| Day traders - the elite of market participants, who | | | | difficult' and 'impossible' are not the same thing, so |
| buy and sell stocks, options, commodities or | | | | you may want to explore this avenue before |
| currencies quickly throughout the market day, aiming | | | | rejecting it. |
| for fast and regular profits. To these fast guns, | | | | 2) News shock. Almost every stock traded on the |
| reliable day trading signals are their business' lifeblood. | | | | American bourses has a number of people following |
| How does the successful day trader generate his or | | | | its every up and down move. People who follow and |
| her signals? It probably won't come as a surprise that | | | | intimately understand the operations of the company |
| there are as many different approaches to | | | | that issued the stock. These people - mutual fund |
| generating these trading alerts as there are day | | | | and hedge fund managers, pension fund managers, |
| traders. The same is true when looking at swing | | | | and amateur traders - have spent a significant |
| trading signals or other systems for entering and | | | | amount of time getting a handle on exactly what |
| exiting positions, but many strategies which produce | | | | kind of results to expect from that company and its |
| strong options trading signals, currency trading signals, | | | | management. And every day at least some of those |
| or stock market signals will be completely useless to | | | | people get a really BIG surprise. An unexpected law |
| the day trader. | | | | suit... better than hoped for results in a drug trial... one |
| Most notably, fundamental analysis of companies and | | | | company buying another... every day, a handful of |
| their stocks is almost entirely useless to the day | | | | companies will report something that completely |
| trader. When it works at all, FA focuses on large | | | | changes how the market looks at their shares. |
| issues (balance sheets, imbalances in macro-economic | | | | The alert day trader, with the proper broker and |
| forces, or changes in consumer trends) which take | | | | equipment, can identify and take advantage of these |
| months or years to play out. From that perspective, | | | | systemic shocks. Upon finding a stock whose |
| price action which takes place over the course of | | | | normally placid shares suddenly sky-rocket or go into |
| minutes or hours is nothing but noise and FA offers | | | | a tail spin, the nimble day trader can jump on board |
| no insight into how to enter or exit a trade of such | | | | the action and ride it until a new balance point is |
| short duration. | | | | discovered by market activity. This kind of trading is |
| Setting aside the glacial pace of fundamental forces, | | | | very exciting - and as such, it's a bit dangerous: the |
| how can we identify upcoming moves in a stock | | | | market participant who uses this activity as a |
| which will provide real profit potential? There are | | | | surrogate for a trip to Las Vegas will certainly have |
| three tried-and-true angles we can approach this | | | | some fun, but will also almost as certainly lose a lot |
| from: | | | | of capital. Don't trade this way unless you have a |
| 1) Structural scalping. In his book, "Day Trade Online", | | | | solid sense of your own motivation and that it does |
| Christopher Farrell did a good job of talking about this | | | | NOT include going for a thrill ride. |
| approach. Here, the day trader is NOT trying to | | | | 3) Technical Analysis. This will be the most familiar to |
| forecast stock movement; in fact, he spends a lot of | | | | the typical trader looking into day trading. All the usual |
| time showing readers how to AVOID stocks that | | | | favorites can be employed here: moving averages, |
| move a lot! In place of stock movement, this group | | | | MACD, RSI, ADX, etc. You name it - if it is an |
| of traders look for stocks with a healthy bid/ask | | | | indicator which can be shown as a line or a bar on a |
| spread and use that room to buy low and sell high. | | | | chart, day traders will use it to issue trade alerts. |
| True, high and low are only separated by a few | | | | When day trading, technical analysis can be used in |
| pennies, but when trading thousands of shares at a | | | | much the same way swing traders or longer term |
| time, this can add up. Unfortunately, there have been | | | | technical traders take advantage of it. The primary |
| a number of changes in the market place which | | | | difference is in the amount of noise an individual |
| make scalping much more difficult than when Farrell | | | | stock can exhibit in a day - protective stops will get |
| published his book: moving from eighths and | | | | hit much more frequently. The successful technical |
| sixteenths to pennies, and greater liquidity driving bid | | | | day trader will need an overall plan which accounts |
| and ask closer together are two examples of how | | | | for this and uses it to his/her advantage. |
| this has become more difficult. However, 'more | | | | |