Table of Contents
Introduction 1 About This Book 2
Foolish Assumptions 2
Icons Used in This Book 3
Where to Go from Here 3
Part 1: Getting Started With Day Trading 5
Chapter 1: So You Want to Be a Day Trader 7
Defining Day Trading: It’s All in a Day’s Work 8
Committing to Trading As a Business 11
Identifying the Personality Traits of Successful Day Traders 13
Seeing What Day Trading Is Not 15
Chapter 2: Introducing the Financial Markets 19
Having a Firm Grasp How Markets Work 20
Opening an Account and Placing an Order 24
Defining the Principles of Successful Day Trading 25
Understanding Risk and Return 27
Differentiating Trading, Investing, and Gambling 34
Managing the Risks of Day Trading 37
Chapter 3: Assets 101: Stocks, Bonds, Currencies, and Commodities 39
Grasping the Different Things to Trade 39
Defining a Good Day Trading Asset 40
Taking a Closer Look at Stocks 46
Examining Bonds 52
Cashing In with Currency 55
Considering Commodities and How They Trade 56
Chapter 4: Assets 102: ETFs, Cryptocurrency, Options, and Derivatives 59
Explaining Exchange-Traded Funds (ETFs) in Plain English 60
Getting Familiar with Cryptocurrency 64
Dealing in Derivatives 69
Comprehending Arbitrage and the Law of One Price 74
Chapter 5: Increasing Risk and Potential Return with Short Selling and Leverage 79
Understanding the Magic of Margin 80
The Switch-Up of Short Selling 84
Leveraging All Kinds of Accounts 87
Borrowing in Your Trading Business 91
Assessing Risks and Returns from Short Selling and Leverage 93
Chapter 6: Managing Your Money and Positions 95
Setting Your Earnings Expectations 96
Gaining Advantage with a Money-Management Plan 99
Examining Styles of Money Management 101
Seeing How Money Management Affects Your Return 106
Planning for Your Profits 108
Chapter 7: Planning Your Trades and Trading Your Plans 111
Starting to Plan Your Trades: Just the Basics, Please 112
Closing Out Your Position 122
Maxims and Clichés That Guide and Mislead Traders 123
Part 2: Developing Your Trading Strategy 129
Chapter 8: Picture This: Technical Analysis 131
Comparing Research Techniques Used in Day Trading 132
Using Technical Analysis 136
Reading the Charts 143
Considering Different Approaches to Technical Analysis 148
Avoiding Technical-Analysis Pitfalls 150
Chapter 9: Following Market Indicators and Tried-and-True Day Trading Strategies 153
Psyching Out the Markets 154
Taking the Temperature of the Market 156
Measuring Money Flows 163
Considering Information That Crops Up during the Trading Day 166
Identifying Anomalies and Traps 169
Chapter 10: Eliminating Emotion with Program Trading 173
Creating Your Own Trading Program 174
Programming, the Day Trading Way 175
Backtesting Once, Backtesting Twice 177
Building on Some Standard Strategies 177
Arbitraging for Fun and Profit 179
Scalping, the Dangerous Game 182
Understanding Risk Arbitrage and Its Tools 183
Examining Arbitrage Strategies 186
Being Aware of Those Pesky Transaction Costs 191
Chapter 11: Day Trading for Investors 193
Recognizing What Investors Can Glean from Traders 193
Applying Momentum 199
When an Investor Considers Trading 203
Chapter 12: Researching Research Services 205
Understanding the Trade of Trading 206
Getting the Research You Need 212
Doing Your Due Diligence 218
Chapter 13: Determining Your Profit and Your Profit Potential 223
Before You Trade: Testing Your System 223
During the Day: Tracking Your Trades 230
Setting up your spreadsheet 230
Pulling everything into a profit and loss statement 230
Keeping a trading diary 232
After You Trade: Calculating Overall Performance 233
Reviewing types of return 234
Calculating returns 234
Determining the risk to your return 239
Using benchmarks to evaluate your performance 241
Part 3: Day Trading, Incorporated 243
Chapter 14: Setting Up Your Day Trading Like a Business 245
Planning Your Trading Business 246
Setting Up Your Trading Laboratory 249
Getting Mobile with the Markets 252
Controlling Your Emotions 253
Chapter 15: Your Key Vendor: Your Broker 261
Choosing a Brokerage 261
Discussing Brokers for Day Traders 266
Being Aware of Brokerage Scams 273
Chapter 16: Regulation Right Now 275
Looking Back on the Road to Regulations 276
Reviewing the Regulators 277
Working with Brokers’ Rules 284
Watching Out for Insider Trading 287
Preparing for Rule Changes in Crisis Conditions 289
Taking on Partners 290
Chapter 17: Taxes for Day Traders 291
Getting the Lay of the Land: What You Need to Know Based on What You Trade 292
Hiring a Tax Adviser 295
Doing Your Taxes Yourself 297
Identifying Income Categories You Need to Know 298
Tracking Your Investment Expenses 302
Top Secret Tax Information for IRS-Qualified Traders Only 307
Discussing Other Important Tax Info: Forms and Deadlines 308
Using Self-Directed IRAs 309
Part 4: The Part of Tens 311
Chapter 18: Ten Good Reasons to Day Trade 313
You Love Being Independent 313
You Want to Work Anywhere You Like 314
You’re Comfortable with Technology 314
You Want to Eat What You Kill 315
You Love the Markets 315
You Have Market Experience 315
You’ve Studied Trading Systems and Know What Works for You 316
You’re Decisive and Persistent 316
You Can Afford to Lose Money 317
You Have a Support System 318
Chapter 19: Ten (or So) Good Reasons to Avoid Day Trading 319
You Want to Discover Investing by Day Trading 320
You Love Fundamental Research 320
You’re Short on Time and Capital 321
You Like Working As Part of a Group 321
You Can’t Be Bothered with the Details of Running a Business 321
You Crave Excitement 322
You’re Impulsive 322
You Love Going to the Casino 323
You Have Trouble Setting Boundaries 323
You Want to Get Rich Quick 324
The Guy on YouTube Said It Would Work 324
Chapter 20: Ten Common Day Trading Mistakes 325
Starting with Unrealistic Expectations 325
Beginning without a Business and Trading Plan 326
Ignoring Cash Management 327
Failing to Manage Risk 327
Not Committing the Time and Money to Do It Right 328
Chasing the Herd 328
Switching between Research Systems 329
Overtrading 329
Sticking Too Long with Losing Trades .330
Getting Too Emotionally Involved 330
Chapter 21: Ten Tested Money-Management Techniques 331
Taking Money off the Table 332
Using Stops 332
Applying Gann’s 10 Percent Rule 332
Limiting Your Losses with the Fixed Fractional System 333
Increasing Returns with the Fixed-Ratio System 333
Following the Kelly Criterion Formula 334
Figuring the Amount to Trade with Optimal F 334
Measuring Risk and Sizing Trades with Monte Carlo Simulation 335
Taking a Risk with the Martingale System 335
Throwing It to the Fates 336
Appendix: Additional Resources For Day Traders 337
Index 343
