Tag: day traders

  • Is Day Trading Like Gambling?

    Is Day Trading Like Gambling?

    Is Day Trading Like Gambling?
    If you have poor risk management, if you size your trades higher the more you lose, you are gambling. That is how casino-players lose money. 

    By Guy Avtalyon

    I know some of you are asking themselves is day trading like gambling. Also, some would say yes, it is gambling but not me. Let me ask you something. Would you like to have enough money for everything you need? Even more, for everything you would like to buy, to travel everywhere you want, to have a super designed home, luxury items. Honestly, it’s possible. Imagine that kind of life. No money problems, no anxiety, no stress caused by money issues. Really, that could be a wonderful life. Everyone would like it. The truth is that only a few know how to achieve that. 

    Having a life without financial stress and suffering is everyone’s goal. 

    As the days rush by and the nights draw in, it’s well worth resting for a moment to catch up on what’s going on in the world. That’s why I’ve selected this topic to help you do just that. Let’s break this myth! The money belongs to all of us. We all can have it enough to have a dreaming life. In fact, we have all the right to enjoy, to be happy, we are born for happiness. 

    This isn’t some life coaching mumbo jumbo or MLM trick, this is a real-life story. It’s a business. Day trading is a business so how can anyone talk about it like gambling? Is day trading like gambling? Of course not. 

    I’ll point out several differences. 

    Day trading means prompt actions in the markets. Day traders don’t have the luxury of a long-term study of all the circumstances that can make a trade. It is all about odds in your favor.

    The main characteristics of day trading

    It works very fast. Day traders have to react quickly to any market change because trading means buying and selling securities at the right time with a profit. Short-term changes in the price changes are favorable for day traders. They can think quickly, act promptly, and profit. Day trading doesn’t necessarily mean taking a lot of risks per trade. It’s quite opposite. Traders don’t take a risk on every trade. They are trained to recognize any change in the market, even more, thanks to their knowledge and experience, they know what markets are telling them. So, they can act based on that info. In essence, they are responding to the market’s movements.

    Are all of their trades successful? No! Many of their trades are failures. But if more than half of trades are winning everything is okay. Day traders don’t have time for long and in-deep estimations. They can recognize profit opportunities based on price and volume patterns. 

    Is day trading stressful? It can be. They have to react here and now if they want a quick profit. 

    How is day trading different from gambling?

    In gambling, you put up your money with the belief that some fortunate events will occur. But what about the odds? Are they in your or house’s favor? Behind gambling lies unsupported and unrealistic hope. Do you have any chance to hit lucky? Actually, there is more chance for the airplane to hit you. 

    On the other hand, hitting losses is more possible. Gambling is exciting for people with the wrong view of money-making. 

    Day trading is completely different. It is based on knowledge, research, training, experience. You can find only a few traders that enter a trade randomly. Basically, they are amateurs and it is very smart not to take them as the right example. You might think if they don’t take a lot of risks how could they expect big returns? Actually, they don’t expect such a thing. Their returns aren’t big but they are frequent. That’s a big number game. Profit a little but frequently. Of course, some trades will bring you a lot of money, some will end up in losses. The point is to have more winning trades than losing ones. Simple!

    Are you ready for trading?

    Many of you aren’t ready yet. You might be angry at me but it is true. As the Sun is in the sky and the Earth is a globe. I know you can easily fall into beginners’ mistakes. I saw so many people doing the same. Honestly, I was like you. I know what you mean exactly. You think that day trading is just a process where you can easily find the securities’ price past action, find the current price, and know how it will act in the future. You couldn’t be more wrong. 

    The truth is that all traders must have a good education about trading, markets, price movements, financial circumstances, securities they are trading. Their decisions are based on knowledge. Are you one of them? Are you able to make money every single day, every month? Do you know that even the best traders have losing years?

    Do you understand why are you wrong? You treat day trading as gambling. So, to the question: Is day trading gambling you have only the wrong answer.

    How to prepare for day trading?

    If you are able to put your emotions away from your trades, you’re close but not ready yet. Why is that? First of all, if you want to be a day trader you’ll need to be indifferent about profit and loss sums. What you need is a workable trading strategy. Are you concerned about losses? If yes, it’s more likely you don’t have a viable strategy, so you’re not able to identify or take a reward to risk trades. 

    Let me ask you. What if you have a losing trade, what if the trade goes against you? That’s how odds work. You’ll have losing trades from time to time, don’t be afraid to lose money. If you never learn why you have losing trades, you’ll never learn how to have the winning ones. Losing trades are not the end of the world, they are just a phase. That shouldn’t affect you. Bear in mind, as long as you are able to learn and find where you make mistakes, you’ll be on the right track. You must understand that trade will go against you occasionally. Losses are run by possibilities. The point is that the possibilities are changing. Don’t let your losses influence your approach to the markets in the future. 

    Take the trades that give you the highest reward relative to the risk you take. Size your position properly and never let any trade dominate your profit and loss amounts. Spread your trades. If you do so you will have good results in their cumulative performances. It’s a point of diversification. You should diversify your trades but never over-diverse. Do it to reduce the volatility in securities performances not to tell to friends how many different securities you’re trading. 

    So, is day trading like gambling? No, not even close.

    How to track your profits?

    Let’s say you have a viable day trading strategy. That means you are confident. But your job here isn’t finished. You have to track your day trading profits and losses. You may have the best strategy ever but if you don’t have a track record, you’ll be lost. You’ll not know what’s happening. Don’t get careless. That never drives you to success. Keep in mind, you’re not playing a game, you’re doing a job. If you have an accurate track record you’ll be able not only to know how good your strategy is but also you’ll be able to adjust it if it is not working for you.

    I’m suggesting you set up a spreadsheet. Add columns for the securities you bought, the exact time you made a trade, the third column should be at which price you bought it, in the fourth column you should add how many assets you bought, and the last column is for the commissions. 

    Also, set up the columns for closed positions so you’ll know how your trades ended up. Then, calculate how good you are, what is the return in percentages for each of your trades. You can calculate it in currency, of course. 

    So, at the end of this post, let me ask you, is day trading like gambling? 

    Waiting for your answer. Happy trading! Do it smart!

  • Expect More Volatility In the Stock Market This Year

    Expect More Volatility In the Stock Market This Year

    Expect More Volatility In the Stock Market
    This year could be a volatile period for investors given the fact that a global financial crisis could be in the offering in the next several years

    Last year showed the best look and we are not here to destroy the joy. Yes, we all can expect more volatility in the stock market this year. But don’t be afraid. The volatility in the stock market can be a stimulus. How is that? If you expect more volatility in the stock market that is the sign you understand the market’s behavior. The volatility of the stock market is normal and part of investing. When the market shows the volatility means the market is operating logically. You are not sure? Let’s say this way. The volatility runs both ways. It gives kicks to the downside and successes to the upside over the short-term periods. When volatility occurs, experts advise it is best to stay calm and let the volatility proceed its way. But you have to prepare your investments for that. Even more, you have to learn how to profit from stock market volatility.

    Why do we think we can expect more volatility in the stock market in 2020?

    We can’t neglect history, for example. 

    Look at the S&P 500 over the last 38 years. You can see that the market corrections were so frequent that they became the norm. The average yearly correction is -13,9% over the last 30 years. The historical data shows that there were only a few years when the Index didn’t drop at least -5% for one year. Actually, it happened the Index had a decline of 5% only two times, 1995 and 2017. Last year, it was -7%, it was below average for market volatility. 

    The second reason to expect more volatility in the stock market this year is that high volatility always comes after low volatility. If you look closer to the S&P 500 Index, you will not see any move more than 1% in any direction during any single trading day since October last year.

    Such a low volatility period wasn’t seen in the last 50 years and it marks the constant move higher. All data shows that these long periods of low volatility are followed by periods of high volatility.

    The last time we could notice similar before January 2018 and October 2014, both were followed by sharp corrections.

    How to prepare investment for stock market volatility?

    When the stock market starts falling, we are all faced with bad news on a daily basis. We may feel anxiety, uncertainty, fears. The downside is that it triggers drastic decisions. Even the most experienced investors may panic. Is panic a strategy? Not at all. You must stay calm when expecting more volatility in the stock market. There are some techniques and strategies to use when volatility appears.

    It’s absolutely true that short-term losses can cause anxiety. But the worst decision is to let emotions drive you, it may cost you a lot of your money. So, stay invested, don’t pay attention to daily impacts, stay focused on your long-term goals. Yes, it can be difficult but you may have more choices with that.

    The short-term volatility fluctuations can be hard to look at, but it’s essential for long-term investors to continue. Even if you want to pull out of the stock market and think it is the best choice, just think, what if you miss out on a market rebound? Such a great opportunity! The gains while you are on the sideline. 

    The historical data for the S&P 500 Index shows positive total returns for 24 out of the last 30 years.

    How to survive market volatility

    Advanced investors know that the best way to survive volatility is to stay with a long-term plan and a well-diversified portfolio. Yet, it is easier to say than to do, we know that. But can you find a better way? Diversification is the essence of investing. Hence, when the markets shift, you might have to rebalance your portfolio. So, market volatility could be a great time to mix your assets. Just don’t be lazy. It is your money in the play. Of course, you have to know your risk tolerance.

    Day traders can profit from the stock market volatility

    The coming back of volatility is bad news for some, but day traders can profit from market volatility. If you are one of them or want to try your hand just start small, big games are not suitable for volatile conditions. Day traders should limit the size of trade to limit the size of losses. To be honest, if you want to learn how to be a good player in this game, you have to experience the pain. What we want to say is, you have to lose some money to be able to be happy when you make a great gain. Don’t you agree? 

    Further, never place too many trades per day. You have to think about each trade separately. Too many trades mean the bigger potential for losses and more headaches with empty accounts. Trade only a few stocks per day. This doesn’t mean you are without confidence. Contrary, this means you are a reasonable trader. Modesty isn’t IN today, but with this approach, you may have constant profit for a longer time. Just stick to your strategy and always plan your exits. Moreover, now you have this app to check them even before you open the position. 

    You know very well the trading is risky, especially if you trade for a living. That’s why you have to develop a strategy, with the possibility to test it now and follow it.

    What long-term investors have to do while the market is volatile

    A normal reaction to market volatility is to reduce any exposure to stocks. Will it make any sense? Long term investors must stay calm when stock market volatility comes. Don’t make radical changes to the portfolio. It can be harmful to your wealth. Meaning, don’t invest more in stocks because the exposure to more stocks could be risky for your investments as a whole. 

    You have worked hard to build your portfolio. Just stick with your plan and stay calm. Market volatility is usually a temporary event. Don’t panic.

    Bottom line

    Expect more volatility in the stock market this year but, to repeat, volatility is completely natural and expected. The S&P 500 could experience a correction this year in the –10% to –15% range. That is the average correction. Stay focusing on economic indicators and be patient if you are a long-term investor. If you are a day trader just trade a few stocks daily. Until the volatility goes. Eventually, it will, sooner or later.

  • What is the best day trading strategy?

    What is the best day trading strategy?

    What is the best day trading strategy?
    Day trading is connected to great risk but also with great potential to profit.

    By Guy Avtalyon

    So, let’s see what is day trading.

    Day trading points to the rapid purchase and sale of stocks throughout the day. With the goal that purchased stocks will climb or fall in value for the short frame of time, seconds, or minutes.

    Day traders believe that through certain day-trading strategies, they can add up small daily wins into long-term profits.

    Day traders have their own jargon and terminologies, online communities for day-trading tips, support, and strategies.

    But you have to know – day trading is risky and only for speculative investors.

    The day trading strategies

    Scalping Strategy This is the philosophy of how small wins can add up to a lot of money at the end of the day. The scalper sets a buy and sells target and sticks to these levels.

    The scalping strategy is fast and traders make buys and sell within a few seconds. This is one of the best day-trading strategies for traders who can make quick decisions and act on them without regret or doubt.

    These traders have enough discipline to sell immediately if they see a price decline. In that way, they are minimizing losses. This strategy isn’t for people with short nerves. But still, it is very popular.

    Momentum Trading Investor jumps on a stock whose price is moving up. When to use the momentum day trading strategy?
    This strategy is very popular for beginners because it focuses on news and recognizing strong trends.
    Stock movement of 30 to 40%, smaller stocks, which trade faster due to the reduced number of outstanding shares, a unique and major move in price, driven by a catalyst like a surprise earnings growth, a drug company’s huge, new treatment launch or news that a small company will be acquired by a larger firm. Option stop – loss is required as insurance.
    Just hold your position and wait to see indicators of reversal and simply get out. Also, you can decrease the price drop and round your price target at the moment the volume starts to decline.

    The most important part of this kind of day trading strategy is to be extremely aware of the expected news and earnings reports. If you execute it correctly, you’ll be able to profit from each trade. And you trade just short as few seconds per trade. Wonderful!.

    Breakout Trading – When the stock price rises above the former top resistance price you can use this strategy. You should monitor the level of stock trading volume or how many shares are changing hands. Breakout trades on high volume are more likely to be sustainable at the new higher price than those breakouts with less volume. It’s not as easy as looking at a chart, recognizing the resistance, and then buying after a breakout.

    Breakout trading focuses the point when the price clears a particular level on the chart. Also, you have to notice that the volume is increased. So, you have to enter into a long position after the stock breaks above the resistance level. The other possibility is to enter a short position when the stock breaks below the support level.

    To explain this more detail, after the stock trades beyond these levels, the volatility will increase and the stock price will usually follow the trend, meaning it will move in the direction of the breakout. Always keep in mind these two levels: resistance and support. You have to see how frequently the stock price hits them. More hits, more volatility, more important the levels become.
    Plan your entry point according to which level the price hits. If the price is set close or higher than the resistance level is, you’ll need to take a bearish position. The contrary is when the price hits the support level or move below. In that case, you’ll need to take a bullish position.

    Your exits should be set reasonably. Calculate the average recent changes in price to set your price target. For example, if the average price is 3 points more than the last few swings, your price target will be rational. When the stock price hits your target price, just exit the position and take your profit. You had a winning trade.

    Day trading on news

    News Trading – You must be keeping an eye on the business news, day traders can capitalize on the popular daily stories.

    If the news is bad, you might short the stock during the day by “borrowing” shares of the stock from the investment firm. And then selling those borrowed shares.

    Similarly, if the stock price declines as expected, you should buy the shares back at the lower price and profit from the difference less a commission payment. If the news is good, you go long or buy the stock outright and sell the shares after the price rises. 

    Pullback Trading – The first step is to look for a stock with an established trend. Then, monitor the trend until there’s a price decline from the trend. If the established trend is upward, then the pullback is an entry point for the day trader to buy.

    If the trend completely reverses after you buy-in, there’s no need to panic. The trend usually continues in the trending direction for a long time.

    You may find pullback ”candidates” from the stocks making the biggest gains.

    Is there any risk involved

    But be aware!  ”Day trading is extremely risky and can result in substantial financial losses in a very short period of time,” according to the SEC website.

    And one advice: If you’re afraid to try your hand at day trading, only invest money that you can afford to lose.
    Or don’t try this!

    Read more about Strategies to Avoid Bad Investment Moves