"How to Day Trade for a Living" by Andrew Aziz

0:06 chapter one introduction in this book I explained the fundamentals of day trading and how day trading is different from other styles of trading and investing in the process I also describe important trading strategies that many Traders use each day this book is deliberately short so readers will actually finish reading it and not get bored halfway through and put it to one side we are all distracted by internet diversions emails Facebook or Instagram notifications or the dozens of other apps that we have on our smartphones or tablets therefore this book is concise and it is practical if you are a beginner Trader this book will equip you with an understanding of where to start how to start what to

0:53 expect from day trading and how you can develop your own strategy simply reading this book will not make you a profitable Trader profits and trading do not come from Reading one or two books but as I will explain later profits can come with practice the right tools and software and proper ongoing education intermediate Traders May benefit from this book's overview of some of the classic strategies that the majority of retail Traders use effectively if you don't consider yourself a novice Trader then you may wish to jump ahead and start reading it chapter 7 for an overview of the most important day trading strategies however I encourage you to skim through the earlier chapters as well in my opinion the most important lesson

1:39 that you can learn from reading this book is that you will not get rich quickly by day trading day trading is not similar to gambling or playing the lottery this is the most important misconception that people have about day trading and I hope you will come to the same conclusion after reading this book in fact statistically speaking ninety percent of people who start day trading fail and lose their money it is easy to be one of those 9 out of 10 people it is very easy this brings you to my first role of day trading rule 1 day trading is not a strategy to get rich quickly a very common misconception that people have about day trading is that it is easy you buy stocks and when they go

2:25 higher you sell them for a good profit it's that easy well if it were that easy then everyone would be a successful Trader you must remember that day trading is difficult and will not make you rich quickly if you have this misconception and if you want to get rich quickly and easily in the stock market you should stop reading this book right now and spend the savings that you put aside for day trading on a nice family vacation it would be much more satisfying to spend your money that way rather than losing it in the stock market in day trading you will be competing with the sharpest Minds in the world the market is a massive crowd of Traders with each Trader trying to take money from the others by outsmarting them

3:11 the main objective of day trading is to take money from other Traders while they are trying to take yours that's why it's such an intellectually intense business you do not generate money in the stock market the only reason there is money in the market is that other Traders have put it there the money you desire to win belongs to other Traders and they have no intention of giving it to you that is why trading is such a hard business this leads to my second rule of day trading rule 2 day trading is not easy it is a serious business and you should treat it as such you can succeed in day trading only if you handle it as a serious intellectual Pursuit

3:57 emotional trading is the number one reason Traders fail you will need to practice self-discipline and defensive money management good Traders watch their Capital as carefully as professional scuba divers watch their supply of air in day trading simply being better than average is not good enough you have to be significantly above the crowd to win in day trading unfortunately day trading often appeals to impulsive people gamblers and those who feel that the world owes them a living you cannot be one of them and you should not act like they do you must start developing the discipline of a winner 's think feel and act differently than losers

4:43 you must look within yourself discard your Illusions and change your old ways of being thinking and acting change is hard but if you wish to be a successful Trader you need to work on changing and developing your personality to succeed you will need motivation knowledge and discipline so then what is day trading in reality day trading is a profession very much like medicine law and engineering day trading requires the right tools and software education patience and practice you will have to dedicate countless hours reading about trading Styles observing how experienced Traders are trading and practicing in simulator accounts to learn how to trade with real

5:28 money an average successful day trader can make between five hundred dollars and one thousand dollars every day that's equal to ten thousand dollars to twenty thousand dollars a month based on about 20 trading days in a month which equals one hundred and twenty thousand dollars to two hundred and forty thousand dollars a year so why would anyone expect a job that pays this well to be easy doctors lawyers engineers and many other professionals go through years of school practice hard work and examinations to earn a similar income so why should day trading be any different so if it isn't easy and doesn't get people Rich quickly why would you want to day trade what makes day trading attractive is the

6:15 lifestyle you can work from home work only for a few hours each day and take days off whenever you wish to you can spend as much time as you want with your family and friends without requesting vacation time from a boss or manager you are the boss since day trading is a form of self-employment you are the CEO and you make the executive decisions for your business the lifestyle is extremely attractive and of course if you master the profession of day trading you can potentially make thousands of dollars every day far more than in most other professions I personally know some traders who average over two thousand dollars every day some days are lower and some days are

7:01 higher but over the long term they have a profit of over two thousand dollars every day no matter where you live and how you live two thousand dollars a day is a substantial amount of money and can contribute to a very satisfying lifestyle if you want to own your own business day trading is a simple place to start take a moment and compare day trading with opening a pizza shop or a restaurant if you want to open a restaurant you'll have to spend large amounts of money on rent equipment staff hiring and training insurance and licenses and you still won't be guaranteed to earn money from your restaurant many businesses are like that day trading on the other hand is very easy to set up and start

7:47 you can open a trading account today at no cost and then start trading tomorrow of course you should not do that until you educate yourself but the logistics of commencing day trading are extremely easy compared to many other businesses and professions day trading is also an easy business to manage the cash flow of you can buy a stock and if things go badly you can immediately sell it for a loss compare that to people who have import export businesses and are importing goods from other countries there are plenty of things that can go wrong when purchasing shipments of goods to sell in your own country problems with vendors shipping Customs distribution marketing quality and

8:32 customer satisfaction plus your money is locked in for the entire process unless everything goes well you can't do anything about it at times you cannot even accept a small loss and easily step away from your business with day trading if things go wrong you can come out of the trade in a few seconds with an action as quick and simple as a click and of course a small loss it is easy to start over in day trading and that is a highly desirable aspect of any business closing a day trading business is also easy if you think day trading is not for you or if you don't make money from it you can immediately stop trading closer accounts and withdraw your money aside from the time and money that you

9:18 have already spent there are no other costs or penalties closing other professional offices or businesses are not nearly as straightforward you cannot as easily close your store office or restaurant or lay off your staff or walk away from your lease or equipment why then do most people fail in day trading I will explain specific reasons behind this important question later in this book but overall in my opinion the most common reason that people fail in day trading is that they do not regard it as a serious business they instead treat it as a form of gambling that will quickly and easily make them rich some people start to day trade as a hobby or for fun because they believe it is cool

10:04 they trade for the thrill of short-term gambling in the markets they play around a little bit in the market but never commit themselves to acquiring a proper education or an in-depth awareness of day trading they may get lucky a few times and make some money but eventually the market will punish them this is actually my own story at the beginning of my trading career a company called Equinox Pharmaceuticals Incorporated ticker aqxp announced some positive results for one of its drugs and its stock jumped from one dollar to over 55 dollars in just two days I was a beginner at the time I purchased 1 000 shares at four dollars and sold them at over ten dollars what looked like a very good thing

10:50 however turned out to be very bad I had made over six thousand dollars in a matter of minutes on my first beginner trade leading me with the impression that making money in the market was easy it took me time and several severe losses to get rid of that very mistaken notion it was Pure Luck I honestly had no idea what I was doing in just a few weeks I lost that entire six thousand dollars by making mistakes in other trades I was lucky because my first stupid trade was my lucky one for many people their first mistake is their last trade because they blow up their account and have to desperately close leave and say goodbye to day trading new day Traders should never lose sight

11:37 of the fact that they are competing with professional Traders on Wall Street and other experienced Traders around the world who are very serious highly equipped with Advanced education and tools and most importantly committed to making money never forget World 2 day trading is a business and it's an intensely serious one you have to wake up early in the morning dear preparations every day on the stocks that you plan to trade and be thoroughly prepared before the Market opens imagine for a moment that you have opened a restaurant can you afford not to be ready for your customers when you open your doors you can't close the restaurant at lunchtime because you aren't feeling well or you're not in the mood or you didn't have time to order enough groceries for the kitchen staff to

12:23 prepare meals with you must always be ready the day trading business is no different day trading requires proper tools software and education as with any business you must have the right tools to succeed so what are the basic tools you need for your day trading business one enough Capital money to trade with at least five thousand dollars if outside of the USA and twenty five thousand dollars if a resident of the United States 2. high-speed internet service three the best available broker 4. a fast order execution platform that supports hotkeys 5. a scanner for finding the right

13:09 stocks to trade 6. a community of Traders some of these tools must be paid for every month just as other businesses have monthly bills for electricity software licenses and leases you have to be able to pay your internet providers monthly bills your broker's commissions scanner costs and trading platform fees if you are part of a paid chat room or Community you can add the cost of that membership to this list too chapter 2. how day trading works in this chapter one we'll review many of the basics of day trading and hopefully answer your questions about what day trading is and how it works the chapter will also introduce some of the main tools and strategies that

13:55 you'll come across later in the book as with any art form tools are of no value unless you know how to use them this book will be your guide in learning how to use these tools day trading versus swing Trading a compelling question to begin with is what do you look for as a day trader the answer is simple first you're looking for stocks that are moving in a relatively predictable manner secondly you are going to trade them in one day you will not keep any position overnight if you buy stock in Apple Incorporated ticker AAPL today for instance you will not hold your positan overnight and sell it tomorrow if you hold on to any stock overnight it

14:42 is no longer day trading it's called swing Trading swing trading is a form of trading in which you hold stocks over a period of time generally from one day to a few weeks it is a completely different style of trading and you shouldn't use the strategies and tools that you use for day trading to do swing Trading do you remember rule 2 where I mentioned that day trading is a business swing trading is also a business but a completely different kind of business the differences between swing trading and day trading are similar to the differences in owning a restaurant and a food delivery company they both involve food but they are very different they operate with different time frames regulations market segments and revenue models

15:29 you should not confuse day trading with other styles of trading just because the trading involves stocks day Traders always close their positions before the market closes many Traders including myself do both day trading and swing Trading we are aware that we are running two different businesses and we have gone through separate educational programs for the two kinds of trading one of the key differences between day trading and swing trading is the approach to stock picking I do not swing trade and day trade the same stocks swing Traders usually look for stocks in solid companies that they know won't lose their entire value overnight for day trading however you can trade anything including companies that will

16:16 soon go bankrupt because you don't care what happens after the market closes in fact many of the companies that you day trade are too risky to hold overnight because they might lose much of their value in that short of a period of time you have now reached rule 3 of day trading rule 3 Day Traders do not hold positions overnight if necessary you must sell with a loss to make sure you do not hold on to any stock overnight buying long selling short day traders buy stocks in the hope that their price will go higher this is called buying long or simply long when you hear me or a fellow Trader saying I am long 100 shares AAPL it

17:01 means that we have bought 100 shares of Apple Incorporated and would like to sell them higher for a profit going long is good when the market is going higher but what if prices are dropping in that case you can sell short and still make a profit day Traders can borrow shares from their broker and sell them hoping that the price will go lower and that they can then buy those shares back at a lower price and make a profit this is called Short Selling or simply short when people say I am short Apple it means they have sold short stocks of Apple and they hope that prices will drop when the price is going lower you owe 100 shares to your broker it probably shows as minus 100 shares in your account which means you must return 100

17:47 shares of Apple to your broker your broker doesn't want your money they want their shares back so if the price has gone lower you can buy them cheaper than you bought them earlier and make a profit imagine that you borrow 100 shares of Apple from your broker and sell them at one hundred dollars per share Apple's price then drops to ninety dollars so you buy back those 100 shares at ninety dollars and return them to your broker you have made ten dollars per share or one thousand dollars what if the price of Apple goes up to 110 dollars in that case you still have to buy 100 shares to return to your broker because you owe them shares and not money therefore you have to buy 100 shares at

18:35 one hundred and ten dollars in order to return 100 shares to your broker in that case you will have lost one thousand dollars short sellers profit when the price of the stock they borrowed and sold drops Short Selling is important because stock prices usually drop much more quickly than they go up fear is a more powerful feeling than greed therefore short sellers if they trade right can make astonishing profits while other Traders panic and start to sell off however like anything in the market that has great potential Short Selling has its risks too when buying stocks of a company for five dollars the worst case scenario is that the company goes bankrupt and you lose

19:20 your five dollars there is a limit to your loss but if you short sell that company at five dollars and then the price instead of going down starts going higher and higher then there won't be any limit to your loss the price may go to ten dollars twenty dollars or one hundred dollars and still there will be no limit to your loss your broker wants those shares back not only can you lose all of the money in your account but your broker can also see you for more money if you do not have sufficient funds to cover your shorts Short Selling is a legal activity for several good reasons first it provides the markets with more information short sellers often complete extensive

20:06 and legitimate due diligence to discover facts and flaws that support their suspicion that the target company is overvalued if there were no short sellers the price of stocks could unreasonably increase higher and higher short sellers are balancing the market and adjusting prices to their reasonable value their actions are conducive to the health of the market if the price is going to go lower you may correctly ask why does your broker allow you to short sell instead of selling stock themselves before the price drops the answer is that the broker would like to hold their position for the long term Short Selling provides investors who own the stock with long positions with the ability to generate extra income by lending their shares to the shorts

20:53 long-term investors who make their shares available for short selling are not afraid of short-term ups and downs they have invested in the company for a good reason and they have no interest in selling their shares in a short period of time they therefore prefer to lend their shares to traders who wish to make a profit from short-term fluctuations of the market in exchange for Lending their shares they will charge interest therefore by Short Selling you will need to pay some interest to your broker as the cost of borrowing those shares if you short sell only during the same day you usually will not need to pay any interest swing traders who sell short usually have to pay daily interest on their short stocks

21:38 Short Selling is generally a dangerous practice in day trading some Traders are long biased they only buy stocks in the hope of selling them higher I don't have any bias I will short sell when I think the setup is ready and I will buy whenever it fits my strategy having said that I am more careful when I short stocks some strategies that I explain in chapter 7 work only for long positions both flag and bottom reversal some strategies work only for short selling top reversal and others will work in both long and short positions depending on the setup I explain these positions in detail in chapter 7.

22:23 retail versus institutional Traders individual Traders like you and I are called retail Traders we can be part-time Traders or full-time Traders but we're not working for a firm and we're not managing other people's money we retail Traders are a small percentage of the volume in the market on the other hand there are Wall Street investment Banks mutual funds and hedge funds the so-called institutional Traders and most of their trading is based on sophisticated computer algorithms and high frequency Trading rarely is any human involved in the day trading operations of these large accounts true whatever means institutional Traders have considerable money behind them and they can be very aggressive

23:10 you may correctly ask how can an individual Trader like you and me coming later to the game compete against institutional Traders and when the Achilles heel of most institutional Traders is that they must trade while individual Traders are free to trade or to stay out of the market as they deem best Banks must be active in the market and trade large volumes of shares at almost any price an individual Trader is free to wait for the best opportunities to arise unfortunately however the majority of retail Traders Fritter away this fantastic Advantage by over Trading an individual who wants to succeed against the Giants must develop patience and eliminate greed the ultimate problem of losers is not

23:58 their account size but their lack of self-discipline over trading and their bad money management I always use the analogy of retail day trading and guerrilla warfare guerrilla warfare is an irregular approach to Warfare in which a small group of combatants such as paramilitary Personnel or armed civilians use hit and run military tactics such as ambushes sabotage raids and Petty Warfare to maneuver around a larger and less mobile traditional military force the United States military is considered to be one of the most formidable fighting forces in the world however they suffered significantly as a result of jungle warfare tactics used against them in North Vietnam earlier examples include the European

24:44 resistance movements which fought against Nazi Germany during World War II in Guerrilla trading as the term suggests you are in hiding waiting for an opportunity to move in and out of the financial jungle in a short period of time to generate quick profits while keeping your risk to a minimum you don't want to defeat or outsmart investment Banks you are simply waiting for an opportunity to reach your daily profit Target as a retail day trader you profit from volatility in the market if the markets are flat you are not going to make any money only high frequency Traders make money under these circumstances therefore you need to find stocks that will make quick moves to the upside or to the downside in a relatively

25:31 predictable manner institutional Traders on the other hand are trading with very high frequency and will profit from very small movements of price or as it is sometimes called from a choppy price action it is extremely important to stay away from stocks that are being heavily traded by institutional Traders as an individual retail day trader you must stick to retail trading territory you will not trade stocks that other retail Traders are not trading or not seeing the strength of retail day trading strategies is that other retail Traders are also using them the more Traders using these strategies the better they will work as more people recognize the Line in the Sand more people will be buying at that

26:17 point this of course means the stock will move up faster the more buyers the quicker it will move this is why many Traders are happy to share their day trading strategies it not only helps other traders to become more profitable but it also increases the number of traders who are using these strategies there is no benefit in hiding these methods or keeping them Secret as part of the algorithmic trading by computer systems the majority of the stocks will Trend with the overall Market unless they have a reason not to so if the market is moving up the majority of stocks will be moving up if the overall Market is going down the prices of the majority of stocks will

27:03 also go down but remember there will be a handful of stocks that will buff the trend of the market because they have a catalyst I call these stocks Alpha predators I will explain them in chapter 4 and describe how to find them this is what retail Traders are looking for that small handful of stocks that are going to be running when the markets are tanking or tanking when the markets are running if the market is running and these stocks are running too that's fine you just want to make sure you are trading stocks that are moving because they have a fundamental reason to move and are not just moving with the overall market conditions you may ask what is the fundamental Catalyst for stocks that make them suitable for day trading

27:49 here are some examples earnings reports earnings warnings slash pre-announcements earning surprises FDA approval slash disapproval merger slash Acquisitions alliances slash Partnerships slash major product releases major contract wins slash losses restructuring slash layoffs slash management changes stock split slash BuyBacks slash debt offerings when I do reversal trades chapter 7 my favorite reversal trades are on stocks that are selling off because there has been some bad news regarding that company if there is a quick sell-off because of bad news many people will notice and

28:36 start monitoring the stock for what is called a bottom reversal if stocks are trending down with the overall Market such as oil was some time ago you cannot do a good reversal trade their value pops up by 10 cents and you think it's a reversal but then they are sold off for another 50 cents they're selling off because they're trending with both the overall market and their sector oil was a weak sector for a while and the majority of the oil and energy stocks were selling off when a sector is weak that is not a good time for making a reversal trade that's where have to differentiate so here's the fourth rule of day trading rule four always ask is this stock moving because the overall Market is

29:22 moving or is it moving because it has a unique catalyst that's when you have to do a little bit of research as you become more experienced as a Trader you will be able to differentiate between catalyst-based price action and General market trending as discussed as a retail Trader you must be careful that you are not on the wrong side of the trade against institutional Traders but how do you stay out of their way instead of trying to find institutional Traders you find out where the retail Traders are hanging out on that day and then you trade with them think about a schoolyard for a moment you don't want to be off in the sandbox doing your own thing trading a stock that no one is paying attention to you're in the wrong place

30:10 Focus where everyone else is focused focus on the stock that is moving every single day and receiving literally a ton of action that is what day Traders will be looking at can you day trade stock like apple or Priceline or Coca-Cola or IBM of course you can but these are slow moving stocks that are dominated by institutional Traders and algorithmic Traders and in general terms they are going to be very hard to day trade think of it as the equivalent of hanging out in that isolated sandbox instead of hanging out with your peers in the playground where the cool cats are how do you determine what retail Traders are focused on and your place in that playground there are a couple of ways to find your

30:55 best place one is by watching day trading stock scanners I explained later in chapters 4 and 7 about how I set up my scanner the stocks that are gapping significantly up or down are going to be the stocks that retail Traders are watching secondly it's good to be in touch with social media and a community of Traders stock twits and Twitter are usually good places to learn what is trending if you follow a handful of Traders then you'll be able to see for yourself what everyone is talking about there is a huge advantage to being in a community of Traders such as a chat room and there are many chat rooms on the internet as the reader of this book you are welcome to join our private Vancouver

31:42 Traders chat room www.vancouver-traders.com we have hundreds of Traders and we are talking about what is hot today if you're trading completely on your own you're off in the corner of that proverbial playground you're not in touch with what other Traders are doing and inevitably you will make it really hard on yourself because you will not know where the activity is I have tried blocking out social media and trading in a bubble basically doing my own thing and it did not work draw on the laws of high school survival to guide you a little more about what I do as a day trader I don't trade based on the company's fundamentals such as product earnings earnings per share growth and financial statements

32:27 I'm not a value investor and I'm not a long-term investor I don't trade Futures either but I do use Futures to gain an understanding of the overall Market Direction in the near-term future I am also a swing Trader in swing trading I personally do care very much about the fundamentals of the companies I choose to trade their earnings dividends earnings per share and many other criteria but swing trading is not the focus of this book so I won't pursue that topic for now I'm also a Forex Foreign Exchange Market Trader and sometimes I trade Commodities and currencies but in the mornings I am mostly in equities day trader and I focus on the real stocks the majority of day Traders don't trade

33:14 penny stocks or on the over-the-counter OTC market penny stocks are extremely manipulated and they do not follow any of the rules of the standard strategies we at www.vancouver-traders.com trade real stocks sometimes we may be trading Facebook Ticker FB and sometimes we may be trading Apple AAPL but we will always be trading the stocks that are having a big day you may be surprised but on almost every single day in the market there's a stock having a big day because the company has released earnings had a news break or had something bad or good happen to it these are the fundamental catalysts that you must look for what does my day look like as a day

34:01 trader you will read about it in detail in chapter 8 but a day in my life typically starts at around 6 a.m 9 A.M New York time with pre-market scanning I'm scanning to see where there is volume in the market as early as 5 30 am you'll know what stocks are gapping up or gapping down then I start scouring through the news for catalysts that explain the gap I start to put together a watch list I roll some out and then I pick and choose which ones I do and don't like by 9 15 am New York time I am in my chat room going over my watch list with all of our Traders by 9 30 am when the bell rings my plans

34:47 are ready from when the Market opens at 9 30 a.m until around 11 30 A.M New York time is when the market will have the most trading volume and also the most volatility this is the best time to trade and to especially focus on momentum trading which will be explained later the advantage of having all of that volume is that it provides liquidity this means there are plenty of buyers and plenty of sellers which in turn means that you can easily get in and out of Trades around midday you can have good trading patterns but you won't have a volume this means a lack of liquidity which makes it harder to get in and out of stocks this is especially important to consider

35:33 if you want to take large shares my focus has always been on trading at the Market's opening which is 9 30 a.m in New York Eastern Time I personally trade only within the first one or two hours of the Market's opening if you join the private chat room that I mentioned above you will see that I rarely make any trades after 10 30 am on a good day I have reached my goal by 7 30 a.m Vancouver time 10 30 A.M New York time and I'm easing up Often by lunchtime I'm already hit my goal and I'm going to be sitting on my hands unless there is that perfect setup from 4 pm until 6 pm I am in trading courses and we're

36:18 reviewing our trades from the day why is the market at low volume during the midday and afternoon imagine you made one thousand dollars by 10 am what are you going to do are you going to walk away with that profit or will you keep trading until you lose that money hopefully you will walk away many people are finished for the day at some point in the morning and then they are going to go golfing or spend the rest of the day at their leisure but if they have lost one thousand dollars by 10 AM those Traders are going to keep fighting it out to stay in the market they're going to keep trading trying to make back what they lost that means that midday trading is dominated by Traders who have lost in

37:03 the morning and are aggressively trying to regain their losses that causes a lot of volatility and not in a good way that causes stocks to shoot up and down because people are going in and out with Market orders it's this time of day that I consider to be dominated by more amateur Traders and trading extrapolating from this I go really easy at midday I avoid pre-market trading because there's a very low liquidity as there are very few Traders Trading that means stocks can pop up a dollar then drop a dollar and you can't get in and out with large shares you have to go really small and you have to use such small positions that for me at least it's just not worth it

37:49 if you don't mind trading in only a couple of hundred shares then you can certainly trade pre-market I live in Vancouver Canada so in my time zone The Market opens at 6 30 a.m Pacific time this means that my days start really early the great Advantage for me is that I can be finished trading before most of the people in my city are even out of bed I can then spend the rest of my day skiing climbing with family and friends or focusing on other work and the other businesses that I have I try to hit my daily goal by 7 30 am my time which is 10 30 a.m eastern time and then ease up you know how easy it is to lose money once you have some money in your pocket

38:34 you should hold on to it chapter 3. risk and account management to be a successful day trader you need to Master Three essential components of trading sound psychology a series of logical trading strategies and an eff active risk management plan these are like the three legs of a stool remove one and the stool will fall it is a typical beginner's mistake to focus exclusively on indicators and trading strategies a good trading strategy delivers positive expectancy it generates greater profits than losses over a period of time all of the strategies outlined in chapter 7 have been demonstrated if executed properly to show positive

39:20 expectancy but keep in mind even the most carefully executed strategy does not guarantee success in every trade no strategy can assure you of never having a losing trade or even suffering a series of losing trades this is why risk control must be an essential part of every trading strategy the inability to manage losses is the number one reason that new Traders fail in day trading it's a common human inclination to accept profits quickly and also to want to wait until losing trades returned to even by the time some new Traders learn to manage their risk their accounts are badly if not irreparably damaged to be a successful Trader you must learn

40:05 risk management rules and then firmly Implement them you must have a line in the sand that tells you when to get out of the trade it's going to be necessary from time to time to admit to feed and say I was wrong worth the setup isn't ready yet where I'm getting out of the way I'm generally a successful Trader but I still lose frequently that means I must have found a way to be a really good loser lose gracefully take the losses and walk away I can't emphasize enough how important it is to be a good loser you have to be able to accept a loss it's an integral part of day trading in all of the strategies that I explain in chapter 7 I will let you know what is

40:52 my entry point my exit Target as well as my stop loss you must follow the rules and plans of your strategy and this is one of the challenges you will face when you are in a bad trade you may very likely find yourself justifying staying in a bad trade by saying well you know it's apple and they make really great smartphones they're definitely not going out of business I'll just hold this a little longer you do not want to do that you must follow the rules of your strategy you can always get back in but it's hard to recover from a big loss you may think I don't want to take a fifty dollars loss well you definitely don't want to take a

41:37 subsequent two hundred dollar loss and if you ended up taking an 800 loss it would be really hard to recover from that take the quick losses get out and come back when the timing is better every time you trade you're exposing yourself to the risk of losing money how do you minimize that risk you need to find a good setup and manage the risk with proper share size and stop loss here is my next rule Rule 5 success in day trading comes from risk management finding low-risk entries with a high potential reward the minimum win lose ratio for me is two to one a good setup is an opportunity for you to get into a trade with as little risk

42:23 as possible that means you might be risking one hundred dollars but you have the potential to make three hundred dollars you would call that a three to one profit to loss ratio on the other hand if you get into a setup where you're risking one hundred dollars to make ten dollars you have a less than one risk reward ratio and that's going to be a trade that you should not take good Traders will not take trades with profit to loss ratios of less than two to one it means if you buy one thousand dollar worth of stock and are risking one hundred dollars on it you must sell it for at least one thousand two hundred dollars so you will make at least two hundred dollars of course if the price comes down to nine hundred dollars you must accept the loss and exit the trade with only nine

43:10 hundred dollars one hundred dollars loss if you cannot find a setup with a good profit to loss ratio then you should move on and keep looking for another trade as a Trader you are always looking for opportunities to get low risk entries with big win potential being able to identify setups that have big win potential is also part of the learning process as a beginner Trader you may not be able to differentiate between a range of setups it may be difficult for you to recognize what is a home run bull flag and what will end up being a false Breakout that's something that comes with both experience and training we will cover this in more depth in the coming chapters you can learn from videos on YouTube and

43:56 Google you can also join our private chat room free to you in www.vancouvertraders.com where I explain my trades in real time while I am trading them you will be able to observe me and my monitor and my trading platform using a two to one win lose ratio I can be wrong 40 of the time and still make money again your job as a day trader is managing risk it is not buying and selling stocks your broker is buying and selling stocks for you in the market your job is to manage your risk and account whenever you click Buy in your trading platform you expose your money to a risk how do you manage that

44:42 you essentially have three steps in managing risk you need to ask yourself one am I trading the right stock chapter 4 focuses on finding the right stocks for day trading I will explain in detail how to find stocks that are suitable for day trading and what criteria you should look for in them you must avoid stocks that one are heavily traded by computers and institutional Traders two have small relative trading volume three are penny stocks that are highly manipulated and four don't have any reason to move no fundamental catalysts I will explain these in more detail in chapter four do remember that risk management starts

45:27 from choosing the right type of stock to trade you can have the best platform and tools and be a master of strategies but if you are trading the wrong stock you will definitely lose money 2. what share size should I take one share 10 shares or 100 shares what about 1 000 shares this depends on your account size and your daily Target if you are targeting one thousand dollars a day then 10 or 20 shares might not be enough you either have to take more shares or increase your account size if you don't have enough money to trade for a one thousand dollar daily Target you should lower your daily goal I am holding around twenty five thousand

46:14 dollars in my trading account and I usually choose 800 shares to trade my daily goal is five hundred dollars or one hundred and twenty thousand dollars per year that is sufficient for my lifestyle what is your trading goal three what is my stop loss the absolute maximum a Trader should risk on any trade is two percent of his or her account equity for example if you have a thirty thousand dollar account you should not risk more than six hundred dollars per trade and if you have a ten thousand dollar account you should not risk more than two hundred dollars if your account is small limit yourself to trading fewer shares if you see an attractive trade but a

46:59 logical stop would have to be placed where more than two percent of your money would be at risk then pass on that trade and look for another one you can risk less but you should never risk more you must avoid risking more than two percent on a trade three-step risk management step one determine your maximum dollar risk for the trade your planning never more than two percent of your account calculate this before your trading day starts step two estimate your maximum risk per share the strategy stop loss in dollars from your entry this comes from the strategy set out in chapter 7 where I explain in each strategy what the stop loss should be

47:46 step 3. divide one by two to find the absolute maximum number of shares you are allowed to trade each time for example if you have a forty thousand dollar account the two percent rule will limit your risk on any trade to eight hundred dollars let's assume you want to be conservative and risk only one percent of that account or four hundred dollars that will be step one suppose you look at the stock of blackberry ticker bbry for ABCD pattern strategy chapter 7. you buy the stock at sixteen dollars and want to sell it at nineteen dollars with a stop loss at 14.50 you'll be risking one dollar and fifty cents per share

48:31 that will be the step two of risk control for step three calculate your share size by dividing step one by step two to find a maximum size you may trade in this example you will be allowed to buy only 266 shares or rounded to 250 shares with the strategies introduced in chapter 7 I explain where my stop loss would be based on technical analysis and my trade plan I cannot consider maximum loss for your account because I of course don't know your account size you need to make that judgment for yourself for example when your stop would be above of a moving average you need to calculate and see if that stop would be bigger than your maximum account size or

49:17 not a break of moving average will yield a 600 loss and you have set a 400 maximum loss per trade then you should either take fewer shares in that trade or not take that trade at all and wait for another opportunity you may correctly argue that it will be difficult to calculate share size or stop loss based on a maximum loss on your account while you are waiting to jump into a trade you will need to make a decision fast or else you will lose the opportunity I understand that calculating your stop loss and maximum loss in your account size in a live trade is difficult remember rule one day trading is not supposed to be easy trading needs practice and I strongly recommend that new Traders paper trade

50:04 under supervision for at least three months in a live simulated account it sounds crazy at the beginning but you will quickly learn how to manage your account and your risk per trade you will be amazed at how rapidly the human brain can do calculations on what share size to take and where to set the stop loss trading psychology and risk management a burning question when you begin your trading career is why do most Traders fail day trading requires you to make quick decisions and at the same time to be very disciplined when you hear breaking news that an activist investor has just taken a stake in amazon.com Inc your initial reaction might be to load the boat I can hear the logic that compels you

50:51 let's buy 5 000 shares in Amazon let's put on a big order but you need to be able to make a quick decision on whether you should buy or sell or sell short that stock and you need to make that call with discipline my trading strategies slowly improved with time but the Breakthrough came when I realized that the key to winning was controlling myself and practicing self-discipline it is hard enough to know what the market will do but if you don't know what you will do the game is lost new trading strategies tips for me are from this book or even the most sophisticated software imaginable will not help traders who cannot handle themselves you must ask yourself questions does this fit into my trading strategy

51:38 what strategy will this fit into if this trade goes the wrong way where is my stop how much money am I risking in the trade and what is the reward potential this is what many Traders find difficult all of these decisions the very process of making sure these decisions fit into your risk tolerance and your strategy parameters are a tough multitasking call not only is it multitasking but it is multitasking while under stress I understand that stress there have been times when I've been in the trade had fifteen thousand dollars in shares and all I needed to do was sell but as I was looking at my keyboard I couldn't even figure out which keys to

52:23 punch this sort of paralysis Is Not Unusual when you're overwhelmed whenever that happens you need to realize that you have pushed yourself a little too far out of your comfort zone it happens to every single one of us expect it to once you have some experience under your belt it's good to work on the edge of your comfort zone so you're always pushing your boundaries however if you find yourself too far outside of your comfort zone and outside of your risk tolerance you can end up making some significant and costly mistakes I encourage you to foster a state of self-awareness within yourself dial in are you focused are you calm

53:09 are you making good decisions be in touch with the results of your decisions and constantly be reviewing your performance are you Trading profitably have you had five winners in a row or have you had five losses in a row if you are on a losing streak will you be in touch with your own emotions and maintain your composure or will you let your judgment I cannot overstate how critical that skill will be consider skill and discipline to be your trading muscles muscles require exercise to grow and once you've grown them they need to be exercised or you will lose them that's what I experience every day continually exercising my ability to practice self-control and discipline

53:55 some of these skills however are comparable to learning to ride a bicycle once you've learned it riding a bike is a skill that can't be taken away once you've learned it the skill of identifying a good stock chart isn't going to go away but remember discipline is something you will need to constantly work it to be a successful Trader you've entered a profession in which you will always be learning that's great in fact it's better than great it's stimulating but it's important to remember that if you start to get overconfident and think you've outsmarted the market on trading wisdom or that you don't need to learn anymore you'll often get a quick reminder from that market you'll lose money and you will see that

54:42 the market is correcting you I will reiterate being able to make quick decisions and being able to make and then follow your trading rules are critical for success in the market as you continue through this book you are going to read much about risk management everything that Traders do comes back to risk management because ultimately it is the most important concept for a Trader to understand all day long your managing risk related to this is the ability to manage risk so that you will make good decisions Even In the Heat of the Moment that's the next rule of day trading rule six your broker will buy and sell stocks for you your only job as a day trader is to

55:28 manage risk you cannot be a successful day trader without excellent risk management skills even if you are the master of many effective strategies as mentioned before Traders are in the business of trading you need to Define your risk as a business person the maximum amount of money you'll risk on any single trade unfortunately there is no standard dollar amount that I can suggest as explained earlier an acceptable risk depends on the size of your trading account as well as on your trading method personality and risk tolerance but remember the two percent rule explained above it is worth repeating the absolute maximum Traders May risk on any trade is two percent of their

56:15 account equity for example if you have a thirty thousand dollar account you may not risk more than six hundred dollars per trade and if you have a ten thousand dollar account you may not risk more than two hundred dollars if your account is small limit yourself to trading fewer shares if you see an attractive trade but a logical stop would have to be placed where more than two percent of your Equity would be at risk pass on that trade and look for another trade you may risk less but you may never risk more you must avoid risking more than two percent on a trade chapter 4. how to find stocks for trades your next challenge as a new Trader is how to find actual trades

57:01 you may understand how day trading works but when it comes to actually finding setups in real time it can be difficult I certainly experience this as a new Trader I was often able to see setups in hindsight when I looked back on charts during the day but finding them while the day was unfolding was very difficult Alpha predators you must remember that retail trading does not work on all stocks it only works on the stocks that have high relative volume some stocks like Apple Incorporated ticker AAPL will on average trade millions and millions of shares each day while other stocks on average might trade only 500 000 shares a day does this mean you should trade AAPL

57:47 only no high volume will be relative from one stock to another you don't just look for high total volume there are some stocks that on average will trade with much volume you need to look for what's above average for that specific stock 30 million shares of AAPL traded in one day might very well not be higher than usual do not trade AAPL unless it has a very unusual trading volume if trading volume is not higher than normal it means that the trading is being dominated by institutional Traders and high frequency trading computers stay away from it take a look at the AAPL daily chart for the summer of 2016.

58:35 as you can see there were only two days that had high relative activity they're marked with arrows on the chart interestingly enough when you take a close look at the chart you realize that on those days the stock gapped up or down I marked those price gaps in the chart if you wanted to trade AAPL you should have traded it only on those days the other days were comprised of just normal high frequency algorithmic Trading retail Traders should stay away from stocks that are trading normally the most important characteristics of high relative volume stocks is that these stocks trade independent of what their sector and overall Market are doing when the market is weak it means that

59:22 the majority of stocks are selling off it does not matter if it is Apple Facebook Amazon or Exxon when the market is strong the prices of the majority of stocks will be going higher similarly when you hear someone say the market is bare or collapsing they don't mean a specific stock they mean that the whole stock market is losing its value all stocks together the same is true for specific sectors for example when the pharmaceutical sector is weak it means all of the pharmaceutical companies are losing their values together how do you recognize behavior of Market index funds such as the Dow Jones Industrial Average djia or the S P 500

1:00:09 spy are usually good indicators of what the overall Market is doing if the Dow Jones or the Spy are red it means that the overall Market is weak if the Dow Jones or spy are strong then the overall Market will be going higher the behavior of stocks that have high relative volume is independent of the overall Market every day only a handful of stocks are being traded independently of their sector and the overall Market day Traders trade only those stocks I call those stocks Alpha predators in the animal kingdom an alpha predator is a predator at the top of a food chain upon which no other creatures prey in day trading alpha predator stocks are

1:00:55 the ones that are independent of both the overall market and their sector the market cannot control them therefore the next rule is about Alpha predators rule 7. retail Traders trade only Alpha Predators High relative volume stocks that have fundamental catalysts and are being traded regardless of the overall Market what makes a stock an alpha predator usually it is the release of fundamental news about the stock either the day before or during the same trading day important news or events for companies can have huge effects on their value in the market and therefore act as fundamental catalysts for their price action as mentioned in Chapter 2 some examples

1:01:40 of the fundamental catalysts for stocks that make them suitable for day trading include earnings reports earnings warnings slash pre-announcements earning surprises FDA approval disapproval murder slash acquisitions alliances slash Partnerships slash major product releases major contract wins losses restructuring slash layoffs slash management changes stock split slash BuyBacks slash debt offerings in chapter 7 I explain specific day trading strategies such as momentum reversal dwap strategy and moving average

1:02:27 for the moment your main question is how do I find the stock for each strategy I categorize stocks for retail trading into three classes based on my experiences this categorization provides some clarity on how to find stocks and on how to adopt a strategy for them you will find other categories elsewhere and some of my fellow day Traders will disagree with my categorization saying with some justification that it is very simplified before explaining the three categories let me explain the definition of float and market capitalization or market cap float means the number of shares available for trading Apple Incorporated for example as of July 2016 had 5.3 billion shares in the

1:03:15 market that are available for buying and selling apple is considered a mega cap stock these stocks usually don't move much during the day because they require significant volume and money to be traded so Apple shares might on average change by only one or two dollars each day they are not very volatile and therefore day Traders don't like trading them day Traders look for volatility on the other hand there are some stocks that have very low float for example cesca Therapeutics Incorporated ticker cool has only a 1.2 million share float this means that the supply of shares of cool stock is low and therefore a large demand can very quickly move the price

1:04:00 of the stock low float stocks can be volatile and move very fast most of the low float stocks are under ten dollars because they are early stage companies which for the most part are not profitable they hope to grow and by growing further they issue more shares and raise more money from the public market and slowly become Mega cap stocks these low float stocks are called small cap or micro cap stocks day Traders Love Low float stocks now let's return to the three categories I had just mentioned the first category consists of low float stocks that are priced under ten dollars these stocks are extremely volatile moving 10 percent 20 percent 100 percent

1:04:46 or even one thousand percent a day yes there have been these kinds of moves you must be careful with this category just as you can turn your one thousand dollars into ten thousand dollars in a single trade your one thousand dollar can easily turn into ten dollars low float stocks under ten dollars are often highly manipulated and difficult to trade and therefore only very experienced and highly equipped retail Traders should trade these stocks I personally rarely trade in them if someone claims to have turned one thousand dollars into ten thousand dollars in a month and if it's true they must have traded this type of low float stock no beginner or even intermediate Trader can trade with such accuracy and

1:05:33 efficiency if novice Traders tried trading low float stocks that are under ten dollars they would more likely turn their one thousand dollars into nothing in a matter of days when it comes to low fault stocks the bull flag momentum strategy which I detail in chapter 7 works best the other strategies in this book are not suitable for low float sub Dash dollar 10 stocks you generally cannot sell short low float stocks that cost less than ten dollars for short selling you need to borrow shares from your broker and it's rare that a broker will lend you such volatile stocks even if your broker is willing to lend them to you I strongly advise that you do not attempt to short sell them they can easily Surge and you will end

1:06:20 up wiping out your account you definitely can become a full-time profitable day trader without Short Selling risky stocks so leave that to the Wall Street professionals the second category is medium float stocks in a range of ten to one hundred dollars these stocks have medium floats of around 5 million to 500 million shares most of my strategies explained in this book work well on these stocks especially the vwap and support were resistance strategies medium float stocks that are more expensive than 100 are not popular among retail day Traders and I myself avoid them you usually cannot buy many shares of them because of their high price therefore it is basically useless to day

1:07:07 trade them leave them for the institutional Traders the third category of stocks for trading is make a cap stocks like apple Alibaba Yahoo Microsoft and Home Depot these are well-established companies that usually have over 500 million dollars in shares outstanding available for trading these stocks are traded in millions of shares every day as you may guess these stocks move only when large institutional Traders investment Banks and hedge funds are buying or selling large positions retail Traders like us who typically trade 100 to 1000 shares usually cannot move the price of these stocks retail Traders should avoid these stocks

1:07:53 unless there is a good fundamental Catalyst for them from the strategy set forth in chapter 7 reversals and moving average strategies usually work well on these stocks do not forget though unless there is a fundamental Catalyst these stocks are being heavily traded by computers and high frequency Traders and are not suitable for retail day trading finding trades trades can be found in two ways one pre-market morning watch list two real-time intraday scans let me explain how each day I find Alpha Predators for trading I use my scanner every morning and program it to find stocks suitable for my day trading based on the following criteria

1:08:39 one stocks that in a pre-market gapped up or down at least one dollar 2. stocks that have traded at least fifty thousand shares in the pre-market three stocks that have an average daily volume of over 1 million shares 4. stocks that have averaged true range of over 50 cents five there is a fundamental Catalyst for the stock why these criteria when there are some fundamental catalysts there will be unusual pre-market activity stocks Gap up or down before the Market opens with a significant number of shares being traded such as 50 000 shares I look for highly traded stocks so that buying and selling 1 000 shares won't be

1:09:24 a problem that is why I'm looking at stocks with an average daily volume of over 1 million shares I also am looking for stocks that usually move in a good range for trading that is why I look at average true range ATR ATR means how large of a range a stock has on average every day if ATR is one dollar then you can expect the stock to move around one dollar daily that is a good number if you have 1 000 shares you may profit one thousand dollars from the trade but if ATR is only 10 cents then the trading range is not attractive for me as you can see I have highlighted the Gap percent and Float columns on my

1:10:10 watch list from over 4 000 stocks I now have only nine candidates I will go over each of them before the Market opens at 9 30 am I will check the news on each of them to learn why they gapped up or down is there a fundamental Catalyst for that stock has there been any news coverage or extreme events for the company from these nine I usually select three or four stocks to watch closely you cannot watch nine stocks and

…