THE COMPLETE GUIDE TO DAY TRADING - Alfa Alliance

273 Pages·2010·2.4 MB·English

THE COMPLETE
GUIDE TO DAY
TRADING
A Practical Manual
From A Professional Day Trading Coach
Markus Heitkoetter
The opinions expressed in this manuscript are solely the opinions of the author and do not represent
the opinions or thoughts of the publisher. The author represents and warrants that s/he either owns
or has the legal right to publish all material in this book.
The Complete Guide to Day Trading
A Practical Manual From A Professional Day Trading Coach
All Rights Reserved.
Copyright © 2008 Markus Heitkoetter
V1.0
Edited by Nicole Quinlan
This book may not be reproduced, transmitted, or stored in whole or in part by any means, including
graphic, electronic, or mechanical without the express written consent of the publisher except in the
case of brief quotations embodied in critical articles and reviews.
ISBN: 978-1-4196-9563-6
PRINTED IN THE UNITED STATES OF AMERICA
To my family -
for supporting me even in my craziest moments.
Table of Contents
PREFACE.........................................................................................................VIII
INTRODUCTION: WHY DAY TRADING?...................................................................XI
HOW TO GET THE MOST OUT OF THIS BOOK.....................................................XVII
PART 1:
DAY TRADING BASICS – WHAT YOU SHOULD KNOW.........................1
WHAT IS DAY TRADING?.......................................................................................2
WHO SHOULD BE DAY TRADING?..........................................................................4
IS IT REALLY POSSIBLE TO MAKE A LIVING AS A DAY TRADER?................................8
HOW TO GET STARTED - DEFINE YOUR GOALS AND MAKE A PLAN..........................15
1.) Define Your SMART Goal...................................................................16
2.) Make a Plan........................................................................................17
3.) Execute the Plan..................................................................................18
HOW MUCH MONEY DO YOU NEED TO GET STARTED?..........................................21
DETERMINING YOUR RISK TOLERANCE..................................................................24
WHAT YOU NEED TO BEGIN TRADING...................................................................26
A Computer................................................................................................26
An Internet Connection.............................................................................27
A Charting Software..................................................................................27
A Broker.....................................................................................................36
A Properly Funded Trading Account.........................................................39
A Trading Strategy.....................................................................................40
PART 2:
YOUR TRADING STRATEGY –
THE CORNERSTONE TO YOUR TRADING SUCCESS..........................43
HOW TO DEVELOP YOUR OWN PROFITABLE DAY TRADING STRATEGY.......................44
STEP 1: SELECTING A MARKET.............................................................................45
Trading Stocks...........................................................................................46
Trading Forex............................................................................................51
Trading Futures.........................................................................................59
Trading Stock Options...............................................................................74
STEP 2: SELECTING A TIMEFRAME.........................................................................78
STEP 3: SELECTING A TRADING APPROACH.............................................................80
Fundamental Analysis...............................................................................80
Technical Analysis.....................................................................................83
Day Trading Charts...................................................................................86
Technical Indicators..................................................................................96
Popular Trading Approaches..................................................................128
STEP 4: DEFINING ENTRY POINTS.......................................................................141
STEP 5: DEFINING EXIT POINTS..........................................................................142
Stop Losses..............................................................................................143
Profit-Taking Exits...................................................................................151
Trailing Stops..........................................................................................158
Taking Partial Profits..............................................................................160
Time-Stops...............................................................................................160
STEP 6: EVALUATING YOUR STRATEGY................................................................162
How to Read and Understand a Performance Report............................167
STEP 7: IMPROVING YOUR STRATEGY..................................................................173
THE 10 POWER PRINCIPLES – MAKING SURE THAT YOUR TRADING PLAN WORKS...181
Principle #1: Use Few Rules – Make It Easy to Understand..................182
Principle #2: Trade Electronic and Liquid Markets...............................183
Principle #3: Have Realistic Expectations..............................................183
Principle #4: Maintain a Healthy Balance Between Risk and Reward...184
Principle #5: Find a System That Produces at Least Five Trades per Week
.................................................................................................................185
Principle #6: Start Small – Grow Big.....................................................185
Principle #7: Automate Your Exits..........................................................187
Principle #8: Have a High Percentage of Winning Trades.....................188
Principle #9: Test Your Strategy on at Least 200 Trades........................188
Principle #10: Choose a Valid Back-Testing Period...............................189
PART 3:
THE SECRETS TO DAY TRADING SUCCESS.........................................192
THERE’S MORE TO TRADING THAN JUST HAVING A STRATEGY...............................193
THE SEVEN MISTAKES OF TRADERS AND HOW TO AVOID THEM..............................197
Mistake #1: Struggling To Identify the Direction of the Market.............200
Mistake #2: Not Taking Profits................................................................201
Mistake #3: Not Limiting Your Losses.....................................................202
Mistake #4: Trading the Wrong Market..................................................203
Mistake #5: Lack of a Trading Strategy..................................................204
Mistake #6: Not Controlling Your Emotions...........................................205
Mistake #7: Overtrading.........................................................................206
THE TRADER’S PSYCHE.....................................................................................208
THE THREE “SECRETS” TO DAY TRADING SUCCESS...............................................214
THE TENETS OF DAY TRADING...........................................................................217
HOW TO START TRADING WITHOUT RISKING A SINGLE PENNY...............................221
BONUS MATERIALS....................................................................................226
APPENDICES..................................................................................................227
APPENDIX A – TRADING PLAN TEMPLATE............................................................228
V
APPENDIX B –
BROKER CHECKLIST..........................................................................................231
APPENDIX C –
ADDITIONAL RESOURCES....................................................................................232
APPENDIX D – READING RESOURCES...................................................................234
APPENDIX E – GLOSSARY..................................................................................238
APPENDIX F –
ABOUT MARKUS HEITKOETTER...........................................................................252
APPENDIX G –
COACHING PROGRAMS.......................................................................................254

Preface
D
ay trading can be simple, but don’t make the mistake of thinking
that it’s easy.
I know that there are many websites and late-night infomercials that try
to tell you differently. They make you think that you just have to read a
few pages or attend an online class, and then, magically, you’ll become a
successful trader.
Don’t be fooled.
Like in any other profession, you need a solid education before you get
started. After all, the goal is to make more money than a lawyer or a
doctor, but many aspiring traders expect to learn everything they need to
know from an eBook that they might get somewhere on the Internet,
most likely for free. And how could a small amount of free information
teach you to make more money than people who have gone to school for
years and years?
Right, the answer is: it can’t.
Some aspiring traders think they don’t have to learn a single thing. They
believe that they can buy a “magic system” or “XXX software” that will
place their trades for them and make them rich while they sleep. Or they
rely on the advice of some “guru” for their trading decisions, blindly
following his recommendations without knowing anything about the
markets.
I’m glad you’re different.
VIII
Preface
You picked up this book because you’re serious about becoming a suc-
cessful day trader. And, by reading this book, that’s exactly what you’ll
learn how to do.
WARNING: Be aware, though, that just reading this book will NOT
automatically make you an instant millionaire. You’ll learn a lot of facts
and concepts about day trading, but in order to make the most out of this
book and become the trader you want to be, you’ll have to adapt the
ideas that you’re about to learn to what you already KNOW.
Socrates said that “Learning is remembering.”
And Richard Saul Wurman says:
“Facts in themselves don't solve the problem. Facts are only
meaningful as they relate to a concept you can grasp … New
ideas are not so much discovered as uncovered by moving from
what you already understand into the realm of what you would
like to understand.”
Source: Information Anxiety, by Richard Saul Wurman, 1989
Let me give you an example:
I moved from Germany to the U.S. in 2001, and one of my first “tasks”
here was buying a house. It should have been no problem – I mean, we
do have houses in Germany. It’s basically the same process, right?
Right – but where I come from, we measure in meters and kilometers.
So, you can just imagine my confusion when my realtor started describ -
ing lot sizes in quarter-acre, half-acre, etc. What the heck? How big is an
acre?
Of course, I didn’t want to ask – no one likes to seem ignorant – but I
looked it up. An acre is 43,560 square feet. Great. That didn’t really help
me. Now I knew the exact measurements, but I still couldn’t picture the
exact size of “an acre” in my head. I had no frame of reference.
But, I have it now. A friend of mine told me that an acre is about the size
of an American football field without the end zones.
IX
The Complete Guide to Day Trading
Poof. Understanding. A frame of reference.
The same is true in trading. You might already know many of the con-
cepts presented in this book (e.g. that you should use a stop loss). And
there might be some concepts that are new to you (e.g. using a time-stop
when exiting a trade).
But don’t worry: I’ll present all of these concepts in a very practical way.
You’ll be getting a great deal of examples and scenarios to look at – this
entire book is about you getting that “grasp” on trading that you’ll need.
And by the last page, you’ll have it.
Remember Socrates: “Learning is remembering.”
My Objective: I am determined that this book will save you
both money and time when it comes to your trading goals.
I’m convinced that it will help you become the trader you
want to be.
Enjoy!
Markus Heitkoetter
January 2008
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