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Day Trading For Dummies®
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Day Trading For Dummies®
by Ann C. Logue
Day Trading For Dummies, 4th Edition
Cover
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Where to Go from Here
Part 1: Getting Started with Day Trading
Chapter 1: So You Want to Be a Day Trader
Defining Day Trading: It’s All in a Day’s Work
Committing to Trading As a Business
Identifying the Personality Traits of Successful Day Traders
Seeing What Day Trading Is Not
Chapter 2: Introducing the Financial Markets
Having a Firm Grasp How Markets Work
Opening an Account and Placing an Order
Defining the Principles of Successful Day Trading
Understanding Risk and Return
Differentiating Trading, Investing, and Gambling
Managing the Risks of Day Trading
Chapter 3: Assets 101: Stocks, Bonds, Currencies, and Commodities
Grasping the Different Things to Trade
Defining a Good Day Trading Asset
Taking a Closer Look at Stocks
Examining Bonds
Cashing In with Currency
Considering Commodities and How They Trade
Chapter 4: Assets 102: ETFs, Cryptocurrency, Options, and Derivatives
Explaining Exchange-Traded Funds (ETFs) in Plain English
Getting Familiar with Cryptocurrency
Dealing in Derivatives
Comprehending Arbitrage and the Law of One Price
Chapter 5: Increasing Risk and Potential Return with Short Selling and Leverage
Understanding the Magic of Margin
The Switch-Up of Short Selling
Leveraging All Kinds of Accounts
Borrowing in Your Trading Business
Assessing Risks and Returns from Short Selling and Leverage
Chapter 6: Managing Your Money and Positions
Setting Your Earnings Expectations
Gaining Advantage with a Money-Management Plan
Examining Styles of Money Management
Seeing How Money Management Affects Your Return
Planning for Your Profits
Chapter 7: Planning Your Trades and Trading Your Plans
Starting to Plan Your Trades: Just the Basics, Please
Closing Out Your Position
Maxims and Clichés That Guide and Mislead Traders
Part 2: Developing Your Trading Strategy
Chapter 8: Picture This: Technical Analysis
Comparing Research Techniques Used in Day Trading
Using Technical Analysis
Reading the Charts
Considering Different Approaches to Technical Analysis
Avoiding Technical-Analysis Pitfalls
Chapter 9: Following Market Indicators and Tried-and-True Day Trading Strategies
Psyching Out the Markets
Taking the Temperature of the Market
Measuring Money Flows
Considering Information That Crops Up during the Trading Day
Identifying Anomalies and Traps
Chapter 10: Eliminating Emotion with Program Trading
Creating Your Own Trading Program
Programming, the Day Trading Way
Backtesting Once, Backtesting Twice
Building on Some Standard Strategies
Arbitraging for Fun … and Profit
Scalping, the Dangerous Game
Understanding Risk Arbitrage and Its Tools
Examining Arbitrage Strategies
Being Aware of Those Pesky Transaction Costs
Chapter 11: Day Trading for Investors
Recognizing What Investors Can Glean from Traders
Applying Momentum
When an Investor Considers Trading
Chapter 12: Researching Research Services
Understanding the Trade of Trading
Getting the Research You Need
Doing Your Due Diligence
Chapter 13: Determining Your Profit and Your Profit Potential
Before You Trade: Testing Your System
During the Day: Tracking Your Trades
After You Trade: Calculating Overall Performance
Part 3: Day Trading, Incorporated
Chapter 14: Setting Up Your Day Trading Like a Business
Planning Your Trading Business
Setting Up Your Trading Laboratory
Getting Mobile with the Markets
Controlling Your Emotions
Chapter 15: Your Key Vendor: Your Broker
Choosing a Brokerage
Discussing Brokers for Day Traders
Being Aware of Brokerage Scams
Chapter 16: Regulation Right Now
Looking Back on the Road to Regulations
Reviewing the Regulators
Working with Brokers’ Rules
Watching Out for Insider Trading
Preparing for Rule Changes in Crisis Conditions
Taking on Partners
Chapter 17: Taxes for Day Traders
Getting the Lay of the Land: What You Need to Know Based on What You Trade
Hiring a Tax Adviser
Doing Your Taxes Yourself
Identifying Income Categories You Need to Know
Tracking Your Investment Expenses
Top Secret Tax Information for IRS-Qualified Traders Only
Discussing Other Important Tax Info: Forms and Deadlines
Using Self-Directed IRAs
Part 4: The Part of Tens
Chapter 18: Ten Good Reasons to Day Trade
You Love Being Independent
You Want to Work Anywhere You Like
You’re Comfortable with Technology
You Want to Eat What You Kill
You Love the Markets
You Have Market Experience
You’ve Studied Trading Systems and Know What Works for You
You’re Decisive and Persistent
You Can Afford to Lose Money
You Have a Support System
Chapter 19: Ten (or So) Good Reasons to Avoid Day Trading
You Want to Discover Investing by Day Trading
You Love Fundamental Research
You’re Short on Time and Capital
You Like Working As Part of a Group
You Can’t Be Bothered with the Details of Running a Business
You Crave Excitement
You’re Impulsive
You Love Going to the Casino
You Have Trouble Setting Boundaries
You Want to Get Rich Quick
The Guy on YouTube Said It Would Work
Chapter 20: Ten Common Day Trading Mistakes
Starting with Unrealistic Expectations
Beginning without a Business and Trading Plan
Ignoring Cash Management
Failing to Manage Risk
Not Committing the Time and Money to Do It Right
Chasing the Herd
Switching between Research Systems
Overtrading
Sticking Too Long with Losing Trades
Getting Too Emotionally Involved
Chapter 21: Ten Tested Money-Management Techniques
Taking Money off the Table
Using Stops
Applying Gann’s 10 Percent Rule
Limiting Your Losses with the Fixed Fractional System
Increasing Returns with the Fixed-Ratio System
Following the Kelly Criterion Formula
Figuring the Amount to Trade with Optimal F
Measuring Risk and Sizing Trades with Monte Carlo Simulation
Taking a Risk with the Martingale System
Throwing It to the Fates
Appendix: Additional Resources for Day Traders
Great Books for Great Trading
The Trader’s Internet
Other Mainstream Media
Index
About the Author
Connect with Dummies
End User License Agreement
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Prev
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Title Page
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Introduction
Day Trading For Dummies®
To view this book's Cheat Sheet, simply go to
www.dummies.com
and search for “Day Trading For Dummies Cheat Sheet” in the Search box.
Table of Contents
Cover
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Where to Go from Here
Part 1: Getting Started with Day Trading
Chapter 1: So You Want to Be a Day Trader
Defining Day Trading: It’s All in a Day’s Work
Committing to Trading As a Business
Identifying the Personality Traits of Successful Day Traders
Seeing What Day Trading Is Not
Chapter 2: Introducing the Financial Markets
Having a Firm Grasp How Markets Work
Opening an Account and Placing an Order
Defining the Principles of Successful Day Trading
Understanding Risk and Return
Differentiating Trading, Investing, and Gambling
Managing the Risks of Day Trading
Chapter 3: Assets 101: Stocks, Bonds, Currencies, and Commodities
Grasping the Different Things to Trade
Defining a Good Day Trading Asset
Taking a Closer Look at Stocks
Examining Bonds
Cashing In with Currency
Considering Commodities and How They Trade
Chapter 4: Assets 102: ETFs, Cryptocurrency, Options, and Derivatives
Explaining Exchange-Traded Funds (ETFs) in Plain English
Getting Familiar with Cryptocurrency
Dealing in Derivatives
Comprehending Arbitrage and the Law of One Price
Chapter 5: Increasing Risk and Potential Return with Short Selling and Leverage
Understanding the Magic of Margin
The Switch-Up of Short Selling
Leveraging All Kinds of Accounts
Borrowing in Your Trading Business
Assessing Risks and Returns from Short Selling and Leverage
Chapter 6: Managing Your Money and Positions
Setting Your Earnings Expectations
Gaining Advantage with a Money-Management Plan
Examining Styles of Money Management
Seeing How Money Management Affects Your Return
Planning for Your Profits
Chapter 7: Planning Your Trades and Trading Your Plans
Starting to Plan Your Trades: Just the Basics, Please
Closing Out Your Position
Maxims and Clichés That Guide and Mislead Traders
Part 2: Developing Your Trading Strategy
Chapter 8: Picture This: Technical Analysis
Comparing Research Techniques Used in Day Trading
Using Technical Analysis
Reading the Charts
Considering Different Approaches to Technical Analysis
Avoiding Technical-Analysis Pitfalls
Chapter 9: Following Market Indicators and Tried-and-True Day Trading Strategies
Psyching Out the Markets
Taking the Temperature of the Market
Measuring Money Flows
Considering Information That Crops Up during the Trading Day
Identifying Anomalies and Traps
Chapter 10: Eliminating Emotion with Program Trading
Creating Your Own Trading Program
Programming, the Day Trading Way
Backtesting Once, Backtesting Twice
Building on Some Standard Strategies
Arbitraging for Fun … and Profit
Scalping, the Dangerous Game
Understanding Risk Arbitrage and Its Tools
Examining Arbitrage Strategies
Being Aware of Those Pesky Transaction Costs
Chapter 11: Day Trading for Investors
Recognizing What Investors Can Glean from Traders
Applying Momentum
When an Investor Considers Trading
Chapter 12: Researching Research Services
Understanding the Trade of Trading
Getting the Research You Need
Doing Your Due Diligence
Chapter 13: Determining Your Profit and Your Profit Potential
Before You Trade: Testing Your System
During the Day: Tracking Your Trades
After You Trade: Calculating Overall Performance
Part 3: Day Trading, Incorporated
Chapter 14: Setting Up Your Day Trading Like a Business
Planning Your Trading Business
Setting Up Your Trading Laboratory
Getting Mobile with the Markets
Controlling Your Emotions
Chapter 15: Your Key Vendor: Your Broker
Choosing a Brokerage
Discussing Brokers for Day Traders
Being Aware of Brokerage Scams
Chapter 16: Regulation Right Now
Looking Back on the Road to Regulations
Reviewing the Regulators
Working with Brokers’ Rules
Watching Out for Insider Trading
Preparing for Rule Changes in Crisis Conditions
Taking on Partners
Chapter 17: Taxes for Day Traders
Getting the Lay of the Land: What You Need to Know Based on What You Trade
Hiring a Tax Adviser
Doing Your Taxes Yourself
Identifying Income Categories You Need to Know
Tracking Your Investment Expenses
Top Secret Tax Information for IRS-Qualified Traders Only
Discussing Other Important Tax Info: Forms and Deadlines
Using Self-Directed IRAs
Part 4: The Part of Tens
Chapter 18: Ten Good Reasons to Day Trade
You Love Being Independent
You Want to Work Anywhere You Like
You’re Comfortable with Technology
You Want to Eat What You Kill
You Love the Markets
You Have Market Experience
You’ve Studied Trading Systems and Know What Works for You
You’re Decisive and Persistent
You Can Afford to Lose Money
You Have a Support System
Chapter 19: Ten (or So) Good Reasons to Avoid Day Trading
You Want to Discover Investing by Day Trading
You Love Fundamental Research
You’re Short on Time and Capital
You Like Working As Part of a Group
You Can’t Be Bothered with the Details of Running a Business
You Crave Excitement
You’re Impulsive
You Love Going to the Casino
You Have Trouble Setting Boundaries
You Want to Get Rich Quick
The Guy on YouTube Said It Would Work
Chapter 20: Ten Common Day Trading Mistakes
Starting with Unrealistic Expectations
Beginning without a Business and Trading Plan
Ignoring Cash Management
Failing to Manage Risk
Not Committing the Time and Money to Do It Right
Chasing the Herd
Switching between Research Systems
Overtrading
Sticking Too Long with Losing Trades
Getting Too Emotionally Involved
Chapter 21: Ten Tested Money-Management Techniques
Taking Money off the Table
Using Stops
Applying Gann’s 10 Percent Rule
Limiting Your Losses with the Fixed Fractional System
Increasing Returns with the Fixed-Ratio System
Following the Kelly Criterion Formula
Figuring the Amount to Trade with Optimal F
Measuring Risk and Sizing Trades with Monte Carlo Simulation
Taking a Risk with the Martingale System
Throwing It to the Fates
Appendix: Additional Resources for Day Traders
Great Books for Great Trading
The Trader’s Internet
Other Mainstream Media
Index
About the Author
Connect with Dummies
End User License Agreement
List of Tables
Chapter 7
TABLE 7-1 Different Types of Orders
Chapter 14
TABLE 14-1 Popular Things for Day Traders to Trade
List of Illustrations
Chapter 5
FIGURE 5-1: Looking at short selling in the equities market.
FIGURE 5-2: An example of trading stocks on margin.
FIGURE 5-3: How the option value changes with the stock price.
FIGURE 5-4: Margin and the derivatives trade with built-in leverage.
FIGURE 5-5: Trading foreign exchange on margin.
Chapter 6
FIGURE 6-1: Adding trader’s advantage to the mix.
FIGURE 6-2: How money management affects your return.
FIGURE 6-3: Pyramiding magnifies returns and losses.
Chapter 8
FIGURE 8-1: A bar displays high, low, open, and closing.
FIGURE 8-2: A plot of volume underneath a year’s worth of bars.
FIGURE 8-3: Basic analysis of trends in price bar changes draws lines showing th...
FIGURE 8-4: Drawing trendlines to identify channels.
FIGURE 8-5: A price chart showing a 10-day moving average.
FIGURE 8-6: Moving average convergence and divergence.
FIGURE 8-7: A breakout indicates a new trend.
FIGURE 8-8: In a pennant, support and resistance begin to converge.
FIGURE 8-9: A flag, like a pennant, usually indicates falling volume.
FIGURE 8-10: In a head and shoulders formation, the price goes down after the ri...
FIGURE 8-11: A cup and handle formation is a long-term trend.
FIGURE 8-12: A gap down often means it’s time to sell.
FIGURE 8-13: A pitchfork makes a channel around the main trendline.
FIGURE 8-14: Candlesticks are like slightly more sophisticated bars.
Chapter 9
FIGURE 9-1: A momentum oscillator indicates (no surprise here) momentum.
Chapter 13
FIGURE 13-1: You can use this sample to make your own trade-tracking spreadsheet...
FIGURE 13-2: A sample profit and loss spreadsheet.
FIGURE 13-3: A trading diary should be customized to your own preferences.
FIGURE 13-4: Here’s an example of the time-weighted rate of return calculation.
FIGURE 13-5: Calculating the dollar-weighted rate of return.
FIGURE 13-6: Calculating standard deviation.
Chapter 15
FIGURE 15-1: A Nasdaq Level II quote.
FIGURE 15-2: A Nasdaq TotalView quote is the most detailed available.
Guide
Cover
Table of Contents
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