Peter process 11181833

Here is my next step involving basics regarding your account and parameters for trading each day. 

1) Your account needs to trade on margin and have an account in which you can short stocks. Without these basics, it is hard to day trade successfully because you can't afford to wait for a sale to settle (3 days later) and you want to trade stocks moving down if the market is trending that way, respectively. To use margin you need a minimum of $25,000 or more on account. This will allow for 4 times the purchasing power. So $25,000 will allow for $100,000.

2) Using the $100,000 noted above as an example, you only want to trade 10% at one time. This would be $10,000. This is critical so you don't over commit and have a problem if things go wrong. You can always use more but I would not exceed 25% at any one time under any circumstances; otherwise, you will be putting yourself in jeopardy if a trade tanks. 

3) On any given day you need to establish "hard" stops in trading. I use a 2%/7.5% rule. This means if I lose 2% of my account capital (2% x $25,000 or $500) or gain 7.5% of my account capital (7.5% x $25,000 or $1,875), I STOP TRADING and close TC2000 and my browser and walk away.

4) All trades are sold by the end of the day no matter what. I prefer selling out by 11:30a or 1p at the latest as liquidity dry up as the day gets long. I always remember HB commenting that traders want to wind things up before they go to lunch. Granted they all come back by 2p, and, at times, there are good trades from then until 4p, but not as good as in the morning.

5) One trade at a time. Remember, you are 1 person in front of 1 computer (regardless of the # of monitors) and can only focus 100% to 1 thing. Yes, I'm sure you can do 2 things too, but remember with day trading, you want to stay focused and not assume or leave something to chance.

6) Need to get your computer screen set up for efficient trading. I have TC2000 Premium on 75% and browser with Fidelity on 25% will tabs set to my account and orders. Having 2 monitors would be better but I had 3 at one time and it was overloading me. Make sure you have what you need without overdoing it. For day trading, in my opinion, less is more so you are not as easily distracted.

7) Think in terms of liquidity. This is key. You can buy 1,000 shares of $10 stock for $10,000 versus 100 shares of $100 stock. I limit my stocks to $10 to $35 and have, on occasion, purchased higher priced stocks. Think of it this way: 25 cents on 1000 shares is $250 versus $2 on 100 shares being $200.

8) Preserve capital. Everyone hates making a bad trade including me but if you cut your losses, you will end up with more in the end on an aggregate basis. How many times have you been "married" to a stock you picked and despite what you see technically, you hold it as it is going down (long trade) and then find yourself hoping it will break even. Not good. This is a missed opportunity to use the same capital on another trade for profit. And, like it or not, the farther down it goes, the longer, if you are lucky, it will take to get even.

9) Never buy more share on a failing trade. This is called "averaging down". Do not do it. It goes hand in hand with the old saying, "throwing good after something bad". You will lose more. Trust me, I was guilty of this when I first started trading and it cost me.

10) Learn to peel off on a successful trade. Sell 50% then 25% then 25% as the stock improves in price while moving your stops accordingly. I do not do this all of the time but I do use it in volatile markets to ensure I take my profit. Think of it this way ... if you can make $500 peeling off isn't that better than waiting, getting caught in a reversal, then hoping it breaks even, and, when it is close to breaking even (after you most likely have wasted hours waiting), you then sell to break even because of desperation.

Next segment, tomorrow, I will give you specific things to do to compile a watch list each day that is easier than you would think.