I don't generally post anything unrelated to Trading, but today there was market related news story so compelling that I just couldn't ignore it.  Check out this story Porn kings Larry Flint and Joe Francis go begging for a bailout

Now I pose a challenge to my readers.  Can anyone come up with a convincing argument why the porn industry is not every bit as deserving of bailout money as the financial institutions that have already received it?  If you can, go ahead & post it in the comments section.  Anyone who is able to convince me will not only be personally recognized on this blog, but will receive a personal letter of recommendation from me for a high ranking position in the Treasury Dept (and you know what that's worth). 

        

Here's a short post that could have Big impact on your Day Trading.  A simple yet profound statement. 

When you trade, you must be in a mindset of Calm, Alert, Focus

Spend time to consider this.  Think about each of the 3 words and their implications: Calm, Alert, Focus

So how do you achieve the mindset of Calm, Alert, Focus?  The first step is to simply think deeply about it, and come to really believe that if you could achieve it, that your trading would improve. And it almost goes without saying that you need a quiet place to trade, free of distractions. 

While you are trading, periodically try to notice if you are in the proper mindset.  Suppose you just took a big loss on a trade.  You're angry about the trade.  This is the second losing trade in a row!  Now you're starting to think about jumping into a quick trade to "get even".  So now you ask yourself: Am I in the mindset of Calm, Alert, Focus? Since the answer is certainly NO, the smart thing to do is get up and walk away from the computer  for a while.

Every trader must discover for themselves just how to achieve this proper mindset over a period of time.  Sorry, it's elusive & there's no simple trick to it. 

Calm, Alert, Focus is similar to the concept of FLOW, originated by the psychologist Mihaly Csikszentmihalyi.  He wrote an excellent book called "Flow".  Although it is not specifically about trading, I highly recommend it to all Day Traders.  Interesting, a few of the most valuable books for traders are not specifically about trading.  And this is one of them. 

BTW,  the next installment of the post  Take up Arms in your Day Trading with the TRIN   will appear soon. 

        

The TRIN, also called the Arms Index, was first developed by Richard W. Arms, Jr.   My apologies to Mr Arms & all my readers for the title of this post. 

This is Part One in a series on the TRIN. 

Ever see any of those trading contests where each trader who enters starts with the same amount of money in his account, then after a certain period of time the trader with the largest account wins?  Imagine there's the Minimalist Traders Contest with big prizes, with only two strict rules:

1. Day Trade any stock or Future you like (no overnight positions)
2. Your charts are allowed to have price bars or candles of the item you're trading, but you can choose ONLY ONE other technical analysis tool. 

So you could choose Stochastics as your technical analysis tool .  Or you could choose RSI.  Or Moving Averages.  Or Bollinger Bands.  Or CCI.  Or Put/Call ratio.  Which would you choose?

I wouldn't even have to think about it.  I'd choose the TRIN.

So what exactly is the TRIN?  It's a way of comparing the number of stocks that are advancing or declining in the market, to the volume of trading occurring in those advancers & decliners.  So for example if there were more advancers than decliners, that would sound bullish.  But if not only were there more advancers than decliners, but the advancers were getting more than their share of the Volume, that would REALLY be bullish.  And that's the type of information the TRIN gives you.


The formula for the TRIN is:

Number of Advancing Stocks  /  Number of Declining Stocks
         Advancing Volume  /  Declining Volume

The TRIN was originally applied to NYSE data, but later was applied to other markets as well.  So now you have:

• NYSE TRIN
• NASDAQ TRIN
• AMEX TRIN
• RUSSELL 2000 TRIN

Part Two in this series on the TRIN will be posted soon...

        

This is the second part of a two part post. If you have not read the first part  Impulse Trades and the BEAST  I would advise you to read it now before proceeding.

Based on the  thoughtful comment  to by a member of the Trade 2 Win         forum  called 'nine", here are more ways to defeat the BEAST and thus reduce Impulse Trades.

For many traders the BEAST tends to show up right after a losing trade.  If    you recognize this pattern in your own trading, then after each losing trade physically do something to make it impossible to make the Impulse Trade.     Like actually change your trading platform to a mode where it is impossible    to enter a trade.  Or get up & leave the room where your trading computer is. Or set a timer after the completion of each trade & add to your trading plan that no trades will be made until so many minutes have elapsed from end of the previous trade.

Get in the habit of noting each component piece of your setup as it occurs in real time.  This could be done by saying it aloud, writing it down on a piece of paper,  or typing it on the charts on your computer screen.  The basic idea is that you do not enter a trade until all the correct parts of your setup have been noted.   This helps keep the mind in planning mode which tends to crowd out the BEAST.

Concentrate on developing a mindset of calm alert focus at all times when you are trading.  As you do this, try to notice when you are in this mindset, and when you are not.  This is not a quick fix.  It will take time develop.  The goal is to be able to enter this mindset most of the time when you are trading, and to able to recognize when you are just not in the mindset of calm alert focus.  When you are not in this mindset, you should not be trading. That's when it's likely the BEAST may be paying you a visit.

        

As you exit that losing trade with a painful loss, you curse under your breath and say "Why the hell did I make that stupid trade!!!"  You can't believe it happened again.  He just made another Impulse Trade. 

Being a serious trader, of course you have a Trade Plan with specific criteria for entering trades (more on Trade Plans here)

But when you enter a trade that has nothing to do with your Trade Plan, that's an Impulse Trade.   For many traders making  Impulse Trades is a big problem. 

The strange thing is many traders know intellectually that making impulse trades is dumb, yet they continue to do it anyway.  They seem unable to stop. What's going on here?  Why do you do it?  The short answer is that the BEAST makes you do it.

That's right, the BEAST makes you do it.  What the heck is the BEAST?  It's an appetite that originates in the biological, animal side of human nature.  It is a very real place in the human brain based on how we evolved from more primitive creatures.  The BEAST is that part of the brain that seeks pleasure but doesn't care about the consequences. And it doesn't want to wait.  It's the very same thing that compels the alcoholic to take that next drink.  In the alcoholic, the BEAST is easy to understand - it wants the pleasure of the next drink, but doesn't care about the consequences like liver damage.

Would psychologists or  neuro-scientists ever use the term BEAST?.  Of course not.  It's just a descriptive way to describe the phenomenon.


The concept of the BEAST may sound a little far-fetched, but it sure does explain a lot of irrational self destructive human behavior.  Think about the guy who engages in unprotected sex, knowing full well the consequences. Think about the severely obese person who sits down to eat a half gallon of ice cream.  Think about the kid speeding along at 95 miles an hour, knowing full well if he gets one more speeding ticket he's going to lose his license.
So what on earth does any of this have to do with trading?  In the trader, the BEAST wants the pleasure of big win, but doesn't care about the consequences of wiping out your account.  Or it just wants the excitement of the trade.

Suppose like many traders you do have some problems with Impulse Trades that have baffled you in the past.  And now maybe you're thinking: As strange as this BEAST idea sounds, maybe there's something to it. But how can this help me trade better?  Simple. The next time you're about to pull the trigger on that big trade, just pause a few seconds and ask yourself if the trade really meets all your setup criteria, or maybe it's the BEAST telling you  to act.

        

Ever notice how many trading articles out there include useless lists of tips that will supposedly make you a better trader?  The TuffTrader is looking for valuable information & insights, but ends up wasting time wading thru Bird Poop like this.

Two  minutes of Google searching and a little copying & pasting, allowed me to find a couple of examples to show you what I mean.  These were just the first two I happened to come across.  The following are real articles from the Internet, from which I just copied out the tips lists and deleted the rest of the text for clarity.

The first is article is called "5 Ways To Improve Your Investing Skills"
1. Do Your Research
2. Evaluate Your Financial Goals
3. Don’t Be Hasty
4. Weight your risks
5. Continue Investing

The second article is called "Tips for Winning at Day Trading"  (from Businessweek, believe it or not)
1. Have a system and stick to it like Crazy Glue   [OK,  this one tip I would admit has true merit]
2. Cut your losses
3.The only thing you have to fear is fear itself
4. Don't get greedy
5. Worry about what you can control. Ignore what you can't
6. The market is always right.
7. A little bit of technical analysis never hurts.
8. Don't try to catch a falling safe
9. Buy low, sell high 
10 - 14.  Blah, Blah, Blah, more of the same not even worth my effort to copy & past

Ok, so why are all these tips a useless waste of time?  Here's the TuffTrade Tip List for Spotting Useless Tip Lists:
1. You've heard them all before a million times
2. They are so general as to be impossible to apply
3. The are so obvious that if you don't already know them you have no business trading anyway
4. They are not Falsifiable

That said, here's the TuffTrade Cynical Tip List, guaranteed to be Original, contain no Bird Poop and not be a useless waste of time:
1.  If someone tells you to buy this or that stock because it just can't lose, punch him in the nose, then run like hell
2.  Instead of listening to paid stock analysts, you are better off getting advice from cab drivers.
3.  The more time you spend listening to the financial news, the worse your trading results will be
4.  Every trader should read the book "Extraordinary Popular Delusions and the Madness of Crowds".  Even though it was written in 1852, it's better than whatever the flavor of the month trading book happens to be.
5.  If you can think of another way to earn a living aside from trading, do it. 
6.  You can learn a lot about the markets by watching a herd of  Wildebeest.  Think crowd behavior.  As a trader, don't be a Wilderbeest.
7. Spend a minimum of 1000 hours learning about the markets before you even consider putting any real money at risk
8.  Many of the celebrity traders made the huge money they did  thru illegal means.  Think Michael Milkin, Ivan Boesky & Bernard Madoff .  Since you probably don't intent to break the law, you are at a distinct disadvantage

        

In my post Day Trading Lessons: The Roadmap I present a list of steps to learn to Day Trade.  Here are the details of Step 12:

Sim-Trade profitably

If you've been following the last 11 lessons in this series, you now have a Trading Plan.

How do you know if you have a good (profitable) Trading Plan? Follow it to the letter for a few months in SIM mode, and if you make a lot of money, then you probably have a good Plan.  No matter how good you think your plan is, you're only going to know for sure by actually following it for a while. OK,  suppose you did follow it for a few months and end up losing money (luckily, not real money)? Hopefully after this experience  you've learned enough over the months to modify your trade plan to one that works. 

Just in case you are not familiar with SIM trading, it's short for SIMulated Trading, and also called Paper Trading.  It's a service available from many brokers where it looks and feels just like a real trading account, except you are only trading play money. 

One reason to SIM trade prior to trading cash, which few people would argue with, is simply to get used to your trading platform.  In other words, to avoid entry errors while you are learning the particular software you will be using enter & exit trades.  You want to avoid the shock of opening your account one morning, noticing a huge unexpected loss, and thinking to yourself  "I thought I had exited that position yesterday". Oops!!!

The use of SIM trading to test your Trading Plan, however, is more controversial.  A lot a smart traders would argue that you are wasting your time, because when real money is on the line you will trade differently than when you know it's only play money.  While I agree this arguement has some merit (you probably WILL trade differently when real money is on the line) I still stick to my advice above: To test your Trading Plan, follow it to the letter for a few months in SIM mode.  Keep reading ...

You could break down the ingredients of trading profitability into 3 components:
Component 1.   Having a good Trading plan
Component 2.   Successfully dealing with your emotions to allow you to faithfully execute your trading plan
Component 3.   Making good judgment calls within your trading plan. 

It is Component 2 that critics would argue makes SIM trading a waste of time.  Will you react the same way losing $5000 in hard cold cash than if it was just play money?  Probably not.  To minimize this drawback to SIM trading, you have to do everything possible when you SIM trade to treat it exactly like you were trading real cash.  So pretend you are trading real money.  Get excited when you have a nice SIM win and scold yourself when you make a dumb mistake that causes SIM loss. 

Here's a method you can try, to help you care more about your wins and losses in SIM mode.  And of course caring helps the experience be psychologically more like really trading cash.  Make a vow to yourself that you will not trade cash in until you have met some specific goal in your Sim trading.  For example, your goal could be to Sim trade with a minimum $250 per week profit, for 4 weeks in a row before you start trading cash.  Since you are eager begin trading cash to really see that money start coming in, every winning Sim trade feels good because you know you're getting that much closer to trading cash, and every losing SIM trade feels bad because it puts it that much farther away.

Still on Component 2,  let's say you SIM trade your Plan for a few months and you end of LOSING a sizable amount of play money.  Then you know almost for sure that your Trade Plan is no good.  Because if you were to use the same plan to trade cash, it's likely the added emotions of trading cash would cause you to trade worse, not better.  Now suppose  you SIM trade your Plan for a few months and you end of EARNING a sizable amount of play money.  Then you start trading cash, but you start LOSING money.  Now you can assume you have a good Trading Plan, but are not successfully dealing with your emotions to allow you to faithfully execute it.  Ok, so it sucks that you spent all this time only to lose money, but at least you have a logical direction to go in to try to fix the problem.

What about Component 3?  What do I mean by "Making good judgment calls within your trading plan "?  It has to do with how you decide to enter and exit trades, whether it's more mechanical or more discretionary.  Mechanical entry and exit methods are predefined in such a specific and rigorous manner that they  require little or no judgment on the part of the trader to make the trading decision.   Discretionary methods are predefined in a more general way and thus require much more judgment.  The more discretionary your entry method is, the more often you will find yourself asking this question: "The charts show that the minimum criteria of my setup has been met, but is this a high enough probability trade to pull the trigger?"  Answering this question wisely requires good judgment, and the best way to develop this judgment is through SIM trading.  The idea is by making trade after trade, over time you begin to develop this judgment.  Whether you SIM trade or not you'll still probably have to go through this learning period, but SIM trading is kinder to your account balance. 

So quit reading blogs, you've got work to do. 

        

In my post Day Trading Lesson: The Roadmap I present to list of steps to learn to Day Trade.  Here are the details of Step 11:

Create a Trading Plan

A Trading Plan is a business plan for your trading business.  It essentially defines everything that you will do in order to earn money trading.  It puts into a formal statement a lot of the thinking that hopefully you've already done if you've your way through this roadmap to this point.

The problem that many traders have is they have not carefully thought out a method that is likely to be profitable over the long term, and they don't consistently practice of profitable method day after day.  Your Trading Plan is a good tool to avoid this problem.  So if you want to stand a chance of making any money in the markets, he damn well better have a good trading plan and the discipline to follow it.

There are 4  "Rules"  to creating your Trading Plan.  Other than these, a  "good" Trade Plan can vary quite a bit depending on your personality and style.  

1.  It must be carefully thought out over a period of time

2.  It must be in writing

3.  It must include Risk Management

4.  It must include your Edge

Here's an example of a Trade Plan to get your started:
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Miracletech’s Superior Trade Plan

Date ____________

Plan was modified on this date ________

Edge
The purpose of this plan is to define my “edge”, ie a system that has better than chance odds of creating profits.  A good edge in general will either produce more winners than losers, bigger winners than losers, or both.  A good edge is much more than just a setup.  All parts of this plan should contribute to my edge.

Discipline
Without the discipline to follow this plan, it is useless

Markets
Example 1.  I trade emini futures on an intraday time frame. I trade only YM & ES, to allow max concentration.  Since I only trade these two,  I have been able to watch them long enough to have a pretty good idea of their “personality”.

Example 2. I trade NASDAQ stocks on an intraday time frame. I trade these 8 stocks _______ only, because my research shows me that they have good volume, trend well & prices vary enough to make a profit

Example 3.  I trade NYSE stocks on an intraday time frame. I trade any NYSE stock that meets my criteria that day.  I use a scanning software called _________ to help me find stocks that meet my criteria that day.

Recording
• I will enter every trade I make (Sim or cash) in a spreadsheet
• I will make a diary entry every day I trade or work on trading

Daily Trade Routine
I follow a written “Daily Trade Routine” (a separate document), which includes the most important tasks I need to do every day.  This facilitates good habits, discipline & consistency.

Need for consistency
I need to follow the same procedures day after day.  This allows me to evaluate if my techniques give me a long term edge in the market.  After a period of time I can make a specific changes to my Trading Plan, try it for a while, & see if it improves my profitability

Healthy Balanced Lifestyle
Living a balanced lifestyle is important because not only will it make me a happier person, but will make me a better trader. 
The main reason I choose trading for a living, is to give me the lifestyle I want, including freedom from corporate BS & unlimited earnings potential. But trading itself tends to create an imbalanced lifestyle (since it involves sitting alone for hours in front of the computer), so I must work to create balance.  Elements of healthy balanced lifestyle are:
• Good sleep habits
• Exercise
• Proper diet
• Limit alcohol & caffeine
• Spending time away from trading w/o thinking about trading
• Spending time outdoors
• Spending time with friends & family
• Having fun

Risk Management
If I want to do this full-time & be successful, I must be make my initial investment last as long as possible during the learning curve.
At this point in my development I will only trade 1 contract at  a time.  To be re-evaluated later as I become a more experienced trader.

Maximum risk per trade is $55.  This is assured by having a 10 tick stop automatically entered each time I enter a trade.  Allows for 1 tick slippage.

The max I will ever lose in any one day is 2.5% of my total acct.  Since my starting acct is $____, that’s $____.  If I ever lose this much in a day, I will stop trading for the day.

The max I will ever lose in any one week is 5% of my total account.  Since my starting acct is $_____, that’s $_____.  If I ever lose this much in a week, I will stop trading for the week.

More specifically, I will not enter a trade that could potentially cause me to lose more than my daily or weekly max.  eg, if I were down $205 on the day, and my max daily loss was $250,  I could not make any more trades because a Stop Out of $55 would cause me to go over the $250 /day max loss

As my acct size changes, I will re-calculate the dollar amounts of my max daily loss & my max weekly loss.  I will always know what these amounts are before I begin trading for the day. 

Setups
I play 2 & only 2 setups. These setups are specifically defines in a separate document.  I never enter trades that do not match my setups.  However there may be times that a proper setup forms, but I decide not to enter a trade

The Charting package I use, which is _________, has been configured to view these setups properly.

Trade Entry & Exit
I use a DOM (ladder) to enter & exit all trades,  The name of the DOM is use is _______.  I use a _______ order (fill in Market, Limit, etc) to enter trades. I use a _______ order (fill in Market, Limit, etc) to exit trades,

Trade Management
Once I have entered a trade, I use the following criteria to decide when to exit the trade.
1. ________
2. ________
3. ________

This criteria has been carefully thought out to produce the largest winners and the smallest losers in the long run.

Scheduled Announcements
Prior to making any trades, check to see what announcements are scheduled to be made during the trading day.  Do not trade during & just prior to a “big”  announcement.  This is because prices often bounce wildly and unpredictably during Announcements

Note: Any numbers or dollar amounts in the above of course are examples only.

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OK, so hopefully you think my example Trade plan has some merit, and gives you some good ideas to help you create your own. Or maybe you think it sucks!  Feel free to flame me.  The point is not to use the Miracletech Trade Plan, but to create your own trade plan.

Still thinking about trading WITHOUT a Trade Plan? I have a better idea.  Why not take the money you were going to put into your trading account, and donate it to  MAKE A WISH .  The money will be gone anyway, but you'll feel a lot better giving it to a worthy charity than to another trader who has a Trading Plan (and a clue).

 

        

In my post Day Trading Lesson: The Roadmap I present to list of steps to learn to Day Trade.  Here are the details of Step 10:

Define your Trading Edge

The main principle behind Day Trading, is that for a particular stock or futures contract, at certain points in time there is a greater probability that price will increase than decrease, and at other points in time there is a greater probability that price will decrease than increase.  So if at 10:32 a.m. you determine that EBAY stock has a greater probability that price will increase than decrease, you enter a Long trade.  And if at 11:47 a.m. you determine that the DOW e-mini futures contract (YM) has a greater probability that price will decrease than increase, you enter a Short trade. 

Now that you have entered  a trade, you have to make the decision when to exit the trade, either to lock in profits if the trade moves in your favor, or to minimize losses should the trade move against you.

The specific criteria that you use to make these entry and exit decisions is what I call your Trading Edge.    As a Daytrader a large part of your Edge will be a specific chart  "setup", meaning that you enter a trade when your charts match a specific criteria.   Suppose you want to trade the YM.  You could configure a one minute YM chart with a 10 period Moving Average and a 20 period Moving Average.  Your setup could be as simple as entering a Long trade when the 10 period MA crosses above the 20 period MA,  or entering a Short trade when the 10 period MA crosses below the 20 period MA.  Then you exit the trade once a profit target of 20 ticks has been reached, or a stop loss of 10 ticks has been reached, or the moving average crosses back.

OK, so here's one possible Trading Edge and setup to use.  It meets the minimum criteria of the trading edge because it specifically defines your entries and exits.  But the big question is: will this trading edge truly give you an edge?  That is, will it give you a greater than even chance of making a profit?  The only way to know is to look at historical data.  So you look at old to charts see what happened every time your setup formed in the past.   A good edge will provide either more winners than losers, or larger winners than losers, or even better both.  How many past setups do you need to look at in order to be sure that you truly have an edge?  The only answer I can come up with, is enough to convince yourself that actually have an edge (it's your money). 

As you look at each past setup that would have met your edge criteria, record in a spreadsheet what the profit or loss would have been if you traded it.  It's easiest to keep the trade size the same for each, say 100 shares (for stocks) or 2 contracts (for futures).  Figuring commissions also to make it real more realistic. After you've recorded a couple of hundred setups, if it shows a nice big profit, and you have some confidence that your edge is a good one.

There are automatic backtesting programs will allow you to automatically test your edge over a given time period, without the necessity of actually viewing the charts themselves.  Then they'll even produce a nice pretty report with all kinds of facts and figures.  Should you use an automatic backtesting program, or just manually look for setups one by one on a chart that goes back a suitable length of time? I look at it this way.  Manually combing through the charts will give you valuable screentime.  Automatic backtesting programs won't.

So let's go off on a little tangent and talk about screentime.  If you asked me to say in one sentence the most important thing a newbie can do to develop his skills as a Daytrader,  I'd say  "Get a lot of screentime".   In other words, watch the charts of whatever you plan on trading for hours and hours and hours.  And then watch some more.  Watch in real time, watch in replays, or view static charts.  Just watch. Suppose you watched the YM in real time for 500 hours.  You might start seeing patterns in its price movement, what you might call its personality.  You might begin to anticipate its moves.  Not seeing any patterns?  Not anticipating any moves?  Try watching another few hundred hours.

Obviously there are an infinite number of chart criteria you could use in defining your trading edge. Like different timeframes (one minute charts. 5 minute charts, 9 minute charts, etc).  Like different technical indicators (stochastics, moving averages, MACD, RSI, Bollinger Bands, CCI, etc).  Like the Tick and the TRIN.  Like Indexes.  So how begin decide which to use in defining your trading edge? One way is to look at what other traders have done, which I discuss below.    Play with some ideas by setting them up in your charting package, then hunker down and get that screentime with them.  What seems like it might work?

It's my contention that you must develop your own edge.  You can't simply take another trader's edge and start using it.  I could write an entire post on why this is the case, but let's stay on topic and save that for another time.  The good news is you don't have to develop your edge totally from scratch.  You can take some basic setup ideas that other traders have developed, and then modify them, combine them, mix them and match them, to make them your own.   Here are 3 links with lots of setups to get you started:
Trading Naked setups (don't worry, no porn)
Forex Strategies Revealed (written for Forex but IMHO applicable to Futures too)
Floor Trader Method (at first glance looks kinda old, but definitely worth a look)

Wanna see an edge with an entire free educational website devoted to it? it has a manual with several specific illustrated setups.  And it has a free chat room where they actually show you the trades in real time and you can ask questions.  Then check out
Woodies CCI Club.  This is an excellent place for any newbie to learn about trading, even if you have no intention of using their specific setups.

Expect that it will take a long time to develop your trading edge.  So don't become discouraged when it does. 

        

In my post Day Trading Lesson: The Roadmap I present to list of steps to learn to Day Trade.  Here are the details of Step 9:

Decide if you want to Trade Stocks or Futures (you can trade Forex also, but this blog does not discuss Forex)

In this post I'll try to highlight the major features and differences between stocks and futures to help you decide.

Let's define Stocks and Futures.  Stocks are really easy to understand.  When you buy stock in a Corporation, you become a part owner of that Corp, and are therefore entitled to a share of their earnings (if any).  Futures are a little more difficult to understand.  If you buy futures,  you are actually entering into a contract, agreeing to buy some Physical commodity (like wheat, corn or gold) or a Financial Instrument (like the S&P 500 Index) at a predetermined future date and price. If you sell futures,  you are actually entering into a contract, agreeing to sell some Physical commodity or a Financial Instrument at a predetermined future date and price.

So although Stocks & Futures are completely different instruments, it practice how you trade either of them as Day Trader will be the same. Stock prices go up and down.  Futures prices go up and down.  Whichever you trade you bring the particular instrument up in a chart, and based on the chart's price action and technical indicators you make decisions to buy or sell.  If a particular chart were not labeled, it would be difficult to tell it were a stock or a future.

So your trading decisions will be the same for either Stocks or Futures, but there are certain details about each that you need to know before you can trade them.  If you're a newbie these may seem difficult at first, but I can assure this is easy stuff compared to actually making trade decisions based on technical analysis.  Let's go over some of them:

There is a legal minimum account size of  $25,000 set by Uncle Sam for stock traders living in the US.  Let me explain.  The SEC has specific rules regarding what they call a Pattern Day Trader.  Anyone who Day Trades will be labeled as a "Pattern Day Trader" very quickly (I wear the label proudly). And the SEC requires "Pattern Day Traders" to have a minimum account size of $25,000.   For whatever reason, there is no such minimum acct size for futures traders.  So your minimum acct size can be much less. 

With Stocks you trade shares, but with Futures you trade contracts.  So while a small Stock trader might trade 100 shares at a time, a small Futures trader might trade 1 or 2 contracts at a time. 

Unlike stocks, all Futures contract have an expiration date.  So if you wanted to trade Corn futures, you would have to specify Dec 2008 Corn (which expires sometime in Dec) or  Mar 2009 Corn (which expires sometime in Mar).  Corn also has contracts that expire in May June and Sept.  You will want to be aware ot the expiration of the contract you are trading and generally you will want to start trading the next available monthly contract some days prior to expiration.  Two different months of the same contract are generally available to trade at the same time, and you get to choose to trade which one you wish to trade.  Depending on the present date, one of the two contracts will have th majority of the volume, and that one is generally easier to trade.

Every Futures contract has a particular tick size and tick value that you need to be aware of.  For example, the mini-sized Dow Futures has a tick size of 1 point and tick value of $5.  So if you bought it,  for every point that it went up (or down) you make ( or lose) $5.  The Nasdaq 100 emini Futures has a tick size of 1/4 point and tick value also of $5.  So if you bought it,  for every 1/4 point that it went up (or down) you make (or lose) $5.

Suppose you want to buy 200 shares of Microsoft stock and it's currently priced at $20?  It will cost you (200 X $20) $4000.  Suppose you want to buy 1 contract  of Nasdaq 100 emini Futures and it's currently priced at $1075.  The amount you need in your acct is not determined by the current price but instead by the contract's margin.  The margin is fixed and set by your broker.  The margin will vary from broker to broker, but should be around a little under $4000.

This leads us to one of the most important differences between Stocks & Futures: LEVERAGE.  Continuing with the example above, for approximately the same $4000, you could buy 200 shares of Microsoft stock or 1 contract  of Nasdaq 100 emini Futures.  Supposing they each went up 2%, how much would you make?
IBM would go from $20 to $20.40, or .40 profit  per share.  Since you have 200 shares, total profit is $80. Nasdaq 100 emini would go from $1075 to 1096.50, an increase of 21.5 points.  Since for every 1/4 point that it goes up you make $5, you earn $430.  That's what leverage can do for you.  Just remember on if the price had gone down 2%, then you would have lost $430 on the Nasdaq 100 emini, as opposed to only $80 on IBM.  Obviously have the greater leverage of Futures magnifies both your gains and your losses.

Next let's consider shorting.  If you think the price of the instrument you're trading is gonna go down, you enter the trade short (sell).  If you're trading Futures, shorting is no different than go entering a trade long (buying).  When you short a stock, you are actually borrowing or renting the shares from you broker, so there may be some additional considerations.  Also certain Stocks may not be shortable at certain times.  In general shorting is just more straightforward with Futures than with Stocks.

Lastly, let's consider taxes.  The simple fact is, Day Traders will pay less taxes on Futures profits than on Stock profits.  That's because Futures profits are treated as 60% long term cap gains, 40% short term cap gains. Stock profits (assuming you hold less than 1 year) are treated as 100% short term cap gains. The short term capital gains rate is up to 35%,  but  the long term capital gains rate is only of 15%.  Assuming you pay the maximum short term capital gains rate of 35% (ordinary rate), you will pay 35% tax on your stock profits, but only 23% tax on futures profits.  I know many of you will feel bad paying less taxes, given how wisely Uncle Sam spends those tax dollars.   But a nice beach vacation might help you get over it. 

Ultimatelty, as a Day Trader it's most important to trade an instrument that "moves well" and has good liquidity.  Whether it's a Stock or a Future.  By "moves well" I mean it has a good amount of price fluctuation and prices that tend to trend.  If prices hardly change or they just seem to be all over the place, it tuff to trade (I'm a TuffTrader, but I don't like it that tuff).  Good liquidity means you can enter & exit the instrument quickly with a minimum of Slippage.   

Still not sure what to trade?  I just told you!  Look for instruments that "moves well" and have good liquidity.  Study their charts to get an idea of their "personality".  On the Futures side, the eminis fit the bill.  Check 'em out on www.cme.com and www.cbot.com.  On the Stocks side, newbies should look for actively traded Nasdaq stocks.