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The Complete Guide to Day Trading

The Complete Guide to Day Trading

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Published by vantagev12

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Published by: vantagev12 on Jul 23, 2011
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  • Introduction: Why Day Trading?
  • Part 1: Day Trading Basics – What You Should Know
  • What Is Day Trading?
  • Who Should Be Day Trading?
  • Is It Really Possible to Make a Living As a Day Trader?
  • How to Get Started - Define Your Goals and Make a Plan
  • 1.) Define Your SMART Goal
  • 2.) Make a Plan
  • 3.) Execute the Plan
  • How Much Money Do You Need to Get Started?
  • Determining Your Risk Tolerance
  • What You Need to Begin Trading
  • A Computer
  • An Internet Connection
  • A Charting Software
  • A Broker
  • A Properly Funded Trading Account
  • A Trading Strategy
  • How to Develop Your Own Profitable Day Trading Strategy
  • Step 1: Selecting a Market
  • Trading Stocks
  • Trading Forex
  • Trading Futures
  • Trading Stock Options
  • Step 2: Selecting a Timeframe
  • Step 3: Selecting a Trading Approach
  • Fundamental Analysis
  • Technical Analysis
  • Day Trading Charts
  • Technical Indicators
  • Popular Trading Approaches
  • Step 4: Defining Entry Points
  • Step 5: Defining Exit Points
  • Stop Losses
  • Profit-Taking Exits
  • Trailing Stops
  • Taking Partial Profits
  • Time-Stops
  • Step 6: Evaluating Your Strategy
  • How to Read and Understand a Performance Report
  • Step 7: Improving Your Strategy
  • The 10 Power Principles – Making Sure That Your Trading Plan Works
  • Principle #1: Use Few Rules – Make It Easy to Understand
  • Principle #2: Trade Electronic and Liquid Markets
  • Principle #3: Have Realistic Expectations
  • Principle #4: Maintain a Healthy Balance Between Risk and Re ward
  • Principle #6: Start Small – Grow Big
  • Principle #7: Automate Your Exits
  • Principle #8: Have a High Percentage of Winning Trades
  • Principle #9: Test Your Strategy on at Least 200 Trades
  • Principle #10: Choose a Valid Back-Testing Period
  • There’s More To Trading Than Just Having a Strategy
  • The Seven Mistakes of Traders and How to Avoid Them
  • Mistake #1: Struggling To Identify the Direction of the Market
  • Mistake #2: Not Taking Profits
  • Mistake #3: Not Limiting Your Losses
  • Mistake #4: Trading the Wrong Market
  • Mistake #5: Lack of a Trading Strategy
  • Mistake #6: Not Controlling Your Emotions
  • Mistake #7: Overtrading
  • The Trader’s Psyche
  • The Three “Secrets” to Day Trading Success
  • Here are the three “Secrets” to Day Trading Success
  • The Tenets of Day Trading
  • How to Start Trading Without Risking a Single Penny
  • Bonus Materials
  • Appendices
  • Appendix A – Trading Plan Template
  • Appendix D – Reading Resources
  • Appendix E – Glossary

o, let’s examine why traders fail. If you know the pitfalls of trad-
ing, then it becomes easier to avoid them. In this chapter, we’ll
talk about the mistakes that traders make and how you can avoid



First off, there are two types of mistakes that a trader can make:

The small ones
The big ones

Yes, you’ll definitely make small mistakes along the way – I guarantee it.
You might buy a security when you intended to sell it, simply because
you pushed the wrong button. Or maybe you’ll buy the wrong stock, just
because there’s a typo when you enter the symbol. Another possibility is
placing the wrong order because you enter a buy order at $213.5 instead
of $21.35. These types of things have happened to all of us.

They’re small mistakes, and they’re “forgivable.” With a little bit of luck,
you might even be able to profit from them.

However, there are big mistakes that you absolutely MUST avoid if
you’re going to be a successful trader.


The Complete Guide to Day Trading

For instance, one of the biggest trading mistakes that you could ever
make is to try to learn and understand everything about trading…and
then never actually START to trade.

I know many aspiring traders who have read countless books, have de-
veloped dozens of trading strategies, and who have analyzed a number of
markets; but they’ve failed to pull the trigger when it comes to real trad-
ing. As you know, part of your education is your knowledge and your
experience. If you want to make money with trading, then eventually you
have to take the plunge and get started.

Yes, I know: there’s a chance of losing some money. That’s true. When
you trade, you're taking a risk. (If you want to know how to start trading
without risking any of your own money, please read the chapter “How to
Start Trading Without Risking a Single Penny,” on page 235).

What Exactly Is “Risk?”

Risk means “not having control.”

Example: If you’re driving a car on the highway, then you're at risk. It’s
as simple as that. But, thankfully, there are certain things we can do to
control that risk:

All motorists are required to have a formal education and success-
fully test their driving skills before they are allowed to drive a car.
This qualification process is called getting a driver’s license.

Cars are equipped with certain security features, such as seat belts,
airbags, anti-brake systems, and – let’s not forget – a steering wheel,
which enables you to navigate around obstacles in your path.

When you’re new to driving, you usually practice with another per-
son (e.g. your parent) in an empty parking lot BEFORE hitting the
road. You start driving at 10 mph, and then, as you grow more com-
fortable, you can slowly increase the speed. When you’re confident
in your abilities, you’ll most likely leave the parking lot for the open
road (but let’s not move too fast – probably a country road, with no


The Seven Mistakes of Traders and How to Avoid Them

All of these things help you control the risk when it comes to driving.
You’ll never be able to eliminate the risk completely, but you can take
appropriate action to reduce it.

The same principles apply in trading:

You should have a formal education and prove your skills before you
start to trade. Unfortunately, there are no tests required before you
can open a brokerage account, but you should take the time to learn
about the markets and develop a strategy before you “hit the open

When trading, you can also apply certain “security features.” Two of
the most important are having a trading strategy and using stop

When you’re new to trading, you should paper trade first (see page
235). Then, after you’ve built up some confidence, you can start
trading with one lot/contract, or 100 shares. If you’re comfortable
and you achieve acceptable results, then you can increase the con-
tract or share size.

And never trade with money you can’t afford to lose. Get your current
financial situation in order first, and THEN start trading.

Get your credit cleaned up, pay off high interest loans and credit cards,
and put at least three months of living expenses in savings. Once this is
done, you’re ready to start letting your money work for you.

Don’t trade to get rich quick.

That’s the number one principle when it comes to controlling your risk.

If day trading was easy, everyone in the world would be doing the same
thing: trading like crazy every day and becoming insanely rich by night-


The Complete Guide to Day Trading

We both know it’s NOT easy. So let’s take a look at the seven “deadly”
trading mistakes. These are the challenges that every trader faces, and
they’re the ones which usually cost traders a whole lot of money.

Being aware of these challenges is the first step in avoiding them. Think
about the car driving example again: if you know that driving on icy
roads is dangerous, you can try to avoid traveling in that particular
weather condition. But, if you don’t know about ice and the hazard it
poses, you might just get into your car and drive like normal. You won’t
even realize the danger until you feel your vehicle slipping right off the

The same principle applies in trading: being aware of the possible mis-
takes and pitfalls will help you to avoid them.

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