Daytrading. Just the word “daytrade” sends shivers down people's spine. You can picture yourself as a daytrader yelling down the phone “Buy, Sell”!! and making millions with very little work. You'll have the standard daytrader uniform - a red ferrari and you will daytrade from the daytrader's office on the beach.
Does this sound like what you think daytrading is? Is this what you've pictured yourself doing?
Let me pop your bubble slowly. Despite popular media beat ups the above is possible. Before you jump down my neck – hold on – I said “possible” not “probable”!! Daytrading can provide a very very good income in the same way as professional golfing can provide a very very good income. But how many professional golfers do you know that make serious money. I'll bet not many. This is the same as daytrading. Yes – most of us get into daytrading to make easy millions but you will find quickly that it is not easy and will take up a lot of time and brain power but can be very worth it.
OK – have I scared you off becoming a daytrader? I hope not because I have found daytrading a very enjoyable and profitable career and would like to spend the next few minutes giving you a basic rundown of what is involved in daytrading and where you can start.
To go back to my golfing analogy – Professional golfers make it all look easy. They spend the day on a beautiful golf course – hitting easy shots and making better than par on most holes. I can do that – that's easy!! Yeah Right!!! What you are not seeing is the hours and hours of time they spend hitting the ball at the driving range, practising their putting, spending BIG money on equipment and lessons and the myriad of other things that they do at least 40 hours a week. Daytrading is like this. You will spend many hours staring at a computer screen trying to work out what has happened, hours updating and analysing spreadsheets, money on good computer systems and courses and even then you will make no money at the start and probably even a loss.
Still want to be a daytrader?
Alright – lets look at how to start.
First and foremost you need to decide if this is what you want. Do you want the stress (believe me there is stress when you have thousands or hundreds of thousands in a trade!) and frustration that daytrading brings? Can you be harsh and cut a trade when it will mean losing thousands of dollars or will you procrastinate? Do you have the desire to work for yourself? Can you handle the isolation that daytrading is? Can you tie yourself to your office for 8 hours a day? And probably the most important daytrading characteristic – can you take responsibility for when it all blows up. There is no - “it's not my fault it was the........”. We all try to do this but at the end of the day it wasn't the cat's fault, nor the kids, wife, market, media, accountant, brother-in-law, or anything else you may dream up to blame. It was yours and yours alone. As my 11 year old would say - “Suck it up Princess”!
Second consideration for daytrading is education. What do you know about daytrading? Are you willing to learn? This is probably one of the first steps that people get wrong. Either they decide that they want to “buy” their education quickly and sign up for an expensive trading course (click on one of the google adverts on this page to see one) or they decide that they will save all their money for trading and learn that way. May I suggest that BOTH ways are wrong. Lets look at why.
The expensive way – buying your education. There are many, many courses out there that promise to teach you how to trade for an hour a week and make millions. They use flash technical names like options, futures, renting shares, fibonacci waves and many others. They promise the “holy grail” of daytrading – “if you do our course – you are guaranteed to make 20%+ per month” They all say that THEY and THEY alone have the secret ingredient. It's a little like women's anti aging creams – you must have their one secret ingredient (you know – tear of yak or extract of the baheema bean or some rubbish) for it to work. Let me tell you now – there is no secret way. In case you missed that I'll repeat it – there is no secret way. Paying $5000 to spend a week with a guru from one of these courses is a waste of time and money. If they were able to trade as they say – why would they teach you (no offence intended!). If they could get the returns they talk about – how come they aren't out doing it now. If you really want to see hard evidence – take their stated “conservative” returns and multiply them out over couple of years. Quite often you will come up with a number in the billions!!! I don't know about you but if this was really possible – why would they be teaching you for a few thousand and why haven't they cornered the market?
The “cheap” way – learning on the job. Would you trust a plumber that hadn't done their proper training? How about a pilot or a doctor or accountant? Of course you wouldn't. So why do we seem to think we can trust our financial wellbeing to an untrained daytrader? “But I'll be more careful – besides – I've changed a tap washer without any plumbing training and I know how to do my end of year tax”. Come on – even you realise that that is the most basic stuff a qualified person does and we are not talking about a tap washer or your tax. Worst case scenario with these is water on the floor and a cranky spouse or a phone call from the tax department with a “please explain”. With daytrading – you can lose thousands in seconds (I know I have!) and if you leverage up by borrowing money or using options, warrants, or futures it can be 10s or 100s of thousands. Remember – Barings bank was brought down in a matter of weeks by an extremely clever man who let leveraged daytrading get a little out of hand!! How much damage could you do in a short amount of time?
So how do you learn to daytrade? The best way is a little of both of the above. The expensive way can be made extremely cheap by buying a few books and becoming a member of some good trading forums. For about $200-$500 you can set yourself up with a great library of books on pretty much any type of daytrading or trading that you like – shares, futures, warrants, cfds, indexs, forex the whole lot. You will learn as much if not more (I would bet more) than attending any seminar and you can refer back to it as much as you want. You can make this even cheaper by getting some of the books from your local library – you'll be surprised at what they keep or can get hold of for you.
TRADING FORUMS: Also become a member of a trading forum. There is a lot of junk and rubbish written on these forums. You don't know who is writing or what self interest they may have. However if you spend a few hours reading some of the topics that interest you, you will pretty quickly work out who knows what and who is pushing what. The other, more senior people on the site will usually pretty quickly shoot down anybody that is full of rubbish and some of the post's will be invaluable. And don't be frightened to ask a question. Sure – someone may “flame” you but most of the time they wont, and who cares – it's anonymous anyway and you will learn heaps!!! A good site to try is www.aussiestockforums.com . It is a little aussie centric but there are traders on there from all over the world and the moderators keep people pretty much under control.
The “cheap” way – learning on the job has to come about sooner or later. You can ease yourself in and delay a bit by paper trading but I am not a big fan of this, at least not for too long anyway. You will make amazing profits when you paper trade but you will find that all the paper trading in the world will not replace 10 minutes of actually having “skin in the game”. When you commit your real hard earned money into a daytrade – all the emotions that you can suppress when paper trading will be screaming in your head. You will sweat and swear a lot. You will buy at too high a price and sell too cheaply. If you are lucky you'll make a small amount of money but most likely loose a bit. And all your good intentions and rules that you set out during your paper trading will have gone out the window!
Welcome to daytrading!!
For part 2 click link below.
More helpful resources!!
- Daytrade part 2
Daytrade part 2 (for Daytrade part 1 click here: http://hubpages.com/hub/daytrade) OK you've decided you want to daytrade, you think you can handle the pressures of daytrading, you've got hold of...