How To Day Trade (Part 2) “Setting up your trading business”

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Learn how to trade here:

In today’s lesson we’re going to talk about 3 things:

– How to choose a market to trade (pros and cons of each)
– The different components of your trading business
– Costs associated with trading

By the end of the video, you will know the basics of how to put together your trading business.

How to choose a market to trade

When it comes to deciding which market you’re going to day trade, it’s important to know all the pros and cons of each market. Not every market is suitable for every trader. Also, the best market for you will be the one that best fits your schedule and goals.

My favorite markets to trade are “regular” stocks and e-mini futures. My least favorite market to trade is traditional FOREX (currencies). I do trade currencies, but I trade them through the e-mini futures exchanges because of price transparency, government regulation, and simplicity of trading. You can make a lot of money in penny stocks if you pick the right stock at the right time, and happen to find shares to trade. However, you should keep in mind that penny stocks come with their own set of limitations and challenges. Options trading is highly competitive and complicated, and may prove to be extremely difficult for new traders.

The main components of your trading business:

– Computer & Internet:
– Any “off-the-shelf” computer (3 gigs ram or more)
– 3mbps or higher internet

Trading Capital:

Day Trading Stocks — minimum $25,000 required to be a “pattern day trader”
E-minis – $2k+ (whatever the brokers require, no pattern day trader rule)

*It’s important to keep in mind that you need to be properly capitalized to trade. Some scam artists will claim you can turn $500 into $2 million if you just buy their magic system. I always like to say, “If it sounds too good to be true, then it probably is”.

Broker:

Retail vs. Boutique – Retail brokers (like you see on CNBC commercials) typically charge higher commissions, have less quality data feeds, and poor service. Boutique brokers specialize in their markets, have low commissions, and usually personal service. If you want to know who I currently recommend as a broker, email me at chris (at) chrisdunn (dot) com.

Data Feed:

Direct access – Make sure you have a real-time data feed. Without live price action you won’t be able to compete with other professional traders.

Trading Platforms:

– Computer application – The best trading platforms are typically “computer based”, meaning they download to your computer.

– Internet based – These are “good enough”, but typically don’t have the best tools for trading live.

– Phone app – Never use a phone to day trade. The only time I use my Iphone apps is to manage a position if I had to step away from the computer.

Trading Strategy:

Your trading strategy is the backbone of your trading business. If your strategy relies on guessing or obsolete strategies, then you will more than likely lose money in the markets. Keep in mind, most traders lose money and this is a competitive business. Most people can’t just read a book and start trading profitably.

– Subjective / Discretionary – This relies on a traders intuition or ability to read multiple indicators, and make snap-judgement decisions. It can take thousands of hours of “screen time” to become a good discretionary trader.

– Automated – Using an automated trading system (trading robot, black-box system) can totally remove human error, but many automated systems fail in the long run. This is typically because market conditions are always changing, and what worked in the past may not work in the future.

– Rules-based – A mechancial (or rules-based) system combines the benefits of automation with the flexibility of a discretionary trader. Most of my trading strategies use a combination of both. At the E-mini Trading Academy, our student traders use our MAP Trading Strategy, which is a rules-based day trading strategy for e-mini futures.

Costs of Trading

Platform:
Free – $200 / month

Data Feed:
Free – $150 / month

Commissions:
Stocks — per share or flat fee
Futures — round turn ($4)
Forex — bid/ask spread

Education:
Training
Strategy — software
Market tuition

My Favorite Trading Setups

Stock Trading:
TradeStation for charts
My own indicators (
Broker — changes (email me)
Data Feed — from broker

Futures Trading:
Ninjatrader platform
MAP Trading Strategy
CQG / Zen-fire data feed
Broker — changes (email me)