Appendix

Additional Resources for Day Traders

As much as I hate to admit it, Day Trading For Dummies, 4th Edition, doesn’t tell you absolutely everything there is to know to get started in day trading. This appendix lists books, websites, periodicals, and other resources offering trading strategies and techniques and ideas on managing risk, taxes, and stress.

Great Books for Great Trading

Have a shelf that looks a little bare? Fill it up with a few of these beauties.

Basic trading guides

The following books offer nuts-and-bolts information on day trading:

  • The Bible of Options Strategies: The Definitive Guide for Practical Trading Strategies by Gary Cohen (FT Press): Many traders prefer options to stocks, and this book covers the main strategies as well as some of the more esoteric ones that may work for you.
  • Currency Trading for Dummies by Kathleen Brooks and Brian Dolan (John Wiley & Sons, Inc.): For Dummies writers are happy to recommend each other. If your interest is currency trading, this book covers the conventions and tools that can increase your chances for success. It covers the economic and psychological factors that affect currency values, looks at the major pairs, and helps you identify the factors that matter in this market.
  • Mastering the Trade, 2nd Edition, by John F. Carter (McGraw-Hill): The author, an experienced trader, walks day traders and swing traders through the ins and outs of the markets, offering specific advice on different trading opportunities. He includes charts and data that explain when to place a trade and when to close it out. This book is practical, useful, and detailed.
  • The New Money Management: A Framework for Asset Allocation by Ralph Vince (John Wiley & Sons, Inc.): Money management can keep traders in the game longer while maximizing potential returns. It’s a key discipline that can mean the difference between long-run success and failure. Unfortunately, many day traders completely overlook money management. This book reviews Vince’s money-management system in great detail.
  • Trading Rules that Work: The 28 Lessons Every Trader Must Master by Jason Jankovsky (John Wiley & Sons, Inc.): If it were possible to get rich from knowing just a handful of specific trading indicators, every trader would retire and run huge charitable foundations. But it’s not that easy. Instead, a disciplined, professional approach to the market makes a difference over the long run. This book is a useful overview of different trading rules, why they work, and how traders should apply them.
  • Trading Systems and Methods, 5th Edition, by Perry J. Kaufman (John Wiley & Sons, Inc.): This textbook on trading systems provides a detailed analysis of the popular and the obscure alike. What makes it especially nice is the book has a companion website with actual trading programs on it. You can use them as a starting point for developing your own trading systems.

Technical analysis guides

Technical analysis is a system of looking at price and volume trends to determine supply and demand levels in the market. Supply and demand, of course, drive price changes, so understanding the dynamics is pretty darn useful. Here are a few books that cover technical analysis in detail:

  • Candlestick Charting For Dummies by Russell Rhoads (John Wiley & Sons, Inc.): Candlestick charts were developed in Japan and are the basis of a system of technical analysis that’s popular with short-term traders, including day traders. This book explains how to identify and use candlestick patterns.
  • Charting and Technical Analysis by Fred McAllen (CreateSpace): This guide covers technical patterns in great depth, with advice for day traders, swing traders, and investors. It gives a good explanation of what you’re looking for and why it matters, which can help you set up signals and trading algorithms.
  • Mind Over Markets: Power Trading with Market Generated Information by James Dalton, Eric Jones, and Robert Bevan Dalton (Wiley Trading): Don’t let the title fool you. This book is not about trading psychology. Instead, it covers a price-charting and technical-analysis system in great depth, especially the relationships between price changes and volume changes. The system, called market profile, is especially useful for day traders working in futures markets.
  • Tape Reading and Market Tactics by Humphrey B. Neill (Marketplace Books): In the early part of the 20th century, traders looked at price and volume information that came across ticker tapes. Traders still rely on an analysis of price and volume information, just with different tools. This book was originally written in 1931, but many day traders find that Neill’s advice on what to look for and what to avoid when looking at price data still holds true.
  • Technical Analysis For Dummies by Barbara Rockefeller (John Wiley & Sons, Inc.): Day traders use technical analysis to help gauge market activity, and this book is a detailed guide on reading charts and applying the information to trading in an intelligent way. What else would a For Dummies book offer?
  • Trend Following, 5th Edition: How to Make a Fortune in Bull, Bear and Black Swan Markets by Michael W. Covel (Wiley Trading): The trend is your friend, right? Many day traders live by this maxim, and this book breaks out some trend-following strategies, as well as information on how and when to deviate from the general direction of the market.

Schools of price theory

Most day traders take an eclectic approach to the markets. They find a few indicators that help them and then apply those indicators to the situation in the market. Over time, they refine their systems. Some traders, however, rely on specific theories for how prices should move. Here are some basic texts on the different theories.

  • Elliott Wave Principle: Key to Market Behavior by A.J. Frost and Robert R. Prechter, Jr. (Wiley): The Elliott Wave theory is a strange animal. It looks for really long-term patterns in the markets — over decades and even centuries — based on the Fibonacci series, a number series found in nature. It’s not widely used, but some traders swear by it.
  • How to Make Profits in Commodities by W.D. Gann (Lambert Gann): This book isn’t exactly an easy read, but many analysts believe that Gann’s system can help them figure out how prices change over time. The original text dates from the 1940s. Some people find it dated; others think it’s timeless.
  • How to Make Money in Stocks: Your Ultimate Guide to Winning in Good Times and Bad by William J. O’Neill (McGraw-Hill): William O’Neill’s system is of most interest to people who are swing trading or investing in common stock, but it may help day traders understand what other participants in the market are looking at when they place orders. The book explains momentum investing, which looks for stocks of companies with improving business trends and performance.

Trading psychology

Good traders are mentally tough. They need the confidence to face the market, the decisiveness to place orders, and the fortitude to take losses —and do it against a faceless mix of everyone else trading that day. Several books address trading psychology specifically; others on mental strength are also popular with traders because their lessons can be applied to the markets:

  • The Art of War by Sun Tzu: It seems like every trader I’ve ever met has a copy of The Art of War. It’s a Chinese text describing military strategy, including the importance of mental toughness and strict discipline. First translated into a European language in 1782, several different versions and translations are in print.
  • Awaken the Giant Within by Anthony Robbins (Pocket Books): This basic self-help book is popular with all sorts of folks. Many traders find that Robbins’s methods give them confidence and help them control their minds when they’re trading. Tip: Avoid his advice on the markets and stick to his work on psychology.
  • The Crowd: A Study of the Popular Mind by Gustave LeBon (Dover Books): In the 19th century, Gustave LeBon wrote this treatise on crowd psychology. He didn’t think much of his fellow human beings, but many traders have found that his insights explain some short-term irrational behavior in the markets. Understanding why traders make mistakes can help you make profits.
  • Principles: Life and Work by Ray Dalio (Simon & Schuster): Ray Dalio has built a great track record at his hedge fund, Bridgewater Associates. This book is partly his memoir, but it includes his approach to trading strategy and psychology. Given his well-documented success, there’s much to think about and discover in the 500 or so pages of this book.
  • Trading in the Zone by Mark Douglas (Prentice Hall): This book covers the mental discipline of trading, emphasizing the practices and routines that take the emotion out of it. A trader has a short time to make a profit, and some panic at the idea. This book has helped many traders focus on the key elements of trading rather than the fear, doubt, and greed that can undo the best of them.

History and memoir

I’m not willing to accept the Elliott Wave and say that all market movements are part of overarching trends, but market history — like all history — tends to repeat. Why? Because people are people, and no matter how commerce and the economy changes, people do the same things over and over again:

  • Flash Boys: A Wall Street Revolt by Michael Lewis (W.W. Norton & Company): High-speed trading has changed the way that the market works, and it has certainly affected traditional strategies for day trading. This book is a detailed discussion of the traders who worked to expose the system, leading to some changes in regulation. Michael Lewis has also written other good books about Wall Street and money.
  • Fortune’s Formula: The Untold Story of the Scientific Betting System that Beat the Casinos and Wall Street by William Poundstone (Hill and Wang): Claude Shannon and John Kelly were Bell Labs scientists working on queuing theories for long-distance calls when they stumbled on what is known as the Kelly criterion: The ideal proportion of money to bet can be found by the ratio of your edge in the market divided by the odds of winning. Day traders can use this edge/odds formula to figure out how much money to allocate to a trade. This book explains how the system works, though it never quite proves that it works when applied to legitimate casinos or to trading.
  • Reminiscences of a Stock Operator by Edwin LeFevre (John Wiley & Sons, Inc.): This classic, written before the 1929 market crash, tells of the adventures of Jesse Livermore, one of the most successful traders of his time. It’s a disguised memoir of speculation, with a character named Larry Livingston standing in for Livermore. Some traders like it for the lessons they can learn from Livermore; others are just amused by how unchanged the art of day trading is despite dramatic changes in technology.

The Trader’s Internet

Day trading was made possible by the Internet. When high-speed connectivity to market data became affordable, almost anyone could trade with the same speed as folks working on the exchange floor or a brokerage trading desk. And yet the Internet can be a terrible distraction to a day trader or to anyone else working alone. Here are some good websites for day traders, but you may want to limit your use of them to before and after trading hours:

  • Elite Trader: Elite Trader, www.elitetrader.com, is one of the big trader communities online, with forums, book and software reviews, and broker ratings. The participants can be passionate, but the information is often great.
  • IndexArb.com: Interested in trading futures on the market indexes? This site, http://indexarb.com, has useful information. It lists the premiums on different contracts, offers strategies for different market conditions, and gives you some good background information to help you make your own decisions.
  • Reddit: Reddit, with its forums on just about everything imaginable, has plenty of discussions for day traders at www.reddit.com/r/daytrading/. There’s some great information here, but watch out for trading tips of dubious quality.
  • TraderInterviews.com: Looking for something educational and inspirational for your MP3 player? TraderInterviews.com (www.traderinterviews.com) features discussions with different traders.
  • Trader Mike: Every day, Michael Seneadza, a day trader, updates his blog at www.tradermike.net. It includes his trading journal, thoughts on the markets, and advice on day trading, which he admits is not definitive. This blog is often thought-provoking.
  • Trade2Win: Are you looking for forums about trading? Want to find out what other traders think about a service or a strategy? Looking to learn more? Check out Trade2Win, www.trade2win.com, one of the most comprehensive trader sites in cyberspace.
  • Traders Laboratory: If you are interested in meeting other day traders online, finding web-based seminars, reading traders’ blogs, or checking out economic release calendars, then Traders Laboratory, www.traderslaboratory.com, is the site for you.

Other Mainstream Media

Even though traders are hooked to real-time market data through the Internet, they still look to some old-style sources for information. Believe it or not!

  • Barron’s: Barron’s (www.barrons.com) is a weekly financial newspaper published by Dow Jones & Company. The primary emphasis is on long-term investing, but it carries in-depth market analysis and often interviews outstanding traders. In addition, the regular “Electronic Trader” column carries news and ratings of online brokerage firms, many of which specialize in services for day traders.
  • Bloomberg TV: Bloomberg TV (www.bloomberg.com/tv) is a cable channel that carries news and information about the markets. Some traders keep it running in the background while they trade. Others watch the shows before and after market hours.
  • Investor’s Business Daily: This newspaper, www.investors.com, is published by the William O’Neill Company, which also publishes charts and technical analysis systems used by stock investors. Every morning, IBD has new trade ideas and market analysis for active traders, especially those in the stock market.
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