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Daytrading
Day Trading can be easily described as the buying and selling of stocks during the trading day in your own account. Your goal as a Day Trader is to be profitable, and flat (carrying no positions at the end of the trading day.) Don't be misled into thinking that anyone can walk through our doors, sit down at a computer, click off some trades, and be profitable. Day Trading is a serious business. It is a profession and like other professions it requires training and experience. Your success in Day Trading relies on your willingness to dedicate yourself and your abilities to learn the techniques required to be successful.Why the interest in Electronic Day Trading? It is one of the last bastions of pure capitalism. It levels the playing field. It is a true equalizer. The 1990's has brought an evolution in Electronic Trading and an expanded and more common use of Electronic Trading in a number of marketplaces. The terms Electronic Day Trading and SOES trading have been used interchangeably by most people. For the purposes of this discussion, we will use them interchangeably as well. The OTC market is a negotiated market without a central place or trading floor. It is composed of a network of thousands of brokers who make securities transactions for themselves and their customers. Professional buyers and sellers seek each other out electronically and trades are made in a matter of seconds. The NASDAQ action market has been a leader in this area. Nasdaq market makers input their bids and offers electronically into their Nasdaq workstations. The average person only sees the best bid or offer (NBBO, National Best Bid and Offer), but Electronic Day Traders use Level 2 market maker screens to see all the bids and offers of each market maker in a particular stock. A Little History A little history and definition of the term NASDAQ SOES will help you understand what SOES is and what SOES is not. The whole NASDAQ SOES system is projected to have a major overhaul shortly. It is advised that you check any rules that are discussed in this article with your own broker. NASDAQ SOES was created in 1985 and made mandatory after the 1987 market collapse. At that time, many small investors were unable to sell stocks as prices fell because they couldn't reach dealers or market makers on overloaded phone lines. SOES provides small investors with quick access to the Nasdaq market. The purpose of the SOES system is to enable the average person to get an honest, immediate, legitimate execution and to bid and offer shares in between the spread to achieve price improvement. Day Traders add liquity to the markets benefiting all investors. The existence of the SOES (Small Order Execution System), SelectNet, E.C.N.s (Electronic Communications Networks) like Island, Bloomberg, and Archapelico, and REDI, has eliminated significant advantages enjoyed for years by the market making community. SOES Day Trading provides a way for individuals to trade for their own accounts and decreases the significant advantages of market makers and larger institutional investors. Day traders are in the unique position of having a very short-term relationship with the market. For many years, Day Trading was considered to be the most speculative of speculative trading activities. Today, the Day Trader is in a much more advantageous position. The Electronic Day Trader is the gunslinger of equity trading. The trader can limit losses, with the ability to SOES out of a position instantly. Traders use real-time quotes and decision support software enabling them to see market makers adjusting their quotes as they happen. They can see real time executions permitting traders to view the last trade and volume that was executed. The visual capability that comes from state of the art software and technology that is available to the trader through tickers, quote screens, and charts, has come a long way over the past few years. Objectives of the SOES Trader Electronic SOES traders succeed by cutting losses and grinding out their profits. Successful traders know that trying to hit a home run is a sure way to get burned. The tools that are available combined with small commissions and trading costs, eliminate the need to take big risks. Learning to use the tools available with maximum efficiency, is one of the most important elements contributing to successful trading. Electronic Day Trading Tools Real time quotes Advanced Decision Support Software High Speed Computer Workstations Reliable Network Connectivity to Execute Trades Trading Capital The minimum trading capital (equity) required to trade successfully, is in the range of $100,000. Potential traders should keep in mind that capital used to trade should be money that they can afford to lose. The loss of this capital should not alter the traders life in any meaningful way. Only a small number of traders, actually have the discipline and talent to be successful consistently. Margin Requirements and Regulation T Traders are customers of a broker/dealer that executes their order. Customers are subject to normal Regulation T and margin requirements. A margin account allows the trader to enhance the leverage in securities transactions using credit extended by the brokerage firm. Regulation T empowers the Federal Reserve Board to establish how much credit a brokerage firm can lend. In most cases, 50% of a position can be financed by the brokerage firm. In other words, $100,000 of equity capital can support $200,000 in positions. Attitudes of a Successful Trader: The Problem with Opinions A trader with an "opinion" on the stock, can hurt his short term trading results. However, trading without any prejudice frees you to trade from both the long side and short side of the market. The trader can watch the activity in a particular stock and take action based on what is happening. rather than his opinion. Trading is the art of second by second risk management. As an example, suppose the market on a stock is 20 x 20 1/8 (1000 x 1000), Suddenly, large market makers, like, Goldman Sachs and Morgan Stanley enter a 20 1/8 bid. This could indicate to you the short term direction of the stock. It does not matter why they are buying but only how fast you can react and buy stock. The trader must react first and rationalize later. Past experience is a negative. Ironically, an individual with past experience who believes they know a great deal about stocks and markets often make poor day traders. Trading is a game played from moment to moment. It makes no difference if the trader knows the earnings of a particular company before it is announced next week. What matters is the way other investors are reacting today. Buy if it's going up and sell if it's going down. Stocks are "Four-letter Words" It is best to view stocks simply in three and four letter terms rather than individual companies. If a group is performing well, pick the best stock in the group and trade it from the long side. Do not buy the weakest stock in the group with the hopes that it will catch up. Chances are it will not. Buy strength, and sell weakness. To make money trading, you do not need to forecast the future. You have to extract information from the market and find out whether bulls or bears are in control. You need to measure the strength of the dominant market group and decide how likely the current trend is to continue. You need to practice conservative money management aimed at long-term survival and profit accumulation. You must observe how your mind works and avoid slipping into greed or fear. A trader who does all of this will succeed more than any forecaster. Winning Attitudes of a Successful Trader Every day is a new different day for the trader. It does not matter that the tech stocks were strong yesterday. What does matter, is identifying the groups that are active today. Traders often make the mistake of focusing on one group too long. The action might be somewhere else on a given day. Every day is a "new day". If a trader has an over night position, and hence an opinion, he is no longer free to trade the market momentum. If, on the other hand, the trader is "completely flat" coming into the new day, he is free to make unbiased assessments and trade the market. I really don't care what Asia or Europe is doing, but I can react to what they did when our markets open. I don't have to worry about the daily number of the day, just act on the trend. Effective Trading Can be Learned Many traders are quite capable of learning to be more effective. One of the prerequisites, however, is to learn from people who are organized in their thought process. Successful day trading is built upon a unique foundation combining art and science. Reading the Tape SOES trading is a modern form of trading via tape watching. The rules of the Nasdaq market dictate that all market makers in a stock must display their current quotes. Market makers are constantly updating and changing these quotes in response to supply and demand, news, and other factors that influence market movement. Herein lies the opportunity for the SOES trader. The Electronic Day Trader is constantly looking for the beginning or the end of a trend, and tries to buy or sell a stock short, while the stock is moving in price. Always remember: "The trend is your friend". Fighting the trend is a surefire path to disaster. To Day Trade profitably, you must take advantage of brief flurries in prices. Large intraday price moves can occur in response to news and other outside influences. At times, the rumor mill will drop or rally prices quickly. Program trading is still a profitable activity for large institutional type traders. Regardless of the source, consider all price rallies or declines which occur quickly within the days trading session to be an opportunity for you to either exit your current position at a profit, or to establish a new position using support and resistance methods. The key is Discipline, Discipline, and more Discipline. Improving Your Chances for Success Buy up stocks. Sell down stocks. Know what price and where the stock started to move. Do not trade stocks you consistently lose money in. Review your trading activity often. {Take good notes) Be aware of the underlying trend (market sectors). Use your ticker effectively. (Recognize market maker activity) Use ECNs and SelectNet: Don't give up spread twice. Be aware of the time of day. Frequent Reasons for Bad Trades Trading stocks not in motion. Chasing stocks up or down too many levels. Greed. Bottom fishing {terrible habit!). Taking shots Impatience. Not reviewing bad trades and learning from them. Different Trading Styles Arbitrage: Involves the simultaneous purchase of a security from one market maker, or exchange, and the sale of it through another, and profiting from the difference in prices from the two market makers or exchanges.
Market Maker: Typically this person tries to emulate the Market Makers. With this style you will attempt to buy on the bid side of a stock, and sell on the offer side of a stock. This can be difficult to trade in this manner. Position: A position trading style can be very lucrative. A position trader can often just be in one position at a time, but generally this position may be rather large. A position trader tends to be long or short one stock, but in a size greater than 1000 shares. A position trader will buy/sell 1000 shares of stock on the SOES system, wait five minutes or more, then buy/sell another 1000 shares, this is building a position. He may also choose to enter his position in one transaction. To achieve this he may buy/sell his intended position by way of an E.C.N. or Selectnet, where they are not restricted to the 1000 share maximum per transaction, and they are not subject to the five minute rule. Disclaimer Day Trading is a high risk activity that should only be engaged in by those who fully understand the techniques and the risks. Day Trading is done at your own risk. by Mark A. Seleznov (Mark A. Seleznov, is the Managing Partner of Trend Trader, LLC, a Stock Brokerage firm, member of NASD, SIPC, specializing in Electronic Trading for Institutions, Day Traders, and Retail clients. Trading is offered at their on-site facility in Scottsdale, AZ, as well as remote from their customers' offices and homes.) Terug naar Financiële artikelen 
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