The Truth About Day Trading Stocks E-Book

Josh DiPietro

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Trading Series
• Sprache: Englisch

Seitenzahl: 294

Veröffentlichungsjahr: 2009

Beschreibung

The Truth About Day Trading Stocks

A realistic guide to day trading today's stock market

In terms of the potential for heavy financial losses, day trading is a high-risk profession. No one should contemplate day trading without giving thought to the ways he can lose, and all the ways to lessen or avoid them. Yet many people enter the game with unrealistic expectations, unaware of what it takes to succeed. Seminars and software alone do not make a successful day trader, cautions author Josh DiPietro. Instead, a trader must learn hard lessons of self-discipline, consistency, and staying in the game for the long haul to have a real chance of success. In The Truth About Day Trading Stocks, DiPietro offers the amateur day trader a brutally honest look at the pitfalls of day trading—and how to hopefully avoid them.

Written in an engaging and sometimes humorous tone, The Truth About Day Trading Stocks draws on the author's own experiences as a day trader to offer a clear-cut departure from typical "golden goose" strategies promising instant wealth. Instead, he attempts to slow down the dangerous fervor of the average amateur and demonstrate the ways you can become a professional and not lose your shirt in the process. The Truth About Day Trading Stocks shows how trading decisions are bent and shaped by emotions, and why it is critical to know yourself, understand risk, and remember that increasing your skill level is a gradual, ongoing process—there's always more to learn! After dispensing with popular illusions, DiPietro proceeds to offer realistic, practical trading advice—comparing pay-per-trade with pay-per-share brokers, determining which works best and when, offering suggestions on how to avoid the prospect of perfect trades turning ugly, and more. At the end of the book, he also includes a section called "Rules to Remember," a list of over eighty rules, simply stated and easy to grasp, to benefit amateurs' performance.

Throughout the book, the author describes his development of acute self-awareness while figuring out how to succeed. Through that blunt self-portrayal, the goal of The Truth About Day Trading Stocks is to help you create a disciplined mind-set and apply it to your own successful trading style.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Preface

Acknowledgements

Introduction

PART I - Psychological Truths and What to Do about Them

CHAPTER 1 - Truths about Yourself to Know First

HOW OFTEN DO YOU TRADE, AND HOW PROFITABLY?

HOW MUCH ARE YOU TRADING IN CAPITAL AND LEVERAGE?

HOW LONG HAVE YOU BEEN TRADING?

WHAT FINANCIAL INSTRUMENTS ARE YOU TRADING?

ARE YOU TRADING OTHER PEOPLES’ MONEY OR YOUR PERSONAL CAPITAL?

ARE YOU A LICENSED TRADER, OR TRADING INDEPENDENTLY?

HOW WERE YOU TRAINED?

CHAPTER 2 - How Emotions Can Destroy a Trade

THE FEAR FACTOR

GREED IS NOT GOOD

CHAPTER 3 - Preventing Overconfidence

IGNORING YOUR PREDETERMINED STOP/LOSS PRICE

HOLDING TOO LONG

CHAPTER 4 - From Impatient to Cool, Calm, and Collected

THE WAITING IS THE HARDEST PART

DECIDING TO LEARN MORE

CHAPTER 5 - Taking Breaks

BREAK WHEN YOUR CONFIDENCE IS LOW

BREAK BECAUSE IT’S JUST NOT WORKING

BREAK AND THEN WHAT?

PART II - The Truth about Your Risk

CHAPTER 6 - The Importance of Risk Management

THE AMOUNT OF TRADING CAPITAL ALLOCATED TO EACH TRADE

THE TIMING FOR ALLOCATING CAPITAL TO A TRADE

OVEREXPOSURE TO RISK

THE STOCK OR COMPANY YOU’RE TRADING

THE TIME OF DAY YOU’RE TRADING

GAMBLING

CHAPTER 7 - Why Overexposure to the Market Can Hurt

TIME VERSUS TIMING

CHAPTER 8 - Budgeting: Knowing Your Financial Limitations

DON’T QUIT YOUR DAY JOB: CATCH-22

CRUNCHING THE NUMBERS

CUSHION CASH

CHAPTER 9 - Minimizing Your Risk with Stop/Loss

MAKING STOP/LOSS AUTOMATIC

CHAPTER 10 - Averaging-Down: A Skilled Strategy

TO AVERAGE-DOWN SUCCESSFULLY TAKES MASTERY

KNOW-HOW DOESN’T GROW OVERNIGHT

CHAPTER 11 - Gambling versus Day Trading

PART III - Intraday Trading Truths

CHAPTER 12 - Why Some Traders Make More Mistakes

PICK YOUR STOCKS CAREFULLY

FOCUS, FOCUS, FOCUS

PAY ATTENTION TO MARKET-MOVING NEWS

CHAPTER 13 - Trading Consistently All Day

CHAPTER 14 - Stock Picking: Simplifying the Process

YOUR STOCK SHOULD HAVE AN AVERAGE DAILY VOLUME OF ONE MILLION SHARES OR MORE

CHOOSE STOCKS BETWEEN $10 AND $100

PICK STOCKS THAT DISPLAY TRADABLE INTRADAY PRICE SWINGS

DON’T TRADE STOCKS AFFECTED BY STRICT FEDERAL REGULATIONS

BEWARE OF STOCKS DIRECTLY AFFECTED BY CURRENT NEWS HEADLINES

CHAPTER 15 - Why News Can Be Just Noise

TRADING ON NEWS VERSUS MONITORING NEWS

PART IV - The Truth about Training and Preparation

CHAPTER 16 - About Those Training Programs

SEMINARS FOR THE GREENHORNS

TRAINING PROGRAMS FOR THE MORE EXPERIENCED TRADER

TIPS FOR SELECTING THE RIGHT PROGRAM

CHAPTER 17 - Picking the Right Online Broker

STARTING OUT WITH PAY-PER-TRADE

TRANSITIONING TO PAY-PER-SHARE

HIGH LEVERAGE PROS AND CONS

HANG ON TO YOUR PAY-PER-TRADE ACCOUNT

CHAPTER 18 - Paper-Trading Strategy

PAPER TRADING FOR THE AMATEUR

A WORD ABOUT ADVANCED PAPER TRADING

CHAPTER 19 - Trading for Skill versus Trading for Income

BUILDING A FOUNDATION OF TRADING SKILLS

FIRST LEVEL

SECOND LEVEL

THIRD LEVEL

SUMMARY

CHAPTER 20 - The Perfect Trading Day

EARLY MORNING ACTIVITIES

PRE-MARKET TRADING

THE OPENING BELL

MIDDAY ACTIVITIES

THE LAST HOUR OF TRADING

THE CLOSING BELL

AFTER-MARKET TRADING

HOMEWORK

CHAPTER 21 - The Worst Trading Day

EARLY MORNING ACTIVITIES

PREMARKET TRADING

THE OPENING BELL

MIDDAY ACTIVITIES

LAST HOUR OF TRADING

THE CLOSING BELL

AFTER-MARKET TRADING

HOMEWORK

CONCLUSION

APPENDIX - Rules to Remember

About the Author

Index

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding.

The Wiley Trading series features books by traders who have survived the market’s ever changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional, or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future.

For a list of available titles, visit our Web site at www.WileyFinance.com.

Copyright © 2009 by Josh DiPietro. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

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Library of Congress Cataloging-in-Publication Data:

DiPietro, Josh, 1976-

The truth about day trading stocks : a cautionary tale about hard challenges and what it takes to succeed / Josh DiPietro. p. cm. - (Wiley trading series)

Includes index.

eISBN : 978-0-470-49585-8

1. Day trading (Securities) 2. Electronic trading of securities. I. Title.

HG4515.95.D.63’228-dc22 2008054930

I would like to dedicate this book to all day-traders,amateur and professional, who have learned the hard way.To the traders who understand that becoming a successfulday-trader is a process that cannot be fast-tracked.

Preface

The most successful turtle was apparently CurtisFaith. Trading records show that Mr. Faith, whowas only 19 when he started the program, madeabout $31.5 million in profits for Mr. Dennis.

—Stanley W. Angrist, The Wall Street Journal

The above is a dangerous citation. No one should use it as assurance. Not every amateur day-trader succeeds like Curtis Faith. Many beginners lose all of their start-up capital—sometimes more than once. The purpose of The Truth About Day Trading Stocks is to caution, and to some degree reprogram, the naïve, heedless amateur day-trader. I want to prevent beginners from watching their money disappear.

In this book, I offer the amateur day-trader, a candid account of the challenges I’ve encountered while developing in the profession. By candid I mean brutally truthful, mostly about myself, mostly with the side-splitting laughter that the distance of hindsight provides!

This is my personal story, and I tell it like it is, just as if we were kicking back and having ourselves some brews, letting it all hang out at times—that is, confessing all my mistakes. My personal day-trading horror stories are a constant, vivid motif. Laced through that saga is my identification of key psychological factors that destroy wise day-trading performance, interspersed with my cache of antidotes, all self-disciplinary, that I’ve developed in the contemplative aftermath of my most harmful mistakes.

My tone is both comical and compassionate, with a practical and generous infusion of informative techno-speak. My approach to instruction is an emphatic departure from “golden goose” strategies, and my overall intention is twofold: to slow down the hazardous fervor of the average amateur, and to demonstrate the ways he can become a professional and not lose his shirt in the process. Throughout the book, you’ll notice the word “hold” highlighted when I discuss disastrous situations involving “holding” stocks without any real plan of exit. If you’re reading this you’re probably a beginner in day-trading. Or maybe you’re somewhat experienced, but not yet a confident pro. You’re highly motivated and eager to learn how to day-trade with success. You’re probably a risk-taker by nature, with a high tolerance for stress.

You’re willing to stop at nothing to achieve the status of a professional trader who’s thriving—a badge of honor. In the beginning, the process may seem thrilling. The opportunity to trade for a living looks wonderful. This is gonna be an adventure! You’ve found there are scads of outfits to train you (for a hefty fee, of course). And you could line a mansion’s mantel with how-to books. You sign yourself up for a training program. You’re greeted with head-swelling optimism and hope by the truckload, and you start harboring dreams of grandeur. The prospect of succeeding as a trader is making you almost giddy. Now you have a vision of perfection: you see wealth, freedom and leisure!

Who wouldn’t want to make $5000 a week from home, sitting in his or her underwear?

I’ll be the first to admit it: I’m guilty of indulging in euphoric expectation without the self-disciplined expertise to make it all come true. I started down my path to day-trading glory late in the 1990’s. I moved to San Diego from Buffalo, New York. When I got to the West Coast I immediately learned of this potentially lucrative career.

Well, it’s 2009—a whole decade has passed and I’m here to warn you about something that nobody wants to hear: You’ll probably never master the profession without losing money first. Many beginner traders are brought to their knees by despair and lose their will to deal with the market. Even the more fortunate protégés, those who got into trading with almost unlimited wealth, learn that the pain of losing can take a big toll on their egos.

I realize that my focus on losing sounds annoying and counterproductive. Well, you can trust me on this one: I have reasons for emphasizing loss. Taming the loss monster is paramount to creating your long-term, consistent success. In day-trading, consistency rules.

The Truth About Day Trading Stocks shows how trading decisions are bent and shaped by emotions. Day-trading is a psychological process. Day-trading is emotional. Anyone can learn how to research and scrutinize fundamental business data. Anyone can master chart pattern analysis. But in the end the execution of an actual real-time order is all that really matters. That’s why feelings take over. I show what can happen when feelings are heightened—especially by the powerful factors of inevitable fear and greed. The outcome can be very dismal.

Again, I’m not here to show you the “golden goose” of ultimate strategizing, while neglecting to reveal the grim hazards involved in keyboarding for money all day. I feel that it’s crucial to emphasize the downside, in order to shed light on the maddening fact that most new day-traders are pickled and stewed in the positive view of this career—encouraged to inflate with ambition and adrenaline—all at their neophyte peril.

I designed this book not only as an escape from dry tedious texts, a ramble down Easy Read Lane, but also as a reference tool for serious day-trading careerists. If you approach this tome as a tool, you may be inclined to pick only the passages that address your most pressing questions. I feel that I should warn you not to do that. You should read the chapters in order. Later chapters build on ideas presented in earlier chapters, and if you skip around, the ideas may not gel.

When it comes to pure technical know-how, I’ve made sure that my advisories take off and expound in ways that five-day seminars don’t. I reveal some harsh truths about day-trading stocks; my intention is to burst the greenhorn’s bubble. Then, with the illusions dispensed with, I proceed to realistically useful advising. I compare pay-per-trade with pay-per-share brokers, determining which works best, and when; I define how day-trading isn’t gambling; I repeatedly stress the wisdom of maintaining low exposure; and that’s just a sampling of my arsenal of disaster-averting discussions.

Although I conclude with a chapter that exemplifies a great trading day, I did not write this book to spotlight and boast the performance of perfect trades. I wrote it to offer suggestions on how to avoid the prospect of perfect trades turning ugly. Throughout the book, I describe my development of acute self-awareness while figuring out how to succeed. My goal, in that blunt self-portrayal, is to help you create a disciplined mindset, and apply it to your own trading style.

In the back of the book, you’ll find a section called “Rules to Remember,” a list of over eighty rules, simply stated and easy to grasp, to benefit amateurs’ performance.

I close with an offer of mentorship, designed to equip you with the tools to succeed. I believe that the best way to learn is direct experience under the supervision of a well-seasoned guide. Through my mentorship program, I will day-trade with you live, one-on-one, for an entire week or month. For more information, go to: www.DayTraderJosh.com.

In response to my ominous precautions, maybe you’re thinking: “If I want to make money, don’t I just buy low and sell high?

Well, take that simplistic outlook and throw it right out the window. Why? Because it will hurt you. I sure wish someone had told me that when I started out.

Acknowledgments

I want to first give special thanks to Serene Sao. She is the person, very close to me, who initially supported my decision to become a professional day-trader.

I wish to thank Georgianna Groen, a fabulous author and mentor, for her tireless editorship. She has aided and encouraged me throughout my work on this book.

Many thanks to my father and his friend Lee McCormick for accommodating me in their beautiful cabin style home, in its mountainous New England setting. The atmosphere has been perfect for my clarity of mind, for both day-trading and my work on this book.

INTRODUCTION

The Wholehearted Amateur

The year was 1999. I was in my car, on a mission. I was driving to Irvine from my home in San Diego. Every mile glowed with deep indigo skies and the kiss of a warm, mellow sun; these were the everyday blessings I enjoyed in Southern California even in the middle of winter. This climate made me hopeful and encouraged. It felt like a good luck charm. I had moved here from the cold, gloomy Rust Belt.