Day Trading Lesson: Roadmap Step 3
In my post Day Trading Lesson: The Roadmap I present a list of steps to learn to Day Trade. Here are the details of Step 3:
Learn the basic terms & concepts related to Day Trading
If you are a newbie, of course you need to know the basic terms and concepts before you can go much further. IMHO Investopedia does a great job of explaining these basics, thus the many links to them below. Just try to ignore all the annoying ads.
There are two conceptually different methods (schools of thought) for making trading decisions that you must understand i.e, Technical Analyses vs. Fundamental Analyses. As a Day Trader I largely ignore Fundamental Analyses. Technical Analyses mostly involves making trading decisions based on Chart patterns or indicators. There are probably hundreds of technical indicators. As a beginner you should become familiar with as many as possible, but it's only necessary to truely master just a few to become a profitable Day Trader.
Next understand the difference between Long and Short. When you enter a trade, you either take a Long Position or Short Position. When you go Long you hope the price will increase so you will make a profit. When you go Short you hope the price will decrease so you will make a profit. It's that simple - that's all Day Traders really do. Your technical analyses tells you the price of an instrument (Stock, Future, e-mini or whatever)is about to go up, so you enter the trade Long - if you are correct you make a profit. Or, technical analyses tells you the price of the instrument is about to go down, so you enter the trade Short - if you are correct you make a profit. This is the basic concept, but in practice Short Selling of stocks presents a few additional complications you'll need to understand (if you chose to trade stocks) as you are actually borrowing the stock from your broker - these complications do not exist with Futures.
You can trade either Futures (which include E-Minis) or Stocks (or Forex, which I do not discuss in this Blog). They are quite different in many ways, but from a Day Trader's point of view they are very much the same in one aspect: You can use the same Chart patterns and Indicators to make trading decisions with Stocks or Futures. Depending what the Chart shows you either go Long or you go Short.
One big difference between Stocks and Futures is Leverage. Futures are more highly leveraged. That means for a given amount of money risked on a Futures contract, you stand to make (or lose) more money for a given percentage of movement than if you had put that same amount of money in a stock.
Ok, so you know that whatever instrument you are trading in can either go Long or go Short. But of course there is one more choice, which it simply to stand aside (ie stay out of the market). This may seem too obvious to mention, but it is the very essence of successful Day Trading. Failure to "Get" this point will cause even experienced Traders to lose money. A good trader spends most of his day waiting, not trading. There a some moments during the day when the statistical odds are that the stock will drop, so the good Trader goes Short. There a some moments during the day when the statistical odds are that the stock will rise, so the good Trader goes Long. But there are many moments during the day when the statistical odds point to no particular direction, so the good trader stands aside, and the Schmucks trade.
Next you should understand something about the nature of Electronic Trading.
Other important terms are:
Volume
Bid, Ask and Bid-Ask Spread
Slippage
CandleStick
Index
Market Order vs Limit Order
Tick
So, did I cover all the terms and concepts you need to know to Day Trade? Of course not! But hopefully it's at least a small start. You can look up terms you don't know as you come across them.
>day tradinglearn day trading
Learn the basic terms & concepts related to Day Trading
If you are a newbie, of course you need to know the basic terms and concepts before you can go much further. IMHO Investopedia does a great job of explaining these basics, thus the many links to them below. Just try to ignore all the annoying ads.
There are two conceptually different methods (schools of thought) for making trading decisions that you must understand i.e, Technical Analyses vs. Fundamental Analyses. As a Day Trader I largely ignore Fundamental Analyses. Technical Analyses mostly involves making trading decisions based on Chart patterns or indicators. There are probably hundreds of technical indicators. As a beginner you should become familiar with as many as possible, but it's only necessary to truely master just a few to become a profitable Day Trader.
Next understand the difference between Long and Short. When you enter a trade, you either take a Long Position or Short Position. When you go Long you hope the price will increase so you will make a profit. When you go Short you hope the price will decrease so you will make a profit. It's that simple - that's all Day Traders really do. Your technical analyses tells you the price of an instrument (Stock, Future, e-mini or whatever)is about to go up, so you enter the trade Long - if you are correct you make a profit. Or, technical analyses tells you the price of the instrument is about to go down, so you enter the trade Short - if you are correct you make a profit. This is the basic concept, but in practice Short Selling of stocks presents a few additional complications you'll need to understand (if you chose to trade stocks) as you are actually borrowing the stock from your broker - these complications do not exist with Futures.
You can trade either Futures (which include E-Minis) or Stocks (or Forex, which I do not discuss in this Blog). They are quite different in many ways, but from a Day Trader's point of view they are very much the same in one aspect: You can use the same Chart patterns and Indicators to make trading decisions with Stocks or Futures. Depending what the Chart shows you either go Long or you go Short.
One big difference between Stocks and Futures is Leverage. Futures are more highly leveraged. That means for a given amount of money risked on a Futures contract, you stand to make (or lose) more money for a given percentage of movement than if you had put that same amount of money in a stock.
Ok, so you know that whatever instrument you are trading in can either go Long or go Short. But of course there is one more choice, which it simply to stand aside (ie stay out of the market). This may seem too obvious to mention, but it is the very essence of successful Day Trading. Failure to "Get" this point will cause even experienced Traders to lose money. A good trader spends most of his day waiting, not trading. There a some moments during the day when the statistical odds are that the stock will drop, so the good Trader goes Short. There a some moments during the day when the statistical odds are that the stock will rise, so the good Trader goes Long. But there are many moments during the day when the statistical odds point to no particular direction, so the good trader stands aside, and the Schmucks trade.
Next you should understand something about the nature of Electronic Trading.
Other important terms are:
Volume
Bid, Ask and Bid-Ask Spread
Slippage
CandleStick
Index
Market Order vs Limit Order
Tick
So, did I cover all the terms and concepts you need to know to Day Trade? Of course not! But hopefully it's at least a small start. You can look up terms you don't know as you come across them.
>day tradinglearn day trading
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