Many new traders are attracted to day trading as it brings in several benefits, like lower risk exposure in terms of time and a lifestyle everyone yearns for. ‘How to day trade for a living will guide you right from the basics of day trading to trading strategies that are proven and work. If you are a new trader, then this is an excellent start to your trading journey.
What to Expect from the Book?
The book calls out distinctions between day trading from swing trading. You will be guided through a basic understanding of day trading. A clear description of the various participants in the markets. It opens doors of understanding for a new trader he is trading amidst.
The book briskly paced from Rule 1, which lets readers into the following rule forming an excellent continuation. Readers can relate to rule 1 when they get ahead into rule 2 and so on with the ten rules discussed by Andrew.
The books set you up with a smooth flow of explanation of strategies with examples that every reader can visualize and better relate to.
Setting the Right Expectations:
Rules 1 & 2 talk about setting the right expectations a trader should set for himself to start his trading journey. A trader can look further into the future only if he can get these two rules right at the beginning of this trading journey.
Day trading is not a strategy to get rich quickly. It is a highly profitable profession and a demanding one as well. You should also be clear about the second rule Andrew talks about; trading is a serious business. You should treat trading as a serious business and be strict with your trading plan.
You have to realize that it takes time and experience to develop skills for this career which can be highly satisfying.
Day trading requires proper tools, software, and education. What are the tools needed?
Right tools and service
Getting the Basic Concept Right:
Andrew clearly distinguishes between day traders and traders who carry overnight positions. This is discussed in rule 3, which makes it clear that day traders do not carry overnight positions. Close positions in a loss if that has to be done to avoid exposing yourself to overnight risk. That is the core concept of day trading that does not expose you to overnight risk.
Rule 4 dwells on getting answers to all the questions that address the ‘If-but’ situation before you trade. It would help if you asked these questions before entering a trade.
Is this the right stock?
Is the stock picked because the market is moving, or it has a good fundamental catalyst?
Is the R: R right?
What is the stop for the stock?
What are take profit levels?
Fundamentals of Day Trading
Andrew has meticulously paced lighter content to get you comfortable reading the book. This sets it upright for a lot more serious reading. Your focus does not shift away from the concepts explained as they set them up into another.
You are taken through many more serious aspects of trading, like risk and account management (Rules 5&6). The author draws your attention to a simple yet sound reference to proper risk management as a three-legged tool.
The tool will collapse even if one leg is removed. He stresses the importance of knowing how much to risk when to exit and the sound psychology that forms proper risk and account management in trading.
The author goes on to borrow the concept of Nike in trading, calling out the following.
Beginners don’t realize that the main issue is a lack of discipline, decision-making, sloppy risk, and money management. They get back to drawing boards to learn new strategies and join other groups to make the same mistakes all over again
New traders lack early acceptance of losing trades. That is why they cannot manage losses as they keep waiting for it to come back to breakeven
Dr.Alexander Elder, in his book “Trading for a living,” says it is not only important to learn risk management, but you should firmly implement them.
The fundamentals of this book are that every strategy comes with a stop loss, and you must exit at the stop loss level.
If you don’t know your stop loss level, then you should not be in the trade. It means you have not planned the trade correctly.
“A good trading day is not one that is a positive day. A good trading day is when you were disciplined, traded the plan, and did not break the rules.”
Andrew stresses the famous expression in trading “you are only as good as the stocks you trade.” As day traders, we must be efficient in finding stocks to trade that move, provide an excellent risk-to-reward ratio, and give a clear direction.
There are some simple methods discussed to select stocks. Andrew also calls out rule 7, explaining here the retail trader's trade and how to select them. He says retail traders trade only stocks in play and high relative volume stocks that have fundamental catalysts. They are being traded regardless of the movement of the market.
Stock in the news
Stock that is up or down more than 2% before the market open
A stock that has unusual pre-market activity
A stock that develops important intraday levels
Stocks that are trading above relative average volume
A variety of different scanners are discussed in chapter 4
Characteristics of a Day Trader
The Stock market is controlled by High-frequency trading and algorithms. They create significant noise in price action to shake out retail traders in the melee.
You must be smart and not expose yourself to them. Profitable traders usually make only 2 or 3 trades each day. How is this possible?
Experienced traders are like guerrilla soldiers.
They patiently wait for the right opportunity to trade.
The trade should fit their trading setup with the best risk reward to trade.
They execute trades quickly without delay in decision-making.
They jump out of trades just at the right time, take a profit and get out.
All of the above is possible only when you choose the right tools and platform to trade. Andrew emphasizes trading on a sound trading platform that enhances day trading rather than opting for a discount or free brokerage platform.
He stresses the need for execution speed in day trading and lists out various trading platforms a trader can trade with.
He talks about various aspects like trading platforms, real-time market data, support or resistance levels, order types, hotkeys, watch lists, and scanners that are key to day trading.
Visuals Do Matter
Andrew goes on into candlesticks, chart patterns, and popular day trading strategies. Trading is not all about identifying stocks to trade and identifying support or resistances to trade. He discusses the psychology of markets by explaining how candlesticks give clues to who is gaining control of the price.
A detailed overview of candlestick patterns and day trading strategies is provided at a brisk pace and balanced manner. He shares examples of these strategies and the logic used to trade these patterns. The images included in these strategies let traders visualize these trades along with the strategies and logic used.
Traders can reduce their learning curve when a detailed explanation is provided with logic to support the trade. The following are the strategies discussed in the book, along with examples.
Bull flag momentum
Top/Bottom reversal trading
VWAP trading strategy
Support or resistance
Red to Green trading
Next Steps for Beginners
Andrew emphasizes that the strategies aren't algorithms but are more like strategies used in different games, sports, or military tactics, for that matter. It is important that you develop a gut sense of which is an appropriate strategy for a given situation. There's no way to develop that except through practice.
He provides tips to prepare a trading plan and how to decide to trade/ and manage the trade once it is executed. You can get acquainted with day trading strategies, trading psychology, and money/risk management as a beginner.
Andrew stresses the need to develop your own strategy, as everyone is different from the other. Successful day trading is based on 3 important skills that he calls out.
Being able to analyze the power between buyer and seller and bet on the winning group
You need to practice excellent money and trade management
You should embrace self-discipline and avoid getting over-excited or depressed in the markets. Resist temptations to make emotional decisions
Andrew leaves us with final words in the book that stress the importance of being patient and self-disciplined. He also emphasizes new traders keep practicing one strategy until they master it.
His advice to new traders to focus on the process rather than look at results can only come from an experienced and successful trader.
The book is a must-read for someone who thinks day trading is like a get-rich-quick scheme.
If you are interested to explore day trading, then this a must read book for you!
(paid Amazon Link)
Guest Post - Written by Mr. Lal Bajaj, Bangalore
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