Day Trading for Dummies

Please be advised that any information contained in this page, like all content on aussiedaytrader.com.au is general information only and should not be considered financial advice. For information about getting advice from a licensed adviser please refer to ASIC’s consumer website, which you can find here: http://www.fido.gov.au/

What is Day Trading?

According with Wikipedia definition : Day Trading is speculation in securities, specifically buying and selling financial instruments within the same trading day, such that all positions are usually closed before the market close for the trading day. Traders who participate in day trading are called active traders or day traders. Traders who trade in this capacity with the motive of profit assume the capital markets’ role of speculator.

AussieDayTrader.com.au is containing information related to the day-traded financial instruments such as stocks, options, futures and CFD (equity and future).

Day trading was once an activity that was exclusive to financial firms and professional speculators. Many day traders are employed by banks or investment firms. However, with the advent of electronic trading, day trading has become increasingly popular.

In Australia, according with various source there are two main age groups of day traders: 25-30 year olds with surplus cash and retirees who look after their own retirement funds.

Where do I begin learning?

  • Begin learning basic trading concepts by reading online forums, online content articles and e-books. These sources will mostly offer generic details regarding share trading, jargon used in trading, basic technical analysis and charting information. A few may delve into particular techniques, but usually you will need to pay for this type of details.

Some useful links to get you started in your  learning journey:

http://www.investopedia.com/articles/

https://au.finance.yahoo.com/

http://www.asx.com.au/education/first-time-investors.htm

http://money.cnn.com/

http://www.afr.com/

http://www.bloomberg.com/

 

  • Join a few forums that are designed towards trading ASX  instruments and post any question you may have. Generally by browsing through the discussions and older posts you might discover the answers to your problems on just about anything related to trading. If you can’t discover the answer you can just submit the problem yourself and get a relatively quick response. Forum posts offer a wealth of information because traders who are earning money often offer assistance to newcomers.
  • Go to Amazon Books or a local bookshop and purchase a few books and guides on the subject.  Two books I strongly recommend to any trader, beginner or experienced are: Come Into My trading Room: A Complete Guide to Trading  by Alexander Elders  and Trading in the Zone: Master the Market with Confidence Discipline and a Winning Attitude by Mark Douglas
  • Subscribe to updates from various websites and read their comments consistently. Some lessons will be designed toward the use of their product or platform and not totally focused on how to trade ASX instruments  however these can be useful when it comes time for you to make a decision about what to trade.
  • Have a mentor. If you do not know someone locally who actively trade ASX, use the forums or other internet venues like Facebook or LinkedIn to request help
  • Attend ASX trading courses and seminars or similar sessions organised by various brokers . Some of these may be totally free but others might charge you a fee. Although some of fees can be very expensive, most are very good about teaching the basics as well as advanced techniques. Many of these programs have excellent support systems which have people that will walk you through your positions
  • Chart Analysis: Familiarise yourself with Technical analysis (TA). This is the basis of my approach to trading. Having a background in Sciences, I only feel comfortable with data that can be measured, calculated, verified, and normalised. I recommend that all ‘newbies’ concentrate on TA and make it the basis of their trading. It is not even necessary to know ALL the TA methods, indicators, and systems. Start with a few simple rules; get to know their strong points and their limitations; never stop learning, but stop complicating things once they work to your satisfaction.
  • Fundamental analysis : Learn how to understand basic concept such as Financial Statements, Balance Sheets, P/E ratios and cashflow. Also research on data like dividends paid and due to be paid, ex-div dates, number of shares and company options on issue, etc.

Make a Trading Plan

Day trading requires you to be self-directed and disciplined. While not all day traders are alike, the one thing they all have in common is a strategy or trading plan. The nature of these strategies can vary significantly in terms of risk, assessment techniques, size and even types of investments traded.

Some traders have a simple plan based on lessons learned while others are documented detailed plans based on technical triggers.

Some ideas to use for your trading plan:

  • Identify stocks that have a high probability of breaking to the upside or downside
  • Calculate the start position size in such a way that a failure to perform does not hurt more than you can afford
  • Estimate a target zone and in the same time keep a close eye on the stock
  • Have the unemotional mind to realise signs of reversal, and the discipline to stop out in time
  • Don’t lose sight of the individual properties of a stock – its “DNA” – and the specific price and time range that I bought it for

Open a Demo account

Probably the best way to learn trading is to try it by either:

– paper trade

– open  free demo account with a broker

– play ASX  Sharemarket Game

If you want to be as close to reality as you can be without risking your cash then a demo account will allow you to trade with virtual money but using actual real quotes for prices.  There is no better way to discover than by trying it out using actual techniques, but without any financial risk. Once you have been consistently  profitable in the demo account and have gained some confidence in trading you can then apply the same winning techniques to a real trading account.

“Tell me and I forget, teach me and I may remember, involve me and I learn.” – Benjamin Franklin

So be prepared to spend the TIME and MONEY required for education in understanding concepts and building a trading system to give you confidence.