a single day deviation (caused by daily news) even though you have predicted
the longertem trend right.


2) technical analysis and some indicators can accurately predict price turning points:
BIG FAT LIE! no one can , and no single indicator is of any use on its own

indicators such as moving averages, slopes, MACD are the worst of indicators
they can be more useful if you invert their meaning


3) don't trade during the first hour: even though the market is more risky in the morning
than it is in the aftrenoon, you cannot possibly catch big moves on the SP500 or simiar
market if you are not in the market long before it opens, in fact I open a position
(on quartely contarcts) when the market closes in order to catch the whole next day,
if right on the speculation the next close will be limit up on a big range day.


I still use certain daytrading techniques for improving my entry / exit but I only
trade quartely contracts.

The most important indicators on the SP500 is the actual close, the move of the
Value Area, and the close relative to the value area, these among other things
are closely watched by floor traders who in their majority do hold overnight positions.

Vergis 92. What do you mean by the 'Value Area' please?
Sean

 

[vergis92]

Vergis 92. What do you mean by the 'Value Area' please?
Sean

The 'value area' is a part of yesterdays trading range defined by a lot of trading volume,
this is where buyers and sellers agree and the market has found strong ballance,
the concept was first developed in a technique called 'market profile'


these day-traders and all SP500 floor traders use value area in their trading:

www.21stcenturyfutures.com
(this guy promises a lot , his techniques/calls are useless, and has openly
admited the need for overnight positions on certain occasions)


www.secretsoftraders.com
(This is a real good trader, I have watched his commentary on bloomberg and found him
very accurate, I still doubt though he made his millions based exclusively on daytrading
and not holding overnight or use options, he's selling a course not running a service )


The basic concept is to avoid buying for the day if the SP500 is below the lower end of the VA
and not to sell if it's above the higher end,

I don't use V.A. in my swing trading , I don't even know the formula
what it can possibly tell the swing trader is the short term trend, 2 to 5 days,
and where market moves can stop based on todays and yesterdays VA
for the purpose of adding to or cutting a position, but if it's relevant on that day,
it's included anyway in any good market commentary and S/R numbers

Either I'm not clever enough to properly use it, or I just want to keep it simple as too many
indicators can cause confusion,

remember : ''The less you know the more money you make''

 

[seancass]

The 'value area' is a part of yesterdays trading range defined by a lot of trading volume,
this is where buyers and sellers agree and the market has found strong ballance,
the concept was first developed in a technique called 'market profile'


these day-traders and all SP500 floor traders use value area in their trading:

www.21stcenturyfutures.com
(this guy promises a lot , his techniques/calls are useless, and has openly
admited the need for overnight positions on certain occasions)


www.secretsoftraders.com
(This is a real good trader, I have watched his commentary on bloomberg and found him
very accurate, I still doubt though he made his millions based exclusively on daytrading
and not holding overnight or use options, he's selling a course not running a service )


The basic concept is to avoid buying for the day if the SP500 is below the lower end of the VA
and not to sell if it's above the higher end,

I don't use V.A. in my swing trading , I don't even know the formula
what it can possibly tell the swing trader is the short term trend, 2 to 5 days,
and where market moves can stop based on todays and yesterdays VA
for the purpose of adding to or cutting a position, but if it's relevant on that day,
it's included anyway in any good market commentary and S/R numbers

Either I'm not clever enough to properly use it, or I just want to keep it simple as too many
indicators can cause confusion,

remember : ''The less you know the more money you make''

Vergis92.

Many thanks for that. From what I understand then you're a swing trader and don't get involved in intra-day trading? May I ask if you use CFDs or direct access for your swing trading?

Sean

 

[dcraig1]

Vergis 92. What do you mean by the 'Value Area' please?
Sean

Do a search for Market Profile on Google. There is quite a lot of material on the CBOT web site. Also search for the thread by Bolter over on ET.

 

[dcraig1]

1)daytrading is less risky, WRONG! daytrading is about 3 times more risky than
longer term trading, you risk getting stopped out unessarilly for the day just because
of a single day deviation (caused by daily news) even though you have predicted
the longertem trend right.

I'm not saying you are wrong or right about the 3 times, but I'd like to know the source for this.

I would have thought that the high leverage used by many day traders combined with poor strategies and poor risk control would be the main factors in failure. With intraday margin requirements of something like 2% of contract value on for example YM, there is ample scope to get into trouble very quickly.

 

[vergis92]

I'm not saying you are wrong or right about the 3 times, but I'd like to know the source for this.

I would have thought that the high leverage used by many day traders combined with poor strategies and poor risk control would be the main factors in failure.

It's my personal trading results, if I'm out of the market at night I miss gap opens the next day, and at least 50% of a good day, sometimes all of it , also getting stopped out too often
on small daytrading stop loss orders etc.

What I've been told by experienced traders is that money flows from the poor to the rich,
and from the rich to the richer, most losing daytraders are under-financed, every time
they get stopped out they give away money to the better financed longer term traders
and investors who who have more money, bigger stops and can tolerate bigger
price flactuations

of course just because it hasn't worked for me it doesn't mean there are no winning
daytraders out there

 

[andycan]

It's my personal trading results, if I'm out of the market at night I miss gap opens the next day, and at least 50% of a good day, sometimes all of it , also getting stopped out too often
on small daytrading stop loss orders etc.

What I've been told by experienced traders is that money flows from the poor to the rich,
and from the rich to the richer, most losing daytraders are under-financed, every time
they get stopped out they give away money to the better financed longer term traders
and investors who who have more money, bigger stops and can tolerate bigger
price flactuations

correct

of course just because it hasn't worked for me it doesn't mean there are no winning
daytraders out there

you are correct there too
and i like to bring to your attention your coments

1)daytrading is less risky, WRONG! daytrading is about 3 times more risky than
longer term trading, you risk getting stopped out unessarilly for the day just because
of a single day deviation (caused by daily news) even though you have predicted
the longertem trend right.

incorrect


2) technical analysis and some indicators can accurately predict price turning points:
BIG FAT LIE! no one can , and no single indicator is of any use on its own

your first part is correct and incorrect there is no indicator that will give you turning points as for TA it depends what your definition of TA is
as for predicting turning points you are incorrect there are

 

[vergis92]

Vergis92.

Many thanks for that. From what I understand then you're a swing trader and don't get involved in intra-day trading? May I ask if you use CFDs or direct access for your swing trading?

Sean

At the moment I use speadbetting firms, as capitalspreads.com ,
seems ok, in terms of price, the quotes follow the price of actual markets
very closely ,

I don't know about you guys, but I find trading very stressful, I feel tension even
when I'm in profit, I'm just not sure how one has to see it
I was losing money for 4 years, and only the last 2 have been partially
profitable with no guaranty of any future success