Day Trading 101
Everyone wants a shortcut to learn day trading or any other kind of short term trading - someone to teach them the “secret sauce” that will take 10-20 years of experience and allow them to come up to speed in a few months. If you needed brain surgery, would you want the guy who got his degree online in 6 months OR the guy who spent 10+ years in med school + residency + specialization? Is that even a fair question?? Well, lucky for you trading is harder than brain surgery… well it can seem like it at least. In reality there are some easy things everyone can do to dramatically increase the chances of winning and decrease the learning curve - but do not expect a single, easy secret that will solve all the issues and make it easy. That is learned. The one huge key to the path of winning is simply to do things that will not cause you to lose money.
First off, you really need to treat day trading as a profession. This means act like its a real job and your only way to make money. You will need a dedicated computer for trading only, with 2 monitors - a single monitor cannot show enough data. Older computers are fine for some things, but do not try to use an older computer that is underpowered for trading. I can assure you that computer will fall behind of the task. There is nothing worse than data that falls behind (lagging) as you cannot tell where price is actually at. Trading is super data intensive, make sure you have a computer with at least the following specs:
1. A minimum dual core chip, ideally you want a quad core chip. Each core can run a separate app, really lessens the chance that the computer will stall out. Make sure the processor you choose has a decent amount of L2 cache also - this increases speed as well. if you are not aware of what this is, ask a local computer expert to help you.
2. A minimum of 2gb memory, the more the better. If you want more than 4gb you will have to use a 64 bit operating system. Before you take this step, make sure whatever software you are using is fully compatible. As far as memory goes, you should be fine with 2-4gb. The faster the memory the better, but no need to really pay up for special memory.
3. An add on graphics card from Nvidia OR AMD. Make sure the card can handle at least 2 monitors. You do not need a high end gaming card, you should be able to get something decent for about 100-150 bucks easy. Do not use thebuilt in graphics on the motherboard - they are really cheaply made and are underpowered. Running real time charts and quotes is very graphics intensive - there are hundreds, and sometimes thousands of things that need to be presented in real time.
You only need this on the main computer you will be trading on and doing your charting. You want 1 dedicated screen for order entry and 1 screen for charting. If you have older computers, those are fine to use for surfing the net, checking news, IM chat and other stuff. Once your trading computer is setup, you should keep it uncluttered with other applications - install those on another computer. You do not want to be in the unfortunate predicament of the computer crashing or locking up during a trade.
You need a dedicated work area that will serve as your trading area and workplace. It should be setup like you would a desk in an office - phone, light, supplies, computers etc. In order to succeed at trading, you have to treat it as a real business, not as a hobby or whim or a way to get your gambling fix. A hobby is fine, but you cannot expect to become an expert unless you treat it seriously. When you are concentrating on trading, do not let outside influences distract you. This means you need to really pay attention, do not chat with friends or watch tv shows and kind of "glance" at the market. If this type of behavior would not be acceptible in a normal office, it will not cut it for trading either.
Once your office is setup, you really need to get serious about learning how the market works. The internet and free blogs are a great source of information, but you should not expect to learn everything online. Go to amazon.com.or other sites like Trader's Galleria - search for the term "charts" or "stock charts". You want a beginning book and an advanced book on charting. To learn to trade you have to understand the mechanics of how price moves, which means you have to learn to be an expert at charting. This can and will take some amount of time, and is not easy. But as you get more proficient, it becomes much easier to add new ideas and concepts because you have the background framework to understand them.
Expect learning charts to take about a year to get good, but in a month or 2 you can get a good start. Again, do not fall into the trap of thinking “if I throw some money at this, someone will show me secrets and shortcuts”. If you don’t have the background to understand, no amount of shortcuts will help you at all because you have no clue about how or why something might work or not work. One word of caution - do not attend any seminars until you have at least mastered basic charting - your money and time will be wasted. IF you think you know enough to tackle the advanced book, then it is probably time to attend a seminar to learn more. Again here there is no substitute for experience. You will need to watch the markets every day, even if its just for an hour or 2 (until you decide its a career move you can make).
Static charts are fine to go over when the market is closed, but you really need to watch it live as well. If your time is impacted because you have another full time job and cannot watch the market here is a secret: Get some screen capture video software (records your screen to video) and an external usb hard drive, probably 500gb will do. Open your charting program, log it on and set up a few real time charts on the screen before you go to work. Set up the software you are going to use for recording to save to the external usb hard drive. You can set up a macro (there are free programs out there that can do this, search Google) if you are not home when the market opens. Set i to record at least an hour of video of the market open and any charts you have open. At night you can then replay this recording in real time (or even speed up time) and watch for chart patterns to learn from. If this does not appeal to you, some of the brokerage firms or data vendors have market replay that can replay parts of the prior day for you.
I have not touched on one last thing - charting software. There are tons of them out there. I have my own preferences I like, but that hardly matters. You need to find what you are comfortable with. Some are very complicated and programmable, some are simpler and don’t have as many bells and whistles. From the start, I would suggest that most people go with simple. What good is having 500 things you have no clue what they do or how they work?? All that can do is to lead to confusion and add a bunch of things that are too complicated. Just make sure its a fully robust charting package - meaning all charts are live, you can put tick charts AND minute based charts up (not delayed data, live data) AND its not web based. By web based, I mean it runs in a browser rather than a dedicated, loadable program. You want a separate, installed program - they are by far more stable, and faster by leaps and bounds for the most part. You do not want web based order entry (browser) for active trading, its just too slow - you need real time profit and loss and the ability to watch positions in real time. It is simply too slow and delayed to be of much use. Web based is totally fine for buy and hold, longer term investing. Winning at trading is about time, even 5 seconds delay can cost you 50c or more per share in lost profit if the market is moving fast. That cost is real and can result in a winner turning into a loser.
While this was not a tutorial on how to trade, I tried to touch on a few subjects often overlooked when people are trying to learn to trade. They overlook these because they either cost money (charting software, real time data, computers) or they think they take too much time so lets find a way to skip this or that part.
Some costs of doing business are fixed costs and must be bourne in order to be in business. Data costs and chart program costs are one of many costs you will incur as a trader. Often you can get them minimized or waived if you are active, but for probably the first year expect to pay for them as you are learning.