Before you do 1 trade read this: (reposted fwiw/fyi)
It is long but worth it.
"What is your business plan?
What is you business? Stocks, Emini’s or both. What will be your time frame? Scalper, Swing trader or Long term (How can you chose if you do not know how to read the market environment). What are your hours of operation? Part time or Full time. (How can you expect the same type of results as a full timer if you are trading part time). Who are your competitors? (Other traders). What are the successful ones doing. Remember if supposedly only 10% of the people make money in trading why would you want to do the same thing the other 90% are doing. What technology are they using and what will you be using (Please refer to the previous sentence). What technology and methodology actually works. What inventory will you have? A traders inventory is cash and must be protected at all times.
If you want to win you will need to put time in to learn the cardinal rule of trading: Run your trading like a business. Unless you adopt a business like approach to trading, profitability will be difficult.
READ Jesse Livermore:Worlds greatest Stock Trader,John Patrick - Money Management, Watch the movie ROUNDERS...
Devolope your trading methodology
•on your mark – Preparing to trade your methodology
•get set – Zeroing in on your price target at which to trade
•go – Executing your trade
Simulate with real time data using point and click execution
Go live tading 200 shares or 1 futures contract
Know the market enviorment:
You can't get more out of a market than is there. If you're going to be flat because the market is going sideways, there's nothing to do for a period of time. So that’s what you do. Nothing. If you trade correctly you will make fantastic profits when the greatest targets of opportunity are present.
Market is Always Right:
One nugget of advice that I believe is valuable to anyone trading the market is: Don't worry about what the markets are going to do, worry about what you are going to do in response to the markets.
Do research; learn; make a plan: work the plan; take responsibility for your own decisions and actions.. Don't make excuses. Learn from your mistakes.
Losses
Face it: You are going to have losses when you trade. If you don't have losses, you are not taking risk. If you don’t risk, you won’t win. Losses aren’t the problem. They are part of the game. Most likely the best you will hit is 7 correct trades out of 10. It’s how you deal with 3 losses that is crucial.
This article is from 4/19 Briefing.com
Inv. 201: #7: Trading And Investing Are Different
[BRIEFING.COM - Robert V. Green] Many Briefing.com readers employ both trading philosophies and investing philosophies. Both are valid approaches to the market. But when you confuse the two approaches at the same time, you are just asking for trouble. Here are some basic definitions.
Trading Defined
A trade, by definition, is a short term approach to making a profit.
Most trading profits are derived from volatility in a stock price. Stock prices fluctuate whenever the market is trying to determine the proper price for a stock.
But there is no such thing as the proper price. If there were, stock prices would stabilize very closely around whatever that price was. Who would sell for less? Who pay more?
True trading strategies involve exploiting short-term gaps in the market's attempt to properly value a stock.
How to determine these gaps, however, is a whole field of study by itself.
Trading Strategies
Almost any rationale can be used for trading, particularly very short term trades. Many trade on the basis of momentum, which is simply the premise that any stock currently going up is more likely to continue going up, than it is to fall. Momentum based trading has never been more popular than in the advent of the new information investing era of the last five years. In fact, many people blame the bubble on momentum investing's rise to prominence.
Technical analysis is another very useful approach for trading. In the lack of other news events, technical analysis of a price/volume chart can provide clues as to the latent buying or selling pressure still in the market, but not yet implemented. Proper reading of the chart can help determine the level of that demand - and exploit it.
But it is wrong to assume that everyone comes to the same conclusion when reading a TA chart. There is no single interpretation to any chart. Often new investors learn a single TA approach, and begin believing that, because a pattern fits the one described in their TA book, the predicted outcome is inevitable. It just doesn't always happen that way.
Trading And Analyzing Fundamentals
Trading does not mean that analysis of fundamentals is ignored.
In fact, many successful traders exploit the market's attempt to properly value a stock by arguing that the current valuation on the stock is not "in-line" with the trends shown in the company's fundamentals. A trading argument can be made that, eventually, the market will more properly value the fundamentals. Capturing this "gap in valuation is a basic trading strategy, that may or may not be short-term.
Of course, there are many extremely successful traders who do not deeply analyze the underlying business behind the stock. Their techniques are based on shorter term fluctuations in the market's pricing.
Daytrading Defined
Daytrading, as term to describing an investment approach, has always been used poorly by the media.
In most stories, "daytrading" is meant to imply mindless or reckless investing. Nothing could be further from the truth. Most of the major capital behind "daytrading" is driven by large institutions.
As an example of this fact, consider that program trading is consistently around 40% of the NYSE transactions every day. Most of these programmed trades are all based on a basic principle: using a computer to "measure" a gap in pricing of some kind, either between two linked instruments (arbitrage) or between a perceived "proper" metric and the "measured" metric. Whenever the computer program metrics being measured reach a point where the value to be captured exceeds a certain level, the trades are automatically placed.
There is, unfortunately, no widely agreed upon definition of daytrading that we could argue is the "right" definition.
Many people attempt to use the single word "daytrading" to capture two very different styles of trading. By definition, a person doing "daytrading" should be closing positions by the end of the day. Otherwise, it isn't daytrading. Selling a stock three days after you buy it is trading, not daytrading.
In addition, daytraders at "daytrading firms" with direct access to Nasdaq II pricing systems and ECNS is very different than daytrading over the internet at an online broker.
Daytrading with direct ECN access allows for traders to bypass market makers. There is no such thing as daytrading NYSE stocks when this definition is used. At daytrading firms that provide this capability with Nasdaq II access usually require that all positions be closed each evening and require a minimum of $50,000 or higher to even open an account.
Daytrading at an online brokerage, where a single position is taken in the morning, and closed later in the day, is a completely different style of investing.
Regrettably, most of the mass media doesn't make this distinction, yet it is extremely important. Strategy at a daytrading firm usually involves making many very small profitable trades. Strategy for trading a single position is usually just to pick up a few days during the day.
Investing Defined
Investing is ownership of the underlying business behind a stock. The expectation is that when the business grows, the stock price will rise as the market prices the "better" business atf a higher level.
Fundamental analysis is used to determine the health of the underlying business. Comparative analysis is used to determine the value of the stock, relative to others in its industry. An understanding of technology is helpful for technology stocks. Some of the best investments are made on the cusp of change in technology, before the fundamentals of the company have actually shown the impact of the change.
Investing on a fundamental premise is almost always, by definition, a long term investment. It often takes years for a business to fulfill its business "vision."
In order to have an investment premise successfully "pay off," the following has to occur:
An articulated premise is formed describing "why" the business will grow earnings eventually
A reasoned "projection" of how the market will value those "eventual" earnings is developed
A target price for the eventual fulfillment of the investment premise can then be developed (which calculates your reward potential)
An analysis of what can go wrong in the business is developed.
A judgment of how the market would value the company, if those "wrong" events occur is made. (This calculates your "risk" potential.
At this point, an assessment is made of the risk/reward potential. Some great companies are simply titled too far to the risk side of the ratio to argue for an investment.)
A list of metrics is developed that can be followed in every quarterly earnings report, to judge whether a stock is: a) headed towards fulfilling its business vision; b) headed the wrong direction; or c) has fulfilled the vision you initially articulated.
With actual metrics defined, an investment premise can be judged fairly easily whenever new fundamental data is available (earnings reports or SEC filings or guidance revisions).
However, patience is required for an investment premise - and can sometimes be sorely tested.
Frankly, as an investor, if you can't withstand a 35% paper loss in your position, you probably should not be holding growth stocks at all, particularly technology stocks. (You should probably own mutual funds.) There are often large swings as the market tries to "properly" price growth stocks.
Getting the Two Styles Confused
Briefing.com does not favor one style over the other. Both have their place, and both are valid approaches.
However, it is important not to get the two styles confused, especially with respect to a single position.
All too common is the person who takes a position for a short term trade (I'll sell when I get 5 points out of it!) and then winds up holding the stock for six months, just waiting to break even. When you enter for trading reasons, and then hold for investment reasons, you are actually exposing yourself to the downside of both approaches.
Another example of confusing the issues is when a stock rises a lot on particular news. Do you back off from jumping in, because yesterday it was $5 cheaper? It may, in fact, be "cheaper" at the higher price, if a significant risk has just been removed by the news.
How you view such an event is largely dependent on whether you have a trading premise or an investing premise.
Know Yourself - But Know Your Positions More
Most people tend to think of themselves as either primarily a trader or an investor. But, there is nothing that states you have to be "one or the other" for all of your positions.
It is, however, important to remember which hat you have on at any given time."
