Using DMI

Using DMI

The primary objective of the trend trader is to enter a trade in the direction of the trend. Reading directional signals from price alone can be difficult and is often misleading because price normally swings in both directions and changes character between periods of low versus high volatility.

The directional movement indicator (also known as the directional movement index - DMI) is a valuable tool for assessing price direction and strength. This indicator was created in 1978 by J. Welles Wilder, who also created the popular relative strength index. DMI tells you when to be long or short. 

It is especially useful for trend trading strategies because it differentiates between strong and weak trends, allowing the trader to enter only the strongest trends. 

DMI works on all time frames and can be applied to any underlying vehicle (stocks, mutual funds, exchange-traded funds, futures, commodities and currencies). 

Here, we'll cover the DMI indicator in detail and show you what information it can reveal to help you achieve better profits. (For background reading, see Momentum And The Relative Strength Index.)

DMI Characteristics
DMI is a moving average of range expansion over a given period (default 14). 

The positive directional movement indicator (+DMI) measures how strongly price moves upward; the negative directional movement indicator (-DMI) measures how strongly price moves downward. 

The two lines reflect the respective strength of the bulls versus the bears. Each DMI is represented by a separate line (Figure 1). 

First, look to see which of the two DMI lines is on top. Some short-term traders refer to this as thedominant DMI. 

The dominant DMI is stronger and more likely to predict the direction of price. For the buyers and sellers to change dominance, the lines must cross over.

A crossover occurs when the DMI on bottom crosses up through the dominant DMI on top. 

Crossovers may seem like an obvious signal to go long/short, but many short-term traders will wait for other indicators to confirm the entry or exit signals to increase their chances of making a profitable trade. 

Crossovers of the DMI lines are often unreliable because they frequently give false signals when volatility is low and late signals when volatility is high. 

Think of crossovers as the first indication of apotential change in direction. (For more insight, read the Moving Averages tutorial.)

Source: TDAmeritrade Strategy Desk
Figure 1: The +DMI and -DMI are shown as separate lines. There are several false crossovers ( Point 1) and one crossover at Point 2 that leads to an uptrend with +DMI dominant. Note: The calculations for DMI are complicated and are referenced elsewhere. Also, DMI is normally plotted in the same window with the ADX indicator, which is not shown.

DMI is used to confirm price action (see Figure 2). The +DMI generally moves in sync with price, which means that the +DMI rises when price rises, and it falls when price falls. 

It is important to note that the -DMI behaves in the opposite manner and moves counter-directional to price. The -DMI rises when price falls, and it falls when price rises. 

This takes a little getting used to. Just remember that the strength of a price move up or down is always recorded by a peak in the respective DMI line.

Reading directional signals is easy. When the +DMI is dominant and rising, price direction is up. 

When the -DMI is dominant and rising, price direction is down. But the strength of price must also be considered. DMI strength ranges from a low of 0 to a high of 100. 

The higher the DMI value, the stronger the prices swing. 

DMI values over 25 mean price is directionally strong. DMI values under 25 mean price is directionally weak.

Source: TDAmeritrade Strategy Desk
Figure 2: 

DMI is weak at Point 1 and price is choppy. The +DMI rises strongly above 25 at Point 2 and the uptrend follows. Note how +DMI moves with price at Point 3 and -DMI moves counter-directional to price at Point 4.

DMI Momentum
The great feature of DMI is the ability to see buying and selling pressure at the same time, allowing the dominant force to be determined before entering a trade. 

The strength of a swing high (bulls) is reflected in the +DMI peak, and the strength of a swing low (bears) is seen in the -DMI peaks. 

The relative strength of the DMI peaks tells the momentum of price and provides timely signals for trading decisions. 

When the buyers are stronger than the sellers, the +DMI peaks will be above 25 and the -DMI peaks will be below 25. This is seen in a strong uptrend. But when the sellers are stronger than the buyers, the -DMI peaks will be above 25 and the +DMI peaks will be below 25. In this case, the trend will be down.

The ability of price to trend depends on continued strength in the dominant DMI. 

A strong uptrend will show a series of rising +DMI peaks that remain above the -DMI for extended periods of time (Figure 3). The opposite is true for strong downtrends. 

When both DMI lines are below 25 and moving sideways, there is no dominant force and trend trades are not appropriate. 

However, the best trends begin after long periods where the DMI lines cross back and forth under the 25 level. 

A low risk trade setup will occur after DMI expands above the 25 level and price penetrates support/resistance.

Source: TDAmeritrade Strategy Desk
Figure 3: The +DMI crosses above 25 at Point 1 and remains above the -DMI as the uptrend develops. Note the absence of any crossover by -DMI during the uptrend. Here, the buyers are strong (+DMI >25) and the sellers are weak (-DMI <25).

DMI Confirmation
DMI lines pivot, or change direction, when price changes direction. 

An important concept of DMI pivots is they must correlate with structural pivots in price. When price makes a pivot high, the +DMI will make a pivot high. When price makes a pivot low, the -DMI will make a pivot high (remember -DMI moves counter-directional to price).

The correlation between DMI pivots and price pivots is important for reading price momentum. Many short-term traders watch for the price and the indicator to move together in the same direction or times they diverge. 

One method of confirming an asset's uptrend is to find scenarios when price makes a new pivot high and the +DMI makes a new high. Conversely, a new pivot low combined with a new high on the -DMI is used to confirm a downtrend. This is generally a signal to trade in the direction of the trend or a trend breakout

Divergence, on the other hand is when the DMI and price disagree, or do not confirm one another. An example is when price makes a new high, but the +DMI makes a lower high. 

Divergence is generally a warning to manage risk because it signals a change of swing strength and commonly precedes a retracement or reversal. (For more on this topic, read Divergences, Momentum And Rate Of Change.)

Source: TDAmeritrade Strategy Desk

Figure 4: This is an example of when the price and indicator agree (Point 1), where price makes a new high and +DMI makes a new high, signaling a long entry. There is also an example of divergence (Point 2), where price makes a new high and the +DMI makes a lower high; the result is a trend retracement at Point 3.

DMI Contractions and Expansions
The DMI lines are a good reference for price volatility. Price goes through repeated cycles of volatility in which a trend enters a period of consolidation and then consolidation enters a period of trend. 

When price enters consolidation, the volatility decreases. Buying pressure (demand) and selling pressure (supply) are relatively equal, so the buyers and sellers generally agree on the value of the asset. 

Once price has contracted into a narrow range, it will expand as the buyers and sellers no longer agree on price. Supply and demand is no longer in balance and consolidation changes to trend when price breaks below support into a downtrend or above resistance into an uptrend. Volatility increases as price searches for a new agreed value level.

Volatility cycles can be identified by comparing the slopes of the DMI lines that move in opposite directions whenever range expansion or contraction occurs (Figure 4). 

Many short-term traders will look for periods when the DMI lines move away from one another and volatility increases. The farther the lines separate, the stronger the volatility. Contractions occur when the lines move toward one another and volatility decreases. Contractions precede retracements, consolidations or reversals.

Source: TDAmeritrade Strategy Desk
Figure 5: The first expansion at Point 1 is part of the downtrend. The subsequent contraction at Point 2 leads to a reversal that begins with another expansion at Point 3. The next contraction at Point 4 leads to a consolidation in price.


Bulls, Bears and Trend
DMI peak analysis fits well with trend principles. Before using any indicator, always look at price. Price is trending up when there are higher pivot highs and higher pivot lows. 

When higher highs in price are accompanied by higher highs in +DMI, the trend is intact and the bulls are getting stronger. Lower pivot highs and lower pivot lows signify a downtrend. 

When the -DMI peaks make higher highs, the bears are in control and selling pressure is getting stronger.

In any trend, look to the DMI for momentum convergence/divergence; this gives a trader confidence to stay with the trend when price and DMI agree and manage risk when they disagree. The best trading decisions are made on objective signals and not emotion.

Let price and DMI tell you whether to go long or to go short or just stand aside. You can use DMI to gauge the strength of price movement and see periods of high and low volatility. DMI contains a wealth of information that can identify the correct strategy for profit whether you are a bull or bear.


Read more: DMI Points The Way To Profits http://www.investopedia.com/articles/technical/02/050602.asp#ixzz3v2krJMH5
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Weighted Moving Average-Trade with the Volume Weighted Moving Average

4 Simple Ways to Trade with the Volume Weighted Moving Average (VWMA)
By Alton Hill


As stated in its name, the volume weighted moving average (VWMA) is similar to the simple moving average; however, the VWMA places more emphasis on the volume recorded for each period. A period is defined as the time interval preferred by the respective trader (i.e, 5, 15, 30).

Therefore, if you place a 20-period simple moving average (SMA) on your chart and at the same time, a 20-period volume weighted moving average, you will see that they pretty much follow the same trajectory. However, on further review, you will notice the averages do not mirror each other exactly.

The reason for this discrepancy, as we previously stated is the VWMA emphasizes volume, while the SMA only factors the average of the closing price per period.


VWMA versus SMA

The above chart is of Microsoft from September 25, 2015. On the chart, we have placed a 20-period simple moving average (red) and a 20-period volume weighted moving average (blue). At the bottom of the chart, you will also see the volume indicator, which we will use in order to demonstrate how the VWMA responds to volume. In the green circles on the chart and on the volume indicator, we have highlighted the periods of high volume. Notice, that wherever we have a big volume candlestick, the blue volume weighted moving average starts moving away from the trajectory of the red simple moving average. Then, whenever we have lower market volumes, the red simple moving average and the blue volume weighted moving average are very close in value.

Can you see the difference now?
What is the Volume Weighted Moving Average good for and what signals can we get out of it?

The VWMA has the ability to help discover emerging trends, identify existing ones and signal the end of a move.

#1 – Discovering Emerging Trends

If the volume weighted moving average switches below the simple moving average, this implies a bearish move is on the horizon. This could lead to a weakening in the bullish trend or an outright reversal. If the price is able to break through both the VWMA and the SMA a bearish trend is confirmed and a short position can be initiated.

Conversely, if the volume weighted moving average moves above the simple moving average, a bullish trend change is likely around the corner. Once the price is able to break both the VWMA and the SMA to the upside, one can open a long position.

The below chart illustrates these trade setups.


Breakout through VWMA and SMA

This is a M2 chart of Deutsche Bank from August 5, 2015. On the chart, I am using the 30 SMA and 30 VWMA. As you see, after the market was range bound for a period of time, we notice an increase in the distance between the volume weighted moving average and the simple moving average. At the same time, the price breaks out of the range, which gives us an additional bullish signal. We go long with the second bullish candle after the breakout of the range and we enjoy the impulsive move higher.

#2 – Identifying Current Tends

Here we have a simple rule, if our volume weighted moving average is between the chart and the simple moving average, then we have a signal for a trending market. Note that sometimes the volume weighted moving average will test the simple moving average as a support and resistance, depending on the primary direction of the security. These tests can be considered as an implication of a potential trend reversal. Take a look below:


Trend Folllowing and VWMA

This is a M5 chart of Google from July 22nd, 23rd and 24th from 2015. We use the same 30 SMA and 30 VWMA as in the previous chart example.

In the green circle, you will see the moment where the price breaks the 30 SMA and the 30 VWMA in a bearish direction. At the same time, the blue VWMA further separates from the SMA and is between the SMA and the candlesticks. This is a clear “short it” signal. If you check a half an hour later, you will see that the blue VWMA is still below the red SMA, which means that the bearish trend is still intact.

The arrows show the moments, where the VWMA provided a signal for the continuation of the bearish trend. If we were to go short at any of these points, we would not be disappointed. The last red arrow shows us the moment when the bearish trend shows signs of slowing down as the VWMA and SMA begin to hug one another.

#3 – Detecting the End of a Trend

This signal is pretty much the same as when we had to discover emerging trends. The difference is we are looking for a contrary signal to the primary trend. For example, you have taken a long position and you notice a tightening in the distance between the VWMA and the SMA. This is the moment where you might want to consider the option to get out of the market and to collect your profits.


Trend Reversal and VWMA

The above chart is of Facebook from July 16th – 22nd. Facebook begins the week with a strong gap up with high volume. After the gap, we have a solid bullish candle and a large distance between the 30-period VWMA and the 30-period SMA. Therefore, we go long with the closing of the first bullish candle. Facebook keeps increasing until the volume drops and the market enters a correction phase. This is when the blue VWMA interacts with the red SMA and we get a “caution” signal. Fortunately, with the next candle, the trading volume increases and the VWMA moves again above the SMA.

Still in the game! Bullish we are!

We hold our position for about 20 more periods and we nearly double in our long position. Then, the blue VWMA switches below the red SMA (red circle) and refuses to go above for about 8-9 periods. We believe 3-4 periods of waiting are enough in order to realize that this is the right moment to close our position. After we exit our position, the price of Facebook starts to rollover and eventually breaks down through the moving averages. Exiting Facebook at the right time brought us a profit of about 55 bullish pips! Viva les Market Volumes!

#4 – The VWMA Divergence

Yes, that is correct! You can discover divergences between the volume weighted moving average and the general chart. You will say, “How could this be possible? This is not an Oscillator!”

Nevertheless, the volume weighted moving average could be in a divergence with the chart, and the secret is in the second moving average we advised you to use. When you have for example a simple moving average in addition to the chart, the volume weighted moving average will switch above and below your simple moving average depending on trade volume. Therefore, whenever the volume weighted moving average is closer to the chart than the simple moving average, we can say that the market is trending and volumes are increasing! Still not getting “the divergence”, let’s walk through a chart example.


Divergence and VWMA
Above is an M15 chart of Microsoft from the first seven days of October, 2015. As you see, after a strong bullish movement, the blue volume weighted moving average moves below the red simple moving average. Therefore, we expect to see a decrease on the chart. Although the bullish movement loses its intensity, the price of Microsoft still manages to close higher for a few candlesticks. This all happens while the blue volume weighted moving average stays beneath the red simple moving average, thanks to the bigger trading volumes shown on the bottom of the chart. This is a bearish divergence, which you could use as an opportunity to go short.


Divergence and VWMA – 2

KABOOM! The result is 100 bearish pips and a successfully traded bearish divergence between the chart and your 20-period volume weighted moving average. Note, the high bearish volumes at the bottom, which appeared right after the divergence and right before the drop of the price. These bearish volumes also confirm the authenticity of our bearish divergence.

In Summary

In conclusion, we could say that although the volume weighted moving average looks complicated at times, it is not!

1. If you have difficulties understanding the VWMA, just open a volume indicator at the bottom of your chart. It will give you a better picture explaining the “chaotic” movement of the VWMA in comparison to the SMA.
2. The volume weighted moving average places a greater emphasis on periods with higher market volume.
3. The volume weighted moving average is a better indicator when combined with another trading instrument for trading signals.
4. The simple moving average is a great tool to combine the volume weighted moving average.
5. VWMA can provide the following signals
6. A trend is coming!
7. A trend it is!
8. The trend is ending!
9. The VWMA can also identify divergence in the market

- See more at: http://tradingsim.com/blog/volume-weighted-moving-average/?awt_l=KPRhQ&awt_m=3ivNTbcsUa0_bZ_#sthash.Cssb198B.dpuf

High Frequency Trading: SEBI says fact-finding exercise already underway

Action on High Frequency Trading: SEBI says fact-finding exercise already underway

MONEYLIFE DIGITAL TEAM | 26/10/2015 06:29 PM 



In a reply to a set of 51 questions raised by Moneylife on 12th September on high frequency trading in NSE, SEBI has just informed us that the issue is drawing its serious attention and that a fact-finding exercise is already underway

Market regulator Securities and Exchange Board of India (SEBI) told Moneylife that its Technical Advisory Committee (TAC) has extensively discussed the issue of high frequency trading (HFT) and the matter is drawing its serious attention. SEBI was replying to a detailed email sent on 12 September 2015 by Sucheta Dalal, Managing Editor of Moneylife. It said, "We would like to thank you for taking efforts to flag the issue. We would like to inform you that a fact-finding exercise is already under way by SEBI. The matter has also been discussed extensively in the Technical Advisory Committee of SEBI and is drawing its serious attention. While we have noted the issues raised in your email, you will appreciate that we would not like to make comments on matters which are under investigation."

The same 51-point questionnaire was also sent to top executives of National Stock Exchange (NSE). However, there has been no response from the stock Exchange. In June this year, Moneylife had written about the allegations by a Whistleblower about NSE’s HFT operations in 2011-14 period . Moneylife had duly contacted NSE for its response before writing the article. On that occasion too, the NSE had refused to respond despite three attempts by Moneylife to elicit its views. After Moneylife published the articles on HFT , NSE filed a Rs100 crore defamation suit against Moneylife with prayers to remove the articles and stop Moneylife from writing further on the issue. A single Judge in Bombay High Court dismissed this. The judge also asked NSE to pay to Ms Dalal, Debashis Basu, Editor & Publisher of Moneylife Rs1.5 lakh each as cost and Rs47 lakh to two trusts, Tata Memorial Hospital and the Masina Hospital for free treatment of the poor. The Exchange has filed an appeal against that order.

Of the 51 questions Moneylife had asked to SEBI and NSE, some the questions were:

• What is the additional information that a co-location user get vis-a-vis other brokers?
• What is the response time that NSE co-location users receive vis-a-vis non-co-location users? 
• How many physical co-location facilities does NSE have? Why is there more than one colocation? 
• What are the advantages a person will enjoy if he or she continued to get faster information vis-a-vis others in NSE co-location?
• What advantages do members in co-location receive vis-a-vis members who are not in co-location?
• What is the value of orders placed by members in last 5 years from NSE co-location? 
• Under which SEBI circular or guidelines did NSE start providing co-location facilities? If these services were started before any guidelines were formulated, did NSE ask for specific SEBI approval for starting such facilities?
• Were some NSE members ever allowed to log in ahead of others systematically?

Here is the reply we received from SEBI...

Subject: Your email to Chairman, SEBI with regard to complaint of a market participant against NSE

This has reference to your email dated September 12, 2015 to Chairman, SEBI wherein you had sought certain details regarding an anonymous complaint of a market participant against NSE.

We would like to thank you for taking efforts to flag the issue. We would like to inform you that a fact finding exercise is already under way by SEBI. The matter has also been discussed extensively in the Technical Advisory Committee of SEBI and is drawing its serious attention. While we have noted the issues raised in your email, you will appreciate that we would not like to make comments on matters which are under investigation. However, we would like to inform on the various measures taken by SEBI, in the recent past.

SEBI has ensured that regulation of the securities market keeps pace with the dynamism displayed by the capital markets. SEBI has taken various proactive measures over the last few years to ensure that appropriate risk management framework is in place to address the risks associated with adoption of such technological advancements.

In line with the above emphasis, SEBI was one of the first securities market regulators globally to put in place a framework for regulation of algorithmic trading. SEBI has also put-in place a regulatory framework to ensure fair and equitable access to the co-location facility and integrity and security of the data and trading systems. The regulatory framework was finalized after taking on-board views of the market participants through a discussion paper floated on May 03, 2013. High Frequency Trading (HFT) recently has drawn the attention of IOSCO too and the member jurisdictions are deliberating the impact of such trading on the market structure and market participants. SEBI is in the process of studying various issues involved and gather international experience to take further regulatory steps to regulate HFT.

In addition, SEBI has also issued circulars on various other technology related areas such as Cyber security and cyber resilience framework for stock exchanges, clearing corporation and depositories, Testing requirements for trading software, Business continuity planning and disaster recovery, Direct Market Access, Internet Based Trading, Safeguards to avoid trading disruption in case of failure of software vendor, etc.

We may like to state that SEBI would take all necessary steps in the interests of investors in securities and market integrity.

Sebi taking feedbacks on slowing down high-frequency trading

Sebi taking feedbacks on slowing down high-frequency trading; curbs may hit volumes

By Sugata Ghosh & Nishanth Vasudevan, ET Bureau | 7 Sep, 2015, 12.47AM IST

MUMBAI: Will India be among the first markets to put speed-breakers in the way of high-frequency trading (HFT) — a system accused of giving some traders undue advantage because of its capability to execute transactions at lightening speed? 

With markets regulatorSecurities and Exchange Board of India (Sebi) taking feedback from exchanges and select institutions on possible steps that could slow down the world of black-box trading, there is a growing feeling among sections in the market that some curbs on HFT may come before the year ends.

Many foreign institutions and large proprietary desks use sophisticated software programmes and place servers on the premises of stock exchange to enjoy an advantage over smaller brokers and traders.

Even though HFT comprises a big slice of trading volumes and restricting them could be an unprecedented measure, Sebi is internally considering steps to bring in a level playing field between HFT and non-HFT users, according to people familiar with the matter.

One of the proposals the regulator has asked for suggestions on is 'randomisation' of orders, which means doing away with the priority that HFT users enjoy. Under randomisation, orders would be bunched in the exchange system and run on a random basis. This will put HFT users at a huge disadvantage because the first order that hits the system need not be the one that hits the queue first.

"Bringing in randomisation will almost kill the HFT business as there is no advantage," said Nithin Kamath, chief executive of Zerodha. Since the last few years many foreign portfolio investors using HFT models have been trading on Indian bourses as either a member or client. Better known as algo traders, they use expensive and superior software models to get the best price at a super-fast pace.

BATCH AUCTIONS

Sebi is also considering batch auctions of trades, an idea introduced by a bunch of US academics, to eliminate the race of being the first in the order queue.

Under this system, exchanges would collect all the orders within frequent auction windows, match bids and execute them. Thus, high-frequency traders will not have the first mover's advantage.

The regulator is also considering barring exchanges from giving tick-by-tick data to HFT users. Tick data contains all buy and sell trades in a trading day.

Normal traders, who use Net to connect to the trading platform, gain access to four ticks at best. In case of HFT, traders are privy to as much as 300 ticks in a blink of the eye.

Though it is impossible for the human eye to detect trends at that pace, high frequency traders create advanced programs on their computers designed to read trends and execute trades on the basis of these ticks. Absence of availability of a higher number ticks takes away the advantage of HFT systems.

MINIMUM RESTING TIME

Further, the regulator is planning to introduce a minimum resting time for orders, a move that will prevent "spoofing" aimed at deceiving other market participants. Under this proposal, orders that are placed cannot be cancelled before a gap. Spoofers place a flurry of orders with an intention of attracting the attention of other traders, including high frequency, to the stock. They cancel the orders as the activity builds up. Global financial regulators have frowned upon this practice as it amounts to manipulation. "A minimum resting time for orders will be a great move.

We have seen several instances of spoofers walking away by misleading others," said the chief executive of a leading brokerage, which actively does algorithmic trading.

Global regulators have been talking about restricting HFT for a while but few have taken meaningfully action. If Sebi decided to implement all these proposals, India could probably be among the first to rein in high-frequency traders.

While the biggest impact of a clamp down on high frequency trading would be on NSE, brokers said aggressive restrictions would impact trading volumes in cash and equity derivatives with HFT traders contributing over 30% of the volumes. "There is a high chance that severe restrictions will squeeze trading volumes in a big way," said Zerodha's Kamath.

Institutional brokers worry this could lead to a flight of activity to Singapore, where Nifty futures are actively traded by foreign investors.

Black Monday: Rs 7L crore investor wealth lost-24th August 2015

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Black Monday: Rs 7L crore investor wealth lost

TNN | Aug 25, 2015, 02.32AM IST


Sensex tanks over 1500 points; biggest fall in 7 years

MUMBAI: In the 1970s and early '80s, Indira Gandhi and her inner circle would often raise the bogey of a mysterious, malevolent and invisible 'foreign hand', which was apparently hell bent on plunging India into turmoil and trouble.

Several decades later, a very visible foreign hand pushed the Indian markets off a cliff, sending the sensex hurtling to its worst single-day loss in points from one session close to another. The only consolation, if any, was that the body attached to the foreign hand was taking an even worse battering.

The sensex crashed a record 1,625 points to 25,742, a one-year low level, leaving investors poorer by Rs 7 lakh crore (over $100 billion) while the rupee closed at a two-year low of 66.65 to a dollar.

The 'Black Monday' crash was caused by fears of a deep and long-lasting slowdown in the Chinese economy, the second largest in the world, which accounts for 15% of global GDP and half of all global growth.


READ ALSO: Black Mondays — 7 of 10 biggest market bloodbaths on the day

Bloodbath in global markets: 5 things investors need to know today

Foreign funds took a record Rs 5,275 crore out of Indian stocks. Each of the 30 sensex and 50 Nifty constituents closed in the red, a highly unusual event.

The global financial bloodbath started after the Shanghai composite index lost 8%, proving ineffective a series of steps that the Chinese government and its market regulator had taken in the last few weeks to stem outflow of money from the country.



As a result, the Nikkei in Japan and Hang Seng in Hong Kong too crashed over 4.5% each. Major European markets too opened with over 4% losses and the Dow Jones dipped over 1,000 points in early trades, though it bounced back later to offer a glimmer of hope.

Along with stocks, several emerging market currencies competed with each other in their race to the bottom while the dollar and the Japanese yen rallied.

Both the government and the RBI governor stepped in to calm markets, assuring investors of all support to stem the volatility. Finance minister Arun Jaitley, downplayed the sell off saying it was "transient and temporary in nature".

Expectations of a possible rise in rates in the US, the largest economy in the world, also kept fund managers across the world cautious as they are not sure how global markets will react to such an event for the first time in nearly a decade. Most big players on the Street believe that once the dust from the current global carnage settles, India will possibly stand out as one of the top destinations for foreign investors. However, for the time being India is most likely to be bracketed along with fundamentally weaker emerging markets like China, Brazil and Russia because of the risk avoidance attitude among foreign fund managers.

READ ALSO: Why stocks are tumbling 6 years into the bull market

"Fundamentally nothing has changed in the Indian market in the past few weeks. Today's fall was led by a global risk-off mood that has set in with the US and Europe falling, mirrored by the regional markets, continuing weakness of the rupee, and at the same time redemptions from exchange traded funds (ETFs)," said Avinash Gupta, MD & head of institutional equity sales, Bank of America Merrill Lynch. "There is still room for markets to correct further but a sustainable pullback before the September 17 US Fed announcement is looking unlikely. Some global investors are likely to take a stock specific approach, that is buy into stocks that they believe in and which have particularly been beaten down recently," Gupta, who heads one of the largest foreign broking operations in India, said.

In the Indian market, real estate and metal stocks were the worst hit. Dealers said real estate stocks crashed because investors believe that with equity market too showing weakness, the already struggling real estate sector may see its troubles aggravating while metal stocks crashed on fears that China, the largest importer of metals till recently, will cut down on its consumption of commodities drastically. 

Globally commodity prices are hovering at levels not seen since 1999 though gold, considered a safe haven during uncertain times, recorded a smart recovery.

The day's selling erased about Rs 7 lakh crore from BSE's market capitalization, now at Rs 92.4 lakh crore. After about two months BSE's market cap has again fallen below the Rs 100 lakh crore mark.

Monday's sharp fall, that saw several of the midcap and small cap stocks crashing over 20% each, may also lead to margin selling of stocks of speculators by brokers on Tuesday morning. 

At times of sharp dips in stock prices, if speculators who had bought stocks on borrowed money can not make up for their losses, brokers are forced to sell those stocks to cut further losses. Such selling, called margin-based offloading, often pulls the market even further down, thus delaying a recovery.

In the currency market, along with the rupee which weakened 82 paise, all emerging market currencies also fell against the dollar. The Malaysian ringgit dropped to a 17-year low, while the Turkish lira and the Russian rouble also fell to fresh lows. Most of the emerging markets are being hit by a fall in commodity prices, which are expected to hurt their balance of trade.

Following Monday's decline in the rupee, it has fallen more than two rupees since the Chinese devaluation of the yuan last Monday. The government's comments failed to support the rupee which weakened to 66.74 in intra day. Dealers are now forecasting the rupee to breach 67 levels in the short-term but they also say it could rebound to 65 once the volatility ends.


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Why stocks are tumbling 6yrs into the bull market

Reuters | Aug 24, 2015, 07.32PM IST




Black Monday gets worse, Dow crashes 1,000 points minutes after opening

NEW YORK: Well, that was fun while it lasted.

For years, investors in US stocks shrugged off threats - a government shutdown, fear of a euro collapse, a near U.S. debt default - and just kept on buying. At the sixth anniversary of the bull market in March, the Standard and Poor's 500 index had more than tripled in value.

Now, buyers are hard to find. A wave of selling has hammered major indexes, with the S&P 500 losing nearly 6 percent last week. That was its worst weekly slump since 2011. US stock futures Monday are indicating another steep decline that could pull the index into what Wall Street calls a "correction," or a fall of 10 percent from a recent high.


Corrections are natural in a bull market, a pause in the market's march higher, and this one is long overdue. They usually come about once every 18 months. The last one was four years ago.

The big trigger for selling last week was yet more evidence of a slowdown in China's economy, but there were plenty of other worrisome developments weighing on the market. A look at a few of them, and why you may not want to panic, yet.

FEARS ABOUT CHINA

Despite Beijing's efforts to restore calm, the Chinese stock market has taken investors on a wild ride this summer. Then last week, the government announced a depreciation of the country's currency, stoking fear that the economic slowdown there was even worse than it had let on.

On Friday, more bad news: A gauge of manufacturing showed that key sector on the mainland is continuing to contract.

What happens in China matters, and not just because it is the world's second-biggest economy. Falling Chinese demand has sent prices plunging for all manner of commodities - iron, copper, oil. That has walloped countries that export them.

Its surprise devaluation also triggered other governments to drive their currencies lower, roiling financial markets and spreading fears of a currency war.

PLUNGING OIL

The steep drop in the price of oil in the last month has become a major concern for traders. Oil briefly went below $40 a barrel on Friday, its lowest price since the financial crisis six years ago, and fell firmly below that benchmark Monday.

If oil keeps falling, it is likely to drag down the S&P 500. Drillers and other energy companies make up a significant chunk of that index. Shares of those companies have plunged 35 percent in the past 12 months.

DISAPPOINTING PROFITS

The upside to falling oil is that all the money that drivers are saving at the gas pump should mean more spending by them at stores - and a faster-growing U.S. economy. But Americans are choosing to pay off debt instead of going shopping.

"Household finances are growing more healthy ... but you want to see a pickup in spending, too," said Tim Courtney, chief investment officer of Exencial Wealth Advisors.

The new frugality helps explain why the biggest long-term driver of stock prices - corporate earnings - have been so disappointing lately. In the second quarter, companies in the S&P 500 grew earnings per share just 0.07 percent from a year ago, according to research firm S&P Capital IQ. That is the worst showing in nearly six years.

The next report card on earnings doesn't arrive until October. In the meantime, investors will be looking at other indicators of economic and corporate health. This coming Friday, the government reports on consumer spending in July.

TRADING MILESTONE

Many investors pick and choose stocks based on a company's business outlook, but there is an entirely different class of trader that relies on technical indicators to make investment decisions. Many of their screens were flashing "sell" this week.

The S&P 500 and the Dow have broken through a few key technical levels recently. One important one is their 200-day moving averages, which the two indexes pierced on Thursday, helping to fuel selling. Both indexes dropped 2.1 percent that day, before further tumbling on Friday.

The good news is the last time the S&P 500 broke through its 200-day moving average, in early July, it bounced back from those levels after a few days.

RATE JITTERS

The Federal Reserve has been signaling that, with the economy improving, it could start raising rates to keep inflation in check, perhaps as soon as next month. For years, investors have been fretting that the market could drop sharply when the central bank starts raising rates. The rates, held near zero for the entire bull market, have been widely credited with pushing stock prices up.

This week investors did an about-face and started worrying about the opposite. In its minutes from the central bank's July meeting, released Wednesday, Fed officials expressed concern that China's slowdown could pose risks to the U.S. economy. Investors wondered whether that meant the growth here is fragile, and started selling stocks.

Ernie Cecilia, chief investor officer of Bryn Mawr Trust, said the switch in views is ironic, and a little unsettling.

"The market was saying, 'Start lifting rates. Let's get this over with,'" he said. "Now the market is concerned that Fed is worried the economy is slowing."

On the bright side, the US economy is looking healthier lately. Employers have been on a hiring spree, and that has helped push the unemployment rate to a low 5.3 percent.

Investors will get another clue on the economy on Thursday when the government releases its estimate of economic growth in the April-June period.

The Trader's Mindset

Trading is an emotional game, especially in volatile markets. But trading decisions driven by over-confidence, frustration or panic invariably lead to disappointing results. Here we chart the psychology of the trader in a rising and falling market to show how a calm, analytical and moderate approach can result in consistent returns.

For more information on Six Capital. 

The Definition of a Successful Day Trader

By Alton Hill

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Bugatti

What a loaded question? Many traders just close their eyes and begin imagining all of the fancy Bugattis they will be buying with all their new found wealth, kudos to you for at least taking the time to perform a search on the web for some answers.

Before we go too far in the weeds, I would be remiss if I didn’t mention the one case study of day trading results readily available on the internet. Not that there aren’t others, but this is the only study I can find which has more than a few hundred traders in the study.

This of course is the Taiwanese stock market case study, which tracked the performance of day traders from 1995 through 1999. A review of the study by Berkeley can be found using the following link; will show you that day trading is no game for the faint of heart.

To quickly summarize the study, only 20% of the traders made money and the median profit over any 6-month period was under $5,000 dollars.

What does this say to you? What is your reaction when you hear those statistics?

Do you think the data is stale because it was before the high-powered retail platforms of the 2000s? Do you think that your performance in your home country will be different and the results were only relevant to Taiwan?

Think again my friend. The market is about human psychology, which transcends all cultural, religious and gender boundaries. Trading boils down to human nature, which is the same in 1900 as it is in the present day.

In this article, we will detail what makes a successful day trader. You will be surprised with how we define success here at Tradingsim.

If you are able to achieve any of the items listed below, you are a successful trader.

#1 – You are able to pay for One Expense in Your Life

Mortgage Payment

The biggest mistake you can make is trying to grow your account to some absurd number. There are no limits on the amount of money you can make, so good luck chasing that fool’s gold.

To me, you are a successful trader, once you are able to pay for a sizable bill. To make this tangible, imagine being able to pay any of the following on a consistent basis:
Mortgage
Car Note
Cable
Cell Phone
Family Vacations
Monthly Entertainment

You obviously would need a day job in order to still survive, but isn’t the mark of success your ability to lighten the burden on your family? Imagine the excitement from your spouse, when you are able to deliver on that family vacation or pay your mortgage down faster.

There was a study released in 2012, which showed for the poorest Americans, after all essential expenses are paid (housing, utilities, transportation, food, and clothing), low income Americans only have $367 dollars left over.

Think about how blessed you are that you can literally make that amount of money on one trade.

If you read this section of the article and feel these items are lame, you still have some work to do with how you value money. Remember, keeping your account in paper form is nothing more than a glorified trophy that you covet in secrecy.

#2 – You are able to Follow Your Trading Plan

If you are able to follow your trading plan, you are a successful trader, period, end of story. You may say, what about the money? Well, great point; however, if you consistently follow your rules, the money will flow.

One of the hardest things to do when it comes to day trading is consistently following your rules day in and day out.

You have to constantly fight the need to make quick money, or to slightly bend your rules because you think the stock in front of you is a great setup.

Day trading is about having discipline. If you are able to consistently demonstrate self-restraint, it’s only a matter of time before the virtual ATM machine opens up.

#3 – You are in the Black on a Monthly Basis

Turning a profit is literally the mark of a successful trader, because day trading is just that challenging. If you don’t believe me, check out this article that covers the activities of a few retail traders.

You will have up days and you will have down days, but at the end of the month, do you finish in the black? Not how much you are in the black, but are you up?

Call it greed or unrealistic expectations, but we as human beings have a tough time finding joy or a feeling of accomplishment in achievable goals.

If you can trick your brain into feeling thrilled about turning a profit of a few thousand dollars a month, you are on the right track. If you keep that pace up, in 5 or 10 years, the numbers can and will be staggering.

Again, you have to start somewhere and that my friend is by showing a positive gain each and every month.

#4 – The Money is Secondary

Don’t Sweat the Money

Let me clarify this point, before I get emails asking me how is it not about the money. We of course are in this profession to turn a profit. We are all adults and are not looking for an expensive hobby.

However, if you obsess the money, it will leave you. Call it the secret or the universe or whatever, but once you become obsessed with hoarding or growing your account constantly, you will lose the funds.

Your measures of success are whether you followed your trading plan and you were able to limit your losses. If you get these things right, the money will flow.

#5 – You are able to Last More than 3 Years Trading

NFL

87% of all retail day traders will not make it pass year 3 of their day trading career according to the Berkeley study cited earlier in this article.

To put that in perspective, NFL players have a longer tenure than day traders, coming in at 3.3 years.

To qualify this point, it doesn’t mean you are taking out credit cards, second mortgages and borrowing money to stay in the game. I am stating that you are using the same money you started with and have been able to grow the account, take out cash on a regular basis and pay your taxes.

#6 – You no Longer Crave the Thrill

Roller Coaster Ride

When you first start out day trading, you will likely experience the rush that comes from a winning trade. To be honest with you, there are few things, which can compare in this life to a home run trade.

Well, as you gain experience, you will quickly realize that not having control of your emotions can lead to financial ruin.

The ability to stay completely flat and allow yourself to execute your trading plan with no emotion, will allow you to always think clearly and objectively.

Once you no longer associate the adrenaline rush with trading, you have just crossed over from the gambling territory into the business realm.

Please don’t take this to mean you can’t be excited about trading and achieving your life dream. You just can’t be excited about making quick money, as it doesn’t exist over the long haul.

In Summary

Who defines success at the end of the day? You can show me one person you consider to be the most successful day trader and I can come up with 5 other names.

It’s almost like debating the best quarterback of all-time or the most successful of anything.

At the end of the day, you determine what it means to be a successful day trader, no one else. The minute you realize that is the answer, the expectations you set for yourself when trading will become more relaxed as these are tailored to you and your trading style.

Much Success,

Al

Photo

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Top 50 Day Trading Myths – Get the Facts

By Alton Hill

In this article, we are going to cover the top 50 day trading myths that are floating around in the trading community. This list will cover what I have learned during my 15+ years of trading experience. Feel free to share with others, as I would have loved to come across a list like this back in 2000.


Top 50

1. Day Trading is like gambling – If I hear another person say this, I may literally punch a hole in my dry wall. Day trading is the furthest thing from gambling! Like anything in life, if you take on something and you are unprepared, then you will get your you know what handed to you. Day trading requires enormous practice, focus and dedication to a set of rules. If you keep your eyes on the ball, day trading can be just as predictive as you getting a paycheck every two weeks from your job.
2. Day Trading is a Man’s Game – anything a man can do a woman can do better. Don’t believe me, ask my wife. Trading is not somehow geared to men because we are perceived hunters and the ultimate competitive creatures. Some of the best traders in the world are women. Still not a believer, check out this article from Investopedia, which highlights 7 top female traders.
3. Stops aren’t Necessary – I have toyed around with the idea of trading without stops. My premise was that using stops was a glorified way of saying you were too afraid to take on the risk of your position. Wrong! You need to use stops in order to make sure you don’t lose all of your capital on one bad trade. It’s better to live to fight another day, then to be slaughtered on the battlefield.
4. You can Make Money Trading All Day – this is a bit of fact and fiction; however, I will say that the vast majority of day traders make money trading in the morning. Since this article is not about playing both sides of the fence, then I have to say it’s a myth to think that you can trade all day long and consistently turn a profit.
5. There is Volatility from 11 – 2pm – believe it or not, day traders need to eat like every other human being on the planet. If you are out there whacking at the weeds during lunch, you are literally going to drive yourself crazy as you watch stops violated and low share trades push a stock one way or another. At the end of all the back and forth, you will notice that your stock hasn’t really moved much in either direction, but you have lined your broker’s pockets with trade commissions.
6. Using 4 times margin is a good idea – Margin is purely psychological for most traders and has little to do with risk management or hedging a position. Traders just see that they can use 4 times their margin, so they wildly throw their funds into the market. As a trader, you will quickly realize that the more margin you use will ultimately prove to be disastrous as you go through an expected downturn. Margin must be used wisely and maxing out your margin is never a good idea. In life, you always need to keep a trap door open, just in case you need to make a last minute getaway.
7. Pre-Market Trading is lucrative – trading is meant to take place between the hours of 9:30am and 4:00pm. Trying to somehow master the pre-market trading realm to get ahead of the market is a farce. Volumes are thin and the bid/ask spreads are terrible. Focus your efforts on trading during core market hours. Playing in the pre-market arena really comes down to you thinking you know what’s best, when in reality the pre-market is often the worst case of irrational exuberance you will find in the market.
8. After Hours Trading is lucrative – please see number 7; same rules apply for traders trying to jump in the pond before the market opens the next day.
9. Day Trading Futures is Easy Money – futures trading in my opinion is actually harder than equities. Reason being, futures are traded by more professional traders with a hyper focus in one or two instruments (E-mini, etc.). You are better off competing against the retail traders in equities until you get your feet wet.
10. You Need a ton of day trading monitors – save your money. Don’t go out here buying some custom day trading setup because you need to watch 6 different time frames for the same stock. If you can’t make sense of the action with 3 monitors, you sure won’t be able to figure things out with 10.
11. You can Day Trade from Work – day trading from work is a horrible idea. Unless you are working in a server farm and things never go down, the day-to-day distractions at work will hurt your trading performance. Not to mention your employer is paying you to work, so shame on you. Let me not judge, but you get the point.
12. There is Money in the first 30 minutes – there is a ton of money in day trading the first 30 minutes. Sad thing for you, it’s really tough to consistently turn a profit. You will need years and I mean years of experience trading this early in the am before you will be able to identify trends in order to make split second decisions. The market is unforgiving in the morning, so if you don’t know what you are doing, the volatility will kill you.
13. Let Your Winners Run – this is one of the most ridiculous statements I have ever heard. To newbie traders, they will interpret this to mean hold onto my stocks forever, because they are going to run to the moon. The last time I checked, the only time you make money in the market is when you close your position and put cash in your pocket. So, let your winners run to a point, but have a plan for when you need to exit your position.
14. You must sell half of your position once you’re up a bit – some traders sell half; I however sell all of my position. I’ve noticed that when I would sell half of a position, I would relax my rules and get a little sloppy on the second half. Bottom-line for me, I simply make more money when the pressure is on me and I am on the ball. So, focus on trading your entire position and leave the multiple entry/exit strategies to the folks looking to over complicate the market.
15. The more indicators the better – show me a trader with 10 or more indicators on his/her chart and I’ll show you a broke trader. Adding a million indicators to a chart will not correct the fact you have no idea what you are doing. Don’t handicap yourself with both confirming and contradicting points of view. Have enough courage and belief in yourself that you have what it takes to succeed at day trading.
16. Day Trading Taxes are Way Too High – day trading gains are taxed at whatever income tax bracket you fall into. Stop thinking that the man is out to take 50+% of your trading profits. Remember, paying taxes is a good thing, it means you are a profitable trader.
17. Day Trading Tips are Helpful – day trading tips are one of the most hurtful things you can expose yourself to in the market. If you find yourself cruising stock picking sites and social sharing sites, then stop. You will never get the fills of the folks on the board and you have no way of knowing what is going on behind the avatars. For all you know, the forum member could be saying to sell, when in reality they are hoping to get the stock at a lower price. Remember, you are dealing with traders; these are not always nice people.
18. You can’t trade from a Laptop – there are tons of traders now that are traveling the world and still conducting their trading activity on the road. They simply pull out their laptop, load up a few charts and conduct their business. Sometimes less is more and the additional hardware of a fully customized trading office is no guarantee you will turn a profit.
19. You can make a living with little equity – day trading costs money. Anyone that tells you that you don’t need money to make money has no idea what they are talking about. After commissions, living expenses and a rough streak or two, you will be hard pressed to make a living. Take my word for it, I tried this route and boy did I fall on my face.
20. You should only Short Sell – the market goes up and the market goes down. Why be obsessed with one or the other. You need to be flexible in your trading styles, so you can follow the primary trend, whichever way she takes you.
21. Reading Books is a waste of time – while you may not use the strategies provided in a day trading book, the thought process provided by the author could trigger creative thoughts, which can affect your bottom-line. The first time I read ‘Reminiscences of a Stock Operator’; I couldn’t fall asleep because I felt like I went back in a time machine. Funny though, the emotions expressed in the market are just as relevant in the 21st century as they were in the 20th century.
22. Moving Averages are worthless – Moving averages are one of the best ways to gauge the strength of the primary trend and whether you should enter or exit a trade. You’ll be surprised how much punch is in the moving averages.
23. You have to understand Elliott Wave to make money – I’m not going to bash Elliott Wave, because it’s just too easy. Nevertheless, I will caution you of trying to outsmart and predict where the market is going. I can’t tell you how many Elliott Wave analysts I have encountered over the years that have provided 5 different counts or more on the same chart. Don’t worry if you can’t exactly map a wave-3 extension in a primary wave 1….did you get all that?
24. Day Trading Penny Stocks is easy- you had better know what you are doing. By shear definition, penny stocks are volatile and if you are trying to day trade these stocks, things can get even more complicated. You are better focusing on volatile stocks and not just that the stock is cheap. Oftentimes things are cheap for a reason.
25. Day Trading Options is the way to go – I get it, you want to create this or that straddle to eliminate your risk. Well let me help you out here, you can’t avoid the risk. Just trade the stocks straight up, don’t try to become some M.I.T whiz kid overnight. Leave the complicated Black Scholes grids to the experts.
26. Who Needs Day Trading Rules – You do! If you go out there without rules, the market will take your money. Imagine watching a football or soccer game with no rules. All you would see is total chaos that will ultimately lead into two teams brawling on the field. Day trading is very much the same way. With no boundaries, it’s only a matter of time before you blow up your account.
27. Day Trading Algorithms – please stop wasting your time writing the next wonder program that will print money from the market. The market is a living and breathing entity. If you think it’s as simple as writing some buy, sell and stop loss orders, then you my friend are sadly mistaken. Let the super smart think tanks with direct lines to the exchanges do their thing. Don’t try to play in this pond, you don’t have the resources, expertise or time to constantly stress test your model. Start taking accountability for your trading and stop relying on code. You can’t code the logic behind why birds flock together and you can’t code the market, the variables are too endless.
28. You need an Advanced Degree to Day Trade – trading is one of the last meritocracy’s left in the world. It doesn’t matter your race, religion, education level, or financial background. If you work hard and learn what makes you tick, skies the limit. Often times the traders with a ton of formal schooling have it the worst, because they are used to always being right and are unable to let go of the need to win every trade.
29. Day Trading Business Plans are Boring – don’t want to make money, then don’t write down your business plan. How much do you plan on making per month? What will you do with your trading profits? These are questions most day traders don’t ask themselves, because they never have any intention of taking money out of the market. A good number of traders look at day trading as a hobby. They are really looking for action and could care less about making money.
30. Tracking Trading Performance is Complicated – yes it is if you are looking at one of these data dump reports provided on the web. Tracking your trading performance comes down to a few key performance indicators (KPIs) that help you identify how to become a more consistent and profitable trader. One of my favorites is tracking your profit in terms of R. The bottom-line, did I make more money from my winners than my losers. Who cares if Monday is your best winning day between the hours of 10am and 11:30am? Keep trading long enough and Wednesday will become your best trading day. Do not get lost in Sharpe ratios; leave the million plus performance ratios to the statisticians and just focus on the few KPIs that make you money.
31. The more expensive the more valuable the day trading course – Wrong! I do agree with the idea of buying books and taking courses, because this will spark your creative juices as you are defining your trading methodology. Nevertheless, to think just because you pay someone thousands of dollars, their course will work exponentially better than a $500 dollar course is just the wrong way to think about it. Your trading style could be in alignment more with the person selling the $500 dollar course, which would result in you making more money. Don’t fork over tons of money, especially when you start out. You will want to take the perceived easy way out if you start struggling up front and pay big money for a course, which is exactly what some of these so-called gurus want you to do.
32. Day Trading Chat Rooms are helpful – stay away, they are a complete waste of time. You have no way of validating the performance of the other traders, nor should you look to others to tell you what to buy or sell. You have to make your own trading decisions.
33. You Can’t Make Money Day Trading a Cash Account – give me a break. What’s the rush? Why do you need to use more money than you have in the bank? Relax, have a beer and take a deep breath. You can make a ton of money trading with the cash you have in your account. No one is putting a gun to your head and pushing you to use all of your margin. Just make sure you have a margin-enabled account, so you will not be tagged with a pattern day trading account and you are placed on a 3-month hold.
34. Day Trading Charts are Voodoo – I only trade technicals and the numbers do not lie. So, please feel free to think charts are nonsense, I hope you never pick up on the fact they are the breadcrumbs of the smart money.
35. Day Trading is for Dummies – day trading is not some basic course in HTML or how to write your resume. Please do not make the mistake of assuming you can pick up a book colored black and yellow and expect to master the markets. While you may gain some foundational insight into the markets, you have a long way to go before you should ever consider placing in cold hard cash in the market. Do you ever see a book titled Plastic Surgery for Dummies? Of course not, and I will argue that trading is just as hard if not harder to master.
36. Day Trading Morning Gaps is Easy – morning gaps can be your best friend one minute and quickly turn against you the next. You have to first decide if you are going to fade the gap or go along for the ride. You can really complicate matters and decide that you will either fade or ride depending on the way the market is trending. While I agree the morning gap has the action, you need a few rodeos under your belt before you decide to swing for the fences.
37. Sometimes it’s ok to hold a position overnight – I’ve been there before where it’s the end of the day and you are waiting on a position to pop. You see a nice bullish candle formation and the volume is trending accordingly; however, time is not on your side and 4:00pm is quickly approaching. You may get the bright idea to just hold the position overnight to let things play out. Wrong! Once you start to hold positions over night, you are no longer a day trader and have entered into the realm of hope. Not to mention that morning gaps will not provide you the opportunity to safely exit a position if things drastically go against you.
38. Day Trading Horror Stories are all over the web – try typing in a search for day traders that have taken a bath in the market, good luck finding one. People are private about their finances and when it comes to day trading people are extra hush-hush. Who wants to shout from the rooftops that they have lost their retirement fund or kid’s college savings in the market? Just know that you may not find many stories on the web, but the stories are real. Whatever you can think of in terms of financial ruin, imagine worst. Remember to respect the market and she will respect you.
39. A Day Trading Journal is worthless – a trading journal is your way of capturing the mental state you were in the day you placed your trades. Trader’s that know their stuff will tell you that trading is primarily a game of mental toughness, clouded with technicals, tips and social media. A journal will keep you honest in terms of why you placed a trade, but more importantly, the emotions you were experiencing at the time of the trade. You can use the journal to identify when you are riding too high or low, in order to keep your emotions in check.
40. You Don’t Have to Do your Homework – If you think you are just going to sit down at your computer at 9:30am and make money, you are sadly mistaken. At a minimum, you need to start observing the momentum stocks of the day at 8:30am, in order to create your watch list. This way you can have all of your monitors ready to go with the charts of interests and key trendlines you need to keep an eye on for breaks. You can also use this time to review your previous day’s trades to make sure you correct any poor behaviors.
41. It’s ok to go all-in every once and awhile – do I really need to respond to this one? Never and I mean under any circumstances put all of your money in one trade. If you are wrong and things blow up on you, it’s game over.
42. If the NASDAQ is up you should go long – just because the broad market is going in one direction or another, does not mean you need to follow suit. Trading is about just that – trading. Since you are trading volatile stocks, all you need to do is focus on your position, while keeping an eye on the market. Nevertheless, don’t turn the market into a green light, red light experiment where you follow the broad market like a game of Simon Says.
43. You don’t need to take breaks – unlike a normal job, if you don’t day trade, you don’t get paid. Just like a consulting gig, while you may not make money while on vacation, you should make enough money that you factor in vacation as a cost of doing business. When you don’t take breaks for the need to make more, you will end up losing the money anyways due to fatigue and poor decisions. Therefore, it’s better to just take the time off and recharge your battery.
44. I too can day trade from my mobile phone – please stop. Your cell phone could experience a slow connection and furthermore, can you really see the chart on your phone? It may look cool when people swipe their phone at the store to pay for groceries, but everything isn’t made to be done on your cell phone.
45. It’s a good idea to put on 100 trades a day – the only person or entity you will be helping by placing 100 trades a day is your brokerage firm. When it’s all said and done, you will be paying in excess of $1,800 a day for that many trades. If you figure the average round trip trade will run you $18 dollars, just take that times 100. I can think of a million things I would rather do each day with $1,800 dollars other than give it to my broker.
46. I will practice trading – the majority of brokerage firms will allow you to practice trading, but only during market hours. This would force me every day to make the tough decision of either making a living for my family or practicing. Unless you use a market replay tool like Tradingsim, which lets you practice trading 24×7, you will never find the time you need to practice your craft. Airline pilots, cops, doctors and any other professional career requires you to practice your craft for hundreds if not thousands of hours. Why should day trading be any different?
47. Your Friends and Family will understand why you want to day trade – this one is tough, but you need to realize that day trading could be something that people in your inner circle just don’t get. It’s not that they don’t love you or support what you are doing, but they will likely think it’s gambling or just nonsense and not as prestigious as being a doctor or a lawyer. Unless someone sits with you at your desk every day and sees the hard work you put into your craft, they just won’t get it. Remember though, this is ok.
48. Trading is about your personal journey of mastering your emotions to control your own destiny. This my friend is a walk you must be prepared to take alone. The bright side is that the more success you have, generally the more interested your friends in family will become with what you are doing in the markets. This will likely lead to further frustration on your end as they try to dummy down your thousands of hours to some get rich quick scheme or just luck. Again, you have to realize that without living and breathing day trading, people are just unlikely to get it.
49. You will pay yourself at the end of the year – you won’t. You will simply continue to reinvest the money in hopes of making more profits. You need to consistently take profits out of the market, so the money is real to you. I am not saying you need to take 100% of your profit, but you do need to reward yourself. For starters, it will push you to make more money and secondly, the little pixels on the screen that make up your account value actually begin to mean something. Lastly, you can do nice things for those in your life. If you are able to treat your wife to a nice dinner or dress every once in a while, it makes the conversation at 9pm when you say you need to review a few more charts before coming to bed a little easier.
50. Making Gains is like Pulling Teeth – if you find yourself saying this aloud, you are doing something wrong. When you are trading in the zone, the money will literally fall into your pocket with little to no effort. That’s because you have learned to accept the risk and adhere to your day trading rules.
51. It’s impossible to trade without a complicated system – once you have been trading for years and have been able to consistently make profits, you will notice you will enter and exit a trade without knowing why. However, you will be able to look back and see that you exited a trade right before the trend took a turn. This level of trading intuition comes from learning to feel the market and to place trades without even thinking. This level of trading skill is reserved for the very few, so tread lightly.

Good luck trading and remember that you make your own truth regardless of what you read in this or any other article.

Al

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