Complete guide to day trading reading notes

Written by Keith McDonnell. Last updated on Thursday, July 07, 2011.

= Questions

What are MACD, Stochastics ?

How many weeks of the year are tradeable, eg christmas, holidays etc.

Why not set a 0% stop loss on every trade?

= Action points

Get a trading journal (or keep a blog)
- why do you want to trade?

Confirm that the $25k NYSE pattern rule does not apply to:
- ftse
- non-margin (cash) a/c’s

= Notes

Don’t set daily targets when you trade. In order to make
money, two conditions have to be met:
1.) YOU have to be ready to trade.
2.) THE MARKET must be ready to be traded.

There will be days when YOU are not at your best (sickness, emotional
stress, no time because of an emergency, etc.), and there will be days
when the market is not ready to be traded (e.g. holidays, including the
days before and after holidays, days before a major news release, like the
Federal announcement regarding interest rates or the unemployment re -
port, etc.).

It’s important to start small and set a weekly goal for only ONE contract,
or 100 shares. This goal should be LOW, very low, so that it is easy for
you to reach it.
Then keep raising the bar
> like it: incremental learning

You can’t avoid losses

STOP TRADING when you’ve reached your target!

If you have a stop loss 50% of your profit target, you only need to succeed in
50% of trades.
> Does this mean if you have a stop loss of 25% you only need to win 1 trade out
of 4?

Daily targets create psycological pressure
> is this relevant to a FATS?

full-service brokers offer advice & reports, discount brokers just fulfill orders

Developing a Trading strategy

start with small capital and then move up to larger capital when
you’re comfortable enough with the market.

When trading a market, we want to ensure that we receive
quick and accurate fills for our orders, and also that a large
order placed by a market-maker or broker does not move the
market in an erratic way.

It’s easier to trade a market that’s either going up or going down.

Currently there are more than 10,000 stocks available on U.S. stock exchanges.

Stock markets are volatile:

Stock option: the right – but not the obligation -– to
buy (call) or sell (put) a specific underlying asset at a prearranged price
on or before a given date.

Day trading stock options is extremely risky and difficult, and not for the novice trader.

However, when selecting a very small timeframe like 1-minute, 3-
minute, or 5-minute, you might experience a lot of “noise” that is cause
by hedge funds, by scalpers, and by automated trading.

Selecting a trading approach

Fundamental analysis aims to study the CAUSE of market movement

technical analysis: use of charts, trendlines, support and
resistance levels, mathematical analysis tools, to predict future movements in a
stock’s price, and to help identify trading opportunities


opening price (O),
closing price ©,
absolute high price of the day (H)
absolute low price of the day (L)

- identify an uptrend (from input signals)
- buy with stop loss + profit target/cap

When should I enter?
- when there’s an uptrend
- at/near the top bollinger band (std dev from MA)
- macd + 30
- RSI + 70

When should I exit?
- when you’ve achived your profit target

support level is the low point in any chart pattern (hourly, weekly, or annually)
resistance level is the high or the peak point of the pattern.

Moving averages:

MACD (Gerald Apple) shows the relationship between two moving averages of prices

Williams %R (Larry Williams)

Bollinger Bands:

Make SURE to cancel your orders, or use so-called “bracket orders,” or
“one-cancel-other (OCO) orders” for your profit target and stop loss.

the key to trading success: small profits, consistently.

Back testing:

While testing your trading strategy, you should keep detailed records of
the wins and losses in order to produce a performance report.


Don’t over optimise: find a simple system & stick with it.

1. Identify all the parameters in your system

For each parameter variation:

Might need taguchi or stats to simplify optimisation

Once your system is optimised: STOP

Principles of successfull trading strategies

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