Day Trading Lessons:

[zigzagman]

Here is an part of the written lessons that comes with my course on Day Trading:

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The first and most important lesson you must learn to be a successful Day Trader is:

When a 1000 share trade goes against you,
and you are down $100.00 you MUST exit the trade immediately!!!

Day Traders can get in and out of trades as many times a day as they want to, and if a trade doesn't go your way soon after you enter it, it's not going as planned. If you don't exit EVERY trade of 1000 shares when you are down ten cents or $100.00, you take a chance of being down over $1000.00 in less than an hour. I've seen it happen many times to my students, and when I began trading I did it a few times myself. This is a lesson I hope you never have to learn for yourself...

The name of this game is Capital Preservation.
You must keep enough funds in your account so that you can:
"LIVE TO TRADE ANOTHER DAY!"

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In order to Day Trade successfully, you must first find a stock that is a good candidate. My criteria is a stock that is over $10.00 per share and has an average daily volume of around 5 million shares traded per day. This ensures that there is adequate market liquidity so that when you want to sell your shares with a Market Order, it will all fill without moving the PPS up or down on the chart as it fills.

I don't trade stocks that are over $100.00 per share because I always buy 1000 shares of any stock or ETF I trade. The more expensive a stock is, the more volatility it will usually have. My favorite stocks to Day Trade are usually found in the $10.-25.00 range, so that I can buy one, two, or even up to four thousand shares when I'm absolutely sure that the trade will be successful.

Here is a great place to scan for stocks in every price range that are showing very positive or very negative characteristics, which will give you good Long and Short Sell candidates. My favorite categories to scan are: Strong Volume Gainers, Bullish MACD Crossovers, Bearish MACD Crossovers, Overbought with a Declining RSI, Oversold with an Improving RSI, Moved Above Upper Bollinger Band, Moved Below Lower Bollinger Band, New CCI Buy Signals, and New CCI Sell Signals. All of the charts in these scans are daily charts, but they are still very helpful in finding good trading candidates to go Long or Short on.

http://stockcharts.com/def/servlet/SC.scan

First, look for a price range you are comfortable with, and then look in the Volume column to make sure it has at least a few million shares traded daily on average. This scan page gives you the choice to pick stocks on the: Nasdaq, NYSE, AMEX, TSE, and CDNX Exchanges. Once you have selected a stock to look at, you will want to click on the square button to the left of the ticker symbol that has a red vertical bar surrounded by two blue ones. This will open a Sharp Chart for your selection, and you can edit many of the settings on these charts to suit your personal preference.

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The next thing you must learn is how to identify the Technical Indicators that are on my charts.

My entry and exit strategy for both styles of trading is based primarily on the (CCI) Commodity Channel Index , (BB) Bollinger Bands, (STO) Stochastics, the (5MA) 5 Moving Average, the (15MA) 15 Moving Average, and Volume.



The three Indicators above the CCI are (CMF) Chaikin Money Flow, (OBV) On Balance Volume, and the (A/D) Accumulation/Distribution line. They are all Money Indicators, and they tell me if there is more buying than selling going on. They help me determine if I'll stay in a trade or not depending on how they're trending. They are not critical to making my strategy work, but they are very helpful.

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To keep things as simple as possible, the chart below shows just the Technical Indicators absolutely necessary to make my strategy work.



All you really need are Bollinger Bands, the CCI, Stochastics, the 5MA and the 15MA, and Volume.

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RULES ABOUT BOLLINGER BANDS:

BB's are a critical indicator for entries and exits. A good Day Trading candidate must have a lot of volatility, meaning it must have large moves in the PPS in a relatively short period of time. In 2004 my favorite stock to Day Trade was AKAM because it could move one or two dollars really quickly either up or down. That creates nice sharp V-Bottom and V-Top chart patterns, and all of the TI's follow suit.

You are looking for a chart where the BB's have a nice wide spread. A good example of this is shown in the chart below, where the spread between the upper and lower BB's is about a dollar. It is very difficult to try to Day Trade a chart where the BB's have a small range between the upper and lower BB's of only ten or twenty cents.

The more expensive a stock is, the bigger the range will be between the BB's. The cheaper the stock is the smaller the range between the BB's will be, but then you will be able to buy a lot more shares so a smaller spread is not necessarily a bad thing.

ON A FIVE MINUTE CHART, THE PPS CANNOT SURVIVE OUTSIDE OF THE BB'S FOR VERY LONG, USUALLY NO MORE THAN TEN TO FIFTEEN MINUTES.



YOU BUY WHEN THE PPS DROPS BELOW THE LOWER BB,
AND YOU SELL WHEN IT GETS NEAR TO OR BREAKS ABOVE THE UPPER BB.

This is a simplistic way of expressing this rule, as there's a lot more to it, but in it's basic premise it is absolutely true. For now I'll concentrate on the BB's and we'll add one TI to your knowledge at a time.

Think of BB's as strong rubber bands. When the BB's are trending sideways and the PPS punches down through the lower one, it doesn't break. It provides a level of support and you can expect the PPS to bounce up a bit to at least get back inside of the lower BB. The further it breaks below the lower BB, the bigger of a bounce up you can expect.

So if you Buy when the PPS breaks way below the lower BB, you are almost always going to be safe taking a Long position there. (This part of the lesson only applies when the BB's are trending sideways and parallel to each other for the most part, like in the example charts of AKAM above. There are charts below that explain what happens when the PPS starts to push the BB's either up or down).

When the PPS breaks way below the lower BB, there are only two things it can do. It can bounce up and continue to move up, or it can bounce up a little and then move sideways for a while until it gets back inside the lower BB. Once back inside the lower BB, then it can move down again. If you don't see the bounce up right away after entering a Long position, you should get ready to Sell because you are counting on a good bounce so you can have a nice profit. You also MUST Sell if the PPS EVER drops below your Buy price and you are down $100.00

As you can see in the chart below, when the Price Per Share (PPS) hits the lower BB (shown by the even numbers), it's time to Buy. And when the PPS hits the upper BB (shown by the odd numbers) it's time to Sell. You can actually Sell at the upper BB and immediately take a Short position and ride it down to the lower BB, where you will Cover your Short position and immediately take a Long position and ride it back up to the upper BB. Then you can start the process all over again.



The chart above is a rare example of the perfect BB set up, because the BB's are for the most part moving horizontally and the spread between them is very wide. That's because of the extreme volatility in the movements of the PPS, and the overall market was also volatile and trending in a fairly tight trading range those two days.

When the PPS broke above the upper BB it reversed back down quickly, and when the PPS broke below the lower BB it reversed back up quickly. Because of the volatile movement of the PPS, the CCI and STO formed very sharp V-bottoms and V-tops. These types of bottoms and tops give very clear and accurate Buy and Sell signals, and are the kind you should be looking for.

BB's CAN BE MOVED BY THE PPS PUSHING ON THEM IN EITHER DIRECTION:

It would be ideal if every day a stock moved like AKAM does in the charts above. But the Market doesn't really operate that way. After a period of moving sideways, the PPS must eventually break either to the upside or to the downside and you can get in on some really good trades when this happens.

You Buy when the PPS is at or below the lower BB.
The CCI has dropped below the lower horizontal line, and then crosses back up through it.
And STO has hit totally Oversold at or near to the zero line, and the fast line crosses back up through the slow line.



You Sell when the PPS is at or near to the upper BB.
The PPS closes below the 5MA on either the one-minute or the five-minute charts.
The CCI rises above and then crosses back down through the upper horizontal line.
And STO is in Overbought territory above the 80 line, the fast line crosses down through the slow line, and it breaks below it's previous level of support.

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If you would like to see me trading in real-time, there are three sample videos on the Video Charts page of my website that show me doing real trades and I call out everything that's happening.

http://www.stock-market-lessons.com/videocharts.html

And take a look at the Day Trading page of my site. There is a lot of free information to be found there also.

My course contains a written lesson, 28 Video Charts with a total playtime of over 18 hours, plus three hours of Question & Answer time in your own private and password protected forum to ask any questions you have about the lessons.

Happy Trading,
zigzagman

[zigzagman]

To prove to you the kind of money you can make Day Trading, here are a few examples of real Day Trades I have done recently.

On May 28th 2009 I made $1750. in only ten minutes of trading on two scalping trades on FAS:

I put $92,100. to work and made almost $900.00 in just under six minutes on this trade:



I put $93,000. to work and made just over $850.00 in exactly four minutes on this trade:



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I put $21,000. to work when I bought 2000 shares of TSO and made $280. in just three minutes!



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Here is another example of a ten minute Day Trade that made $300.00



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Here is another example of a seventeen minute Day Trade that made $300.00



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Here is another example of an eight minute Day Trade that also made $280.00



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As you can see, Day Trading is a very profitable way to trade the market in a very short period of time.

I usually do two or three trades before lunchtime, and call it a day. A few hundred dollars a day is enough for my family to get by on.

Happy Trading,
zigzagman