HAVE AN ENCHANTING WEDNESDAY

HOW TO AVOID DAY TRADING MISTAKES

Day trading for beginners is like lion taming, except more expensive. It's a risky and challenging pursuit: buying stocks and selling them again in the same day, making money off tiny fluctuations in the price of a stock over only a 12 hour period. For many years, the tools of day trading were not available to the average investor — real time stock results, analysis tools and access to instant trades (without the help of a broker). Today, with high-speed connections, anybody can try to day trade. For those of stout heart, here are some common pitfalls to avoid.

STEP 1

Learning to day trade.

The first step for any day trading beginner is to learn the game with a qualified, actively trading consultant/coach. Learning the game of day trading stock with a coach, like Roger Federer learning to be the best in tennis, and Tiger Woods in the game of golf, you need to learn the winners game by actively trading, not on your own, but with your stock day trading coach. Success is all about trading a winner's trading game, with your world-class trading coach. The point: to put an end to big money losing, then learn to consistently and profitably win, big money winning - eventually, wealth building winning. Most traders learn to lose, then learn to lose masterfully - obviously, you want to learn to win and this can only be accomplished with outside professional help - a consultant / coach. Knowing when earnings dates are or product launches are really helps you access the risk of an investment. Trade otherwise, on your own, at your peril. One thing I learned years back the hard way, after squandering hundreds of thousands of dollars day trading stocks - the brain does not like ongoing losing. The brain will eventually quit - think depression. Serious here - if you keep on with your losing ways it won't be the money that will take you out; it will be your brain that takes you out.

STEP 2

You need to realize that day trading is NOT about holding a stock or any other financial instrument for more than a few minutes, and certainly not beyond market close. In day trading, at the end of the day, you are flat, you hold nothing post market (for sure,over night), period.

STEP 3

Understand the stock markets. 

Those who do not understand day trading will also not understand how to use the stock indexes to measure the overall performance of the markets, that can, and frequently do, affect the price of the trades you are thinking about or are all ready in. Like all the ships at sea, all stocks tend to float, to whatever degree, on stock market index movements.

The Seasonal Stock Market Cycle is that November and December normally rise when manufacturing, transportation, hiring and utilities all pickup for the Christmas season. Mid January through Mid March the Market pulls back when manufacturing slows down after Christmas sales. Mid March through end of April the Market picks up. May might be a bad month but June and July normally do well when the market rallies when Dividends are paid out in July. August, September and October the market normally falls a little as the first half of the year sales (no Christmas sales) news is all digested. If the Economy is contracting down, the bad months could be really bad and if the Economy is expanding, the up months could be really good. November is typically the strongest month and the November/December pair are typically the best 2 months.

STEP 4

Have adequate risk capital. 

Your trading capital is not money that you need to pay bills, or money that you have committed to investments, like your home or retirement funds. Think of your trading capital as money dedicated to this endeavor of day trading, otherwise known as liquid funds (cash beyond all living needs) - and you know it's possible to lose it all. Because Day Trades usually occur in a Margin Account, Broker/Dealers registered with NASD/NYSE require that day traders keep $25,000 in equity in the account on any day that day trading occurs. The $25K minimum is the minimum for margin trading. You will likely want to trade double this level to $50K, then $100K or better to have sufficient buying power for $100 to $500 price range stocks. So if you are comfortable trading 1,000 shares at a time, for example, you can trade one and possible 2 stocks (as the "4 times" rule gives you $200K to $400K buying power).

                                                                                                                                                                           (to be contd)