The Complete Idiot's Guide to Daytrading Like a Pro, 2E

by Sander, Peter J.

• ISBN13: 9781592574322
• ISBN10: 1592574327
• Edition: 2nd
• Format: Paperback
• Copyright: 2005-11-01
• Publisher: DK Publishing, Inc.

Summary

You're no idiot, of course. You know that day trading is the fast way to make really big bucks, but you're not sure you're ready for such high stakes and big risks.

Author Biography

Robin Craven and Lynn Johnson Golabowski together have over 45 years of experience in the hotel sales and meeting planning industries. Both are past presidents of the Wisconsin chapter of Meeting Professionals International, as well as partners in their own meeting planning company.
D-'Etta Waldoch, CMP, has 26 years of experience in meeting planning. She is director of International Programs for a transplant research institute and president of an independent meeting planning firm.

Table of Contents

Part 1: A Day at a Time	1	(66)
What Is Day Trading?	3	(12)
Starting at the Beginning: A Few Definitions	4	(1)
Definition: Trading	4	(1)
Definition: Day Trading	4	(1)
Definition: Active Trading	5	(1)
What a Day Trader Really Does	5	(2)
At Work in the Open Marketplace	6	(1)
The Role of the Day Trader	7	(1)
What Makes It All Possible	7	(1)
Data Becomes Information	7	(1)
Direct Access	8	(1)
Is Day Trading a Good Thing?	8	(2)
Is Day Trading Gambling?	8	(1)
The Role of Traders	9	(1)
More About Liquidity	9	(1)
Who Wins and Why?	9	(1)
Become a Better Investor Through Trading	10	(1)
Trading as Part of an Investing Strategy	10	(1)
Segmenting an Active Portfolio	11	(1)
To Trade or Not to Trade	11	(4)
What You Should Already Know	12	(1)
A Fair Warning	12	(3)
Day Trading Makes a Comeback--Again	15	(14)
The State of Trading Today	15	(4)
By the Numbers	16	(1)
A More Rigorous Endeavor	17	(1)
Response: Evolved Traders	17	(1)
Consolidated Platforms	18	(1)
Hedge Fund Involvement	19	(1)
A New Revolution, an Old Idea	19	(4)
The Dark Ages	20	(1)
Trading Stocks the Old-Fashioned Way	20	(1)
The Technology Renaissance	21	(1)
The Age of the Electronic Market	21	(1)
The Rise of Personal Technology	22	(1)
Faster Connections	22	(1)
The Information Revolution	23	(2)
Internet Trading	23	(1)
High-Performance Trading Information	24	(1)
New Rules, New Tools	25	(4)
Rule Change: Commission Deregulation	25	(1)
Tool Change: NYSE SuperDot	26	(1)
Tool Change: SOES on NASDAQ	26	(1)
Rule Change: Limit Order Protection Rule	27	(1)
Rule Change: Decimal Trading	27	(1)
Toward More Electronic Trading	28	(1)
What It Takes to Be a Trader	29	(16)
What It Takes to Be a Trader	30	(2)
Time Commitment	30	(1)
Skill and Experience	30	(1)
Judgment	31	(1)
Self-Confidence	31	(1)
Self-Control	31	(1)
Financial Control	31	(1)
An Ability to Tolerate Risk	32	(1)
An Ability to Concentrate	32	(1)
Mental and Physical Stamina	32	(1)
Trading Styles	32	(1)
The Pure Dealer	33	(1)
Short Term, High Intensity	33	(1)
You Can Log Off After Hours	34	(1)
Timing Is Everything	34	(1)
The Momentum Trader	34	(1)
Setting the Alarm	34	(1)
Before and After Hours	35	(1)
Avoiding Greed	35	(1)
Safety Nets	35	(1)
The Range Trader	35	(1)
``Hands Off'' Trading	36	(1)
Range Trading Challenges	36	(1)
Pattern Trader	36	(1)
Midnight Oil	37	(1)
The Cubicle Trader	37	(1)
How Much Can a Day Trader Make?	38	(1)
The Right Stuff	38	(3)
Initial Investments	41	(4)
A Computer and a Connection	41	(1)
Platform, Information, and Trading Costs	41	(1)
Training Costs	42	(1)
Initial Stake	43	(2)
What Day Traders Trade	45	(12)
What Makes It Good to Trade	45	(3)
Liquidity	46	(1)
Volume	47	(1)
Movement	47	(1)
Access to Information	47	(1)
Easy Access to Trade	47	(1)
Trading Stocks	48	(1)
The Major Markets	48	(1)
Besides NYSE and NASDAQ: Other Markets	48	(1)
Options, Explained	49	(3)
What Is an Equity Option?	50	(1)
Option Prices	50	(1)
A Transfer of Risk	50	(1)
Equity Option Pricing	51	(1)
At, In, or Out of the Money	51	(1)
About Trading Options	52	(2)
A Different Risk Profile	52	(1)
Hedging and Risk Management	53	(1)
Option Combinations	53	(1)
Index Options	53	(1)
Option Wrap-Up	54	(1)
Trading Futures	54	(2)
Commodity Futures	54	(1)
Financial Futures	55	(1)
About Trading Futures	55	(1)
It Makes Sense to Start with Stocks	56	(1)
Regulation and Taxes	57	(10)
The Regulatory View	58	(1)
The Securities and Exchange Commission (SEC)	58	(1)
The (Former) Chairman's View	59	(1)
The National Association of Securities Dealers (NASD)	59	(3)
New ``Pattern'' Day Trader Margin Requirements	59	(1)
Broker Disclosure	60	(2)
Licensing?	62	(1)
The Bottom Line for Traders	62	(1)
Time Out for Taxes	62	(5)
The Advantages of Trading as a Business	63	(1)
How to Quality as a Trading Business	63	(1)
Schedule C, Schedule D	64	(1)
Mark-to-Market Election	65	(2)
Part 2: A Trip to the Markets	67	(52)
Trading Places: The NYSE	69	(16)
A Star Is Born: A Brief History of the NYSE	70	(2)
Prior to 2000	70	(1)
Beyond 2000	71	(1)
Who Gets Listed on the NYSE	72	(1)
How the NYSE Works	73	(1)
Setting the NYSE Stage	73	(1)
The Big Apple Auction	73	(1)
Who Has What Information	74	(1)
The Role of the Specialist	74	(4)
Creating Balance and Liquidity	75	(1)
The Order Book	75	(1)
The Reward System	76	(1)
Specialist Firms	76	(1)
Electronic Routing	77	(1)
The Speed of NYSE Trading	77	(1)
Other Exchange Floors	78	(1)
Regional Exchanges	78	(1)
ECNs	78	(1)
The Trader's View of the NYSE	79	(1)
Executing the Trade	80	(2)
Back to the Order Book	80	(1)
The Other Side of the Trade	81	(1)
When the Specialist Takes the Other Side	81	(1)
What Makes the Price Move	81	(1)
Is the NYSE Trader-Friendly?	82	(3)
Trading Places: The NASDAQ	85	(14)
The NASDAQ	86	(1)
A Dealer Market	86	(1)
Enter the Computer	86	(1)
What Trades on NASDAQ	87	(1)
Market Makers	87	(3)
What Do Market Makers Do?	88	(1)
Viewing Market Maker Action	89	(1)
A Dealer Market (Almost) Never Stops	89	(1)
The Nuts and Bolts of NASDAQ	90	(2)
The NASDAQ Quote System	90	(1)
The Inside and Outside Market	91	(1)
What Do Market Makers Quote?	92	(1)
NASDAQ Trading Systems	92	(1)
SuperMontage	93	(1)
Execution Strategies	93	(1)
TotalView	93	(1)
SOES	93	(2)
Why SOES?	94	(1)
SOES rules	94	(1)
ECN: A New Trading Network	95	(2)
A Brief History of ECNs	95	(1)
ECN Trading	95	(1)
Why ECNs Are Popular	96	(1)
Anatomy of a Trade	97	(2)
Fixed Price, or Limit Order	97	(2)
Trading Places: Commodities and Futures	99	(20)
Why Trade Commodities and Futures?	100	(1)
Leverage	100	(1)
More Defined Information Space	100	(1)
Tax Benefits	101	(1)
What Is a ``Future''?	101	(1)
Futures Exchanges	102	(1)
Kinds of Futures	102	(3)
Price Drivers	102	(1)
Contract Size	103	(1)
Minis	104	(1)
Initial Margin, Margin Maintenance, and Leverage	104	(1)
Liquidity and Volatility	104	(1)
Who Trades Futures and Why?	105	(1)
Quoting and Trading Futures	106	(1)
A Futures Trading Window	107	(1)
Futures Order Types	108	(1)
Market Orders (MKT)	108	(1)
Stop Orders	108	(1)
Limit Orders	109	(1)
Or Better Orders	109	(1)
Fill or Kill	109	(1)
Margin in Futures Trading	109	(2)
Initial Margin	110	(1)
Maintenance Margin	110	(1)
Margin and Leverage: An E-Mini Example	110	(1)
Margin and Leverage: Full Contract Example	111	(1)
Common Trading Strategies	111	(1)
What Day Traders Trade	111	(1)
Assisted Trading	111	(1)
Evaluating the Trade	112	(2)
Time Horizon	112	(1)
Choosing an Entry Point	113	(1)
Playing an Established Trend	113	(1)
Trend Reversals	113	(1)
Trading Ranges	113	(1)
Technical Analysis Tools	114	(1)
The Commitment of Traders Report	114	(1)
Using the COT Report	114	(1)
Short Selling	115	(1)
Spreading	115	(1)
Trading Currencies	116	(1)
Transaction Costs	116	(1)
Spot and Futures Markets	116	(1)
Currency Trading Platforms	117	(1)
Futures Trading Pitfalls	117	(2)
Less Platform Standardization	117	(1)
Transparency	117	(1)
Overleveraging	118	(1)
Part 3: Tools of the Trade	119	(76)
Staying Informed	121	(16)
What Do We Mean By ``Information''?	122	(1)
News	122	(1)
Quotes	122	(1)
Charts	122	(1)
Analysis	123	(1)
Selection Criteria	123	(3)
Fee or Free	124	(1)
Delivery	124	(1)
Breadth and Depth	125	(1)
Selectivity	125	(1)
Single or Multichannel	126	(1)
Data to Information	126	(1)
Customization	126	(1)
Information Sources by Price	126	(1)
Free or Nearly Free	126	(5)
Print Media	127	(1)
TV/Radio Media	128	(1)
Web Portals	128	(2)
Online brokers	130	(1)
$10--$25 Per Month	131	(2)
Briefing.com	131	(1)
Yahoo!Finance Real-Time Quotes	132	(1)
Tradingmarkets.com	133	(1)
Expensive: Advanced Information Platforms	133	(2)
eSignal	134	(1)
Very Expensive: Analysis Software	135	(1)
Very Expensive: Specialized Day Trading Resources	135	(2)
Buying and Selling	137	(14)
More Than Just Buy and Sell	138	(1)
Order Timing	138	(1)
Special Conditions	138	(1)
Order Pricing	139	(6)
Market Orders	139	(1)
Limit Orders	140	(2)
Using Limit Orders	142	(1)
Stop Orders	143	(1)
Stop Limit Orders	144	(1)
Canceling or Changing Orders	145	(1)
Backing Out	145	(1)
Change Orders	145	(1)
Selling Short	146	(2)
The Short-Selling Mechanism	146	(1)
Short-Selling Rules	146	(1)
Entering a Short Sale	147	(1)
Short Sales Use Margin	147	(1)
Short-Selling Risks	148	(1)
Shorting as a Strategy	148	(1)
After-Hours Trading	148	(3)
Using Margin	151	(10)
What Is Margin?	152	(1)
Terms and Conditions	152	(2)
Current Market Value	152	(1)
Initial Margin Requirement	152	(2)
Buying Power	154	(1)
Excess Equity	154	(1)
Minimum Maintenance Requirement	154	(2)
Why Use Margin?	156	(1)
What Does Margin Cost?	156	(2)
Sample Margin Rates	157	(1)
Calculating Margin Interest	157	(1)
Tax Treatment of Margin Interest	157	(1)
The Margin Call	158	(1)
Resolving a Margin Call	158	(1)
Should a Trader Use Margin?	159	(2)
Online Brokers	161	(14)
What Is an Online Broker?	162	(1)
The ``Pros'' of Using Online Brokers	162	(1)
The ``Cons'' of Using Online Brokers	163	(1)
Online Broker Features	163	(5)
Information	164	(2)
Trading	166	(2)
Active Trader Add-ons and Features	168	(2)
What Is an Active Trader?	168	(1)
Commission Discounts	168	(1)
Streaming News and Quotes	169	(1)
Dedicated Service and Support	169	(1)
Software Tools	169	(1)
Hybrid Platforms	170	(1)
Choosing an Online Broker	171	(4)
Features and Services	171	(1)
Ease of Use	171	(1)
Cost	172	(1)
Minimum Trader Requirements	172	(1)
Performance and Dependability	172	(1)
Manual Backup	173	(1)
Service and Support	173	(1)
Migration Path to Advanced or Hybrid Platforms	173	(2)
Advanced Trading Platforms	175	(20)
What Makes Advanced Platforms ``Advanced''	176	(1)
Advanced Platform Technology	177	(1)
The Complete Picture	177	(1)
Information Tools	178	(9)
News	179	(1)
Quotes	180	(2)
Real-Time Charts	182	(1)
Alerts	183	(2)
Screening Tools	185	(1)
Tickers	186	(1)
Trading Tools	187	(2)
Direct Access	187	(1)
Order types	188	(1)
Order Routing	188	(1)
Conditional Ordering	189	(1)
Choosing a Platform	189	(3)
Market Access	189	(1)
Information and Decision Support	190	(1)
Trading and Execution Support	190	(1)
Account Management	190	(1)
Training and Learning	191	(1)
Customer Service and Support	191	(1)
Costs and Fees	191	(1)
Trader Qualifications	192	(1)
List of Providers	192	(3)
Part 4: Reading Market Action	195	(64)
Market Cycles and Behavior	197	(14)
Market Timing	198	(1)
The Market Almanac	198	(2)
Yearly, Monthly, Weekly, Daily Cycles	198	(1)
Seasonal Cycles	199	(1)
Window Dressing	199	(1)
The Triple Witch and Her Friends	200	(1)
Investment Calendar	200	(2)
Pure Economic Indicators	201	(1)
Inflation and Interest Rates	201	(1)
Business Activity Measures	201	(1)
Company Reports	202	(1)
Gauging Market Direction	202	(2)
Market Indexes	203	(1)
Stock Index Futures	203	(1)
Market Internals	203	(1)
Other Overnight Indicators	204	(1)
Sentiment Indicators	204	(1)
Volatility Index, or ``VIX''	204	(1)
Put/Call Ratio	205	(1)
Short Selling	205	(1)
The Shape of the Day	205	(1)
Bullish Shapes	206	(1)
Bearish Shapes	206	(1)
Sectors and Sector Performance	206	(2)
Sector Indices	207	(1)
Taking Sectors Apart	207	(1)
Exchange Traded Funds	208	(3)
Using the Level II Screen	211	(14)
The Level II Concept: A Short Review	212	(1)
At and Away from the Market	272
Time and Sales	212	(1)
An Action Movie	212	(1)
In Living Color	213	(1)
By Way of Example	213	(2)
A Nice Move Today	213	(1)
The Inside Action	214	(1)
Away from the Market	214	(1)
Time and Sales	214	(1)
Quote/Change Direction Arrow	215	(1)
Reviewing Market Maker Action	215	(2)
Predicting Market Direction	216	(1)
Customizable Features	217	(2)
Window Size and Colors	217	(1)
Data View Controls	217	(1)
Market Maker/ECN Depth	218	(1)
Aggregate Quotes	218	(1)
A ``Live'' Look at Level II	219	(4)
Trading Sequence No. 1: A Slight Push Upward	219	(2)
Trading Sequence No. 2: A Downdraft	221	(1)
Trading Sequence No. 3: Signs of a Turnaround	221	(1)
Trading Sequence No. 4: The Slight Up Move Continues	222	(1)
Getting Used to Level II	223	(2)
Basic Technical Analysis Tools	225	(20)
What Is Technical Analysis?	226	(1)
Collective Behavior	226	(1)
A Rear-View Mirror	226	(1)
A Self-Fulfilling Prophecy?	227	(1)
Using Technical Analysis	227	(2)
What's It All For?	227	(1)
Technical Analysis in Practice	228	(1)
Creating a Study	228	(1)
Types of Technical Analysis	229	(1)
Channel Analysis	230	(4)
Support and Resistance	230	(1)
Trending Ranges	231	(1)
Breakouts	232	(1)
Bollinger Bands	233	(1)
Pattern Analysis	234	(5)
Pennants	234	(2)
Multiple Tops and Bottoms	236	(1)
Head-and-Shoulders Pattern	236	(1)
Cup-and-Handle Patterns	237	(2)
Trend Analysis	239	(1)
Moving Averages	239	(1)
Using Moving Averages	239	(1)
Oscillators	240	(2)
MACD	240	(1)
Stochastics	241	(1)
A Few Thoughts About Technical Analysis	242	(3)
Remember: Data Doesn't Replace Judgment	242	(1)
Applying Science to Chaos	242	(3)
Candlestick Charting	245	(14)
What Are Candlestick Charts?	246	(2)
Parts of a Candle	246	(1)
How to Use Candlestick Charts	247	(1)
It's About Size, Shape, and Position	247	(1)
Single Candle Patterns	248	(3)
Basic Candles	248	(1)
Sharper Images in Single Candles	249	(2)
Double Candle Patterns	251	(4)
Tweezers and Engulfing Lines	251	(1)
Stars and Doji Stars	252	(1)
Haramis	253	(1)
Other Double Patterns	254	(1)
Multiple Candle Patterns	255	(2)
Soldiers, Crows, and Threes	255	(1)
Morning and Evening Stars	256	(1)
Looking at a Real Chart	257	(2)
Part 5: Developing Your Own Trading Style	259	(60)
The Day Trader's Playbook	261	(20)
Deciding What to Trade	262	(2)
The Specialist Expert	262	(1)
Searching the Radar: The Opportunist	262	(2)
Trading Styles Reviewed	264	(1)
The Pure Dealer	265	(3)
How and Why	265	(1)
Stock Selection	265	(1)
Signs of Strength, Signs of Weakness	266	(1)
Knowing the Market Makers	266	(1)
Head Fakes	267	(1)
Discipline	267	(1)
Momentum Trading	268	(2)
How and Why	268	(1)
Finding Breakouts	269	(1)
Trading Breakouts	269	(1)
If It Doesn't Work, Bail	270	(1)
Trading Gaps	270	(1)
The Day Trader's Play	271	(1)
Finding Gap Stocks	271	(1)
Big Players: The Hammer and the Ax	271	(1)
The Day Trader's Play	272	(1)
Fake Swings	272	(1)
Momentum Trading Pitfalls	272	(1)
Range Trading	273	(3)
How and Why	273	(1)
Signs of Change	274	(1)
Breakout Patterns	274	(1)
Higher Highs, Lower Lows	274	(1)
Narrowing Ranges	274	(1)
When Resistance Becomes Support	275	(1)
The Day Trader's Play	276	(1)
Range Trading Pitfalls	276	(1)
Short Selling	276	(5)
How and Why	277	(1)
Short-Selling Situations	277	(1)
The Day Trader's Play	278	(3)
Developing Good Trading Habits	281	(14)
Trading Is a Business	282	(1)
Traders as Professionals	282	(1)
The Professional Ethic	282	(1)
The Trading Business	282	(1)
Core Habits	283	(1)
Discipline	283	(1)
Detached Emotions	283	(1)
Positive Attitude	283	(1)
Willingness to Learn	284	(1)
Tactical and Practical Considerations	284	(3)
Select Stocks Consistently	284	(1)
Trade Only When There's an Opportunity	284	(1)
Don't Wait for the Perfect Trade	284	(1)
Don't Wait for the Perfect Fill	285	(1)
Don't Forget About Gravity	285	(1)
Don't Fight the Tape	285	(1)
Get Out at the Right Time	285	(1)
Be Willing to Move On	286	(1)
Pick Targets---And Stick to Them	286	(1)
Avoid Greed	286	(1)
Stay With What's Comfortable	286	(1)
Common Sense	287	(1)
Managing Your Money	287	(1)
Risk Management	287	(2)
Risk vs. Reward	288	(1)
At-Risk Amount	288	(1)
When to Hold, When to Fold	289	(1)
Hedging	289	(1)
Money Management	289	(2)
Keeping Score	289	(1)
Selling Rules	290	(1)
Half Selling	290	(1)
Doubling Down	290	(1)
Never Overextend	290	(1)
If You Prefer: Bad Habits to Avoid	291	(4)
Trading at the Speed of Thought	295	(24)
A Bigger Picture	296	(1)
Are You Prepared to Trade?	296	(1)
Practice Makes Perfect	296	(1)
Strengths and Weaknesses	296	(1)
The Trader's Trifecta	297	(1)
About Risk	297	(2)
Start at the Right Pace	298	(1)
Expect to Lose at First	298	(1)
Expect to Be Overwhelmed	298	(1)
Turning Experience into Learning	299	(1)
Learn to Diversify	299	(1)
Getting Started	300	(1)
Making a Good Plan	300	(1)
Deciding on Your Level of Commitment	300	(1)
Learning by Doing	300	(1)
Shopping Carefully	300	(1)
Setting Space Aside	301	(1)
Paper Trading	301	(1)
Training Your Brain	302	(1)
Brain-Eye Coordination	302	(1)
Learning How Your Brain Works	302	(1)
The Future of Day Trading	303	(2)
Appendixes
Trading Terms	305	(8)
Market Maker and ECN Symbols	313	(6)
Index	319