Day Trading for Dummies

Understand how day trading works—and get an action plan

Due to the fluctuating economy, trade wars, and new tax laws, the risks and opportunities for day traders are changing. Now, more than ever, trading can be intimidating due to the different methods and strategies of traders on Wall Street. Day Trading For Dummies provides anyone interested in this quick-action trading with the information they need to get started and maintain their assets. 

From classic and renegade strategies to the nitty-gritty of daily trading practices, this book gives you the knowledge and confidence you'll need to keep a cool head, manage risk, and make decisions instantly as you buy and sell your positions. 

• New trading products such as cryptocurrencies
• Updated information on SEC rules and regulations and tax laws
• Using options to manage risk and make money
• Expanded information on programming

If you’re someone who needs to know a lot about day trading in a short amount of time, this is your place to start.

Ann C. Logue, MBA, is a lecturer in Finance at the University of Illinois at Chicago. She holds the Chartered Financial Analyst (CFA) designation, and has written about business and finance for Barron's, Entrepreneur, and InvestHedge as well as other publications. Visit her blog and website at www.annlogue.com.

Introduction 1

About This Book 2

Foolish Assumptions 2

Icons Used in This Book 3

Where to Go from Here 3

Part 1: Getting Started With Day Trading 5

Chapter 1: So You Want to Be a Day Trader 7

Defining Day Trading: It’s All in a Day’s Work 8

Committing to Trading As a Business 11

Identifying the Personality Traits of Successful Day Traders 13

Seeing What Day Trading Is Not 15

Chapter 2: Introducing the Financial Markets 19

Having a Firm Grasp How Markets Work 20

Opening an Account and Placing an Order 24

Defining the Principles of Successful Day Trading 25

Understanding Risk and Return 27

Differentiating Trading, Investing, and Gambling 34

Managing the Risks of Day Trading 37

Chapter 3: Assets 101: Stocks, Bonds, Currencies, and Commodities 39

Grasping the Different Things to Trade 39

Defining a Good Day Trading Asset 40

Taking a Closer Look at Stocks 46

Examining Bonds 52

Cashing In with Currency 55

Considering Commodities and How They Trade 56

Chapter 4: Assets 102: ETFs, Cryptocurrency, Options, and Derivatives 59

Explaining Exchange-Traded Funds (ETFs) in Plain English 60

Getting Familiar with Cryptocurrency 64

Dealing in Derivatives 69

Comprehending Arbitrage and the Law of One Price 74

Chapter 5: Increasing Risk and Potential Return with Short Selling and Leverage 79

Understanding the Magic of Margin 80

The Switch-Up of Short Selling 84

Leveraging All Kinds of Accounts 87

Borrowing in Your Trading Business 91

Assessing Risks and Returns from Short Selling and Leverage 93

Chapter 6: Managing Your Money and Positions 95

Setting Your Earnings Expectations 96

Gaining Advantage with a Money-Management Plan 99

Examining Styles of Money Management 101

Seeing How Money Management Affects Your Return 106

Planning for Your Profits 108

Chapter 7: Planning Your Trades and Trading Your Plans 111

Starting to Plan Your Trades: Just the Basics, Please 112

Closing Out Your Position 122

Maxims and Clichés That Guide and Mislead Traders 123

Part 2: Developing Your Trading Strategy 129

Chapter 8: Picture This: Technical Analysis 131

Comparing Research Techniques Used in Day Trading 132

Using Technical Analysis 136

Reading the Charts 143

Considering Different Approaches to Technical Analysis 148

Avoiding Technical-Analysis Pitfalls 150

Chapter 9: Following Market Indicators and Tried-and-True Day Trading Strategies 153

Psyching Out the Markets 154

Taking the Temperature of the Market 156

Measuring Money Flows 163

Considering Information That Crops Up during the Trading Day 166

Identifying Anomalies and Traps 169

Chapter 10: Eliminating Emotion with Program Trading 173

Creating Your Own Trading Program 174

Programming, the Day Trading Way 175

Backtesting Once, Backtesting Twice 177

Building on Some Standard Strategies 177

Arbitraging for Fun and Profit 179

Scalping, the Dangerous Game 182

Understanding Risk Arbitrage and Its Tools 183

Examining Arbitrage Strategies 186

Being Aware of Those Pesky Transaction Costs 191

Chapter 11: Day Trading for Investors 193

Recognizing What Investors Can Glean from Traders 193

Applying Momentum 199

When an Investor Considers Trading 203

Chapter 12: Researching Research Services 205

Understanding the Trade of Trading 206

Getting the Research You Need 212

Doing Your Due Diligence 218

Chapter 13: Determining Your Profit and Your Profit Potential 223

Before You Trade: Testing Your System 223

During the Day: Tracking Your Trades 230

Setting up your spreadsheet 230

Pulling everything into a profit and loss statement 230

Keeping a trading diary 232

After You Trade: Calculating Overall Performance 233

Reviewing types of return 234

Calculating returns 234

Determining the risk to your return 239

Using benchmarks to evaluate your performance 241

Part 3: Day Trading, Incorporated 243

Chapter 14: Setting Up Your Day Trading Like a Business 245

Planning Your Trading Business 246

Setting Up Your Trading Laboratory 249

Getting Mobile with the Markets 252

Controlling Your Emotions 253

Chapter 15: Your Key Vendor: Your Broker 261

Choosing a Brokerage 261

Discussing Brokers for Day Traders 266

Being Aware of Brokerage Scams 273

Chapter 16: Regulation Right Now 275

Looking Back on the Road to Regulations 276

Reviewing the Regulators 277

Working with Brokers’ Rules 284

Watching Out for Insider Trading 287

Preparing for Rule Changes in Crisis Conditions 289

Taking on Partners 290

Chapter 17: Taxes for Day Traders 291

Getting the Lay of the Land: What You Need to Know Based on What You Trade 292

Hiring a Tax Adviser 295

Doing Your Taxes Yourself 297

Identifying Income Categories You Need to Know 298

Tracking Your Investment Expenses 302

Top Secret Tax Information for IRS-Qualified Traders Only 307

Discussing Other Important Tax Info: Forms and Deadlines 308

Using Self-Directed IRAs 309

Part 4: The Part of Tens 311

Chapter 18: Ten Good Reasons to Day Trade 313

You Love Being Independent 313

You Want to Work Anywhere You Like 314

You’re Comfortable with Technology 314

You Want to Eat What You Kill 315

You Love the Markets 315

You Have Market Experience 315

You’ve Studied Trading Systems and Know What Works for You 316

You’re Decisive and Persistent 316

You Can Afford to Lose Money 317

You Have a Support System 318

Chapter 19: Ten (or So) Good Reasons to Avoid Day Trading 319

You Want to Discover Investing by Day Trading 320

You Love Fundamental Research 320

You’re Short on Time and Capital 321

You Like Working As Part of a Group 321

You Can’t Be Bothered with the Details of Running a Business 321

You Crave Excitement 322

You’re Impulsive 322

You Love Going to the Casino 323

You Have Trouble Setting Boundaries 323

You Want to Get Rich Quick 324

The Guy on YouTube Said It Would Work 324

Chapter 20: Ten Common Day Trading Mistakes 325

Starting with Unrealistic Expectations 325

Beginning without a Business and Trading Plan 326

Ignoring Cash Management 327

Failing to Manage Risk 327

Not Committing the Time and Money to Do It Right 328

Chasing the Herd 328

Switching between Research Systems 329

Overtrading 329

Sticking Too Long with Losing Trades .330

Getting Too Emotionally Involved 330

Chapter 21: Ten Tested Money-Management Techniques 331

Taking Money off the Table 332

Using Stops 332

Applying Gann’s 10 Percent Rule 332

Limiting Your Losses with the Fixed Fractional System 333

Increasing Returns with the Fixed-Ratio System 333

Following the Kelly Criterion Formula 334

Figuring the Amount to Trade with Optimal F 334

Measuring Risk and Sizing Trades with Monte Carlo Simulation 335

Taking a Risk with the Martingale System 335

Throwing It to the Fates 336

Appendix: Additional Resources For Day Traders 337

Index 343

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