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Complete Guide to Day Trading PDF

273 Pages·2010·2.48 MB·English
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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 Re ward...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 ay trading can be simple, but don’t make the mistake of think ing D 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 X

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