Stock Trading-(Day Trading)-12-13-14

                         xii-Understanding Support and Resistance -Wicks do not lie!

There is a reason behind demand and supply and price actions which can be deduced through the charts with the different time frames. Look at the daily charts and see areas of short-term support and resistance and combine them with indicators like RSI and MACD.

Now let us see, how to decide the top and bottom of a stock in day trading:

1. Look for Support and Resistance: Support: The price level where the stock usually stops falling and starts bouncing back up. Resistance: The price level where the stock usually stops rising and starts dropping.

2. Use Moving Averages: Moving averages are lines on the chart that smooth out price movements. Short-term Moving Average (like 9 or 21 periods): If the stock stays above this, it is likely in an uptrend; below this, it is in a downtrend. Watch for when the price crosses these lines, it can signal a change in direction.

3. Check Volume: Volume tells you how much the stock is being traded. High volume at a certain price level can confirm a strong support or resistance.

4. Watch for Candlestick Patterns: Hammer: Looks like a hammer and often signals a bottom. Shooting Star: Looks like a star and often signals a top.

5. Use RSI (Relative Strength Index): RSI is a number between 0-100 that shows if a stock is overbought or oversold. Above 70: Stock might be overbought (potential top). Below 30: Stock might be oversold (potential bottom).

6. Pay Attention to the Time of Day: First Hour: Markets can be volatile, so watch for tops or bottoms forming. Midday: Often slower, but sometimes the trend starts reversing. Last Hour: Another time when trends might change.

7. Combine Indicators: Do not rely on just one method. If you see a support level, low RSI and a hammer candlestick, it is likely a good bottom.

xiii-4 crucial steps.

There are 4 crucial steps that are essential to get success with day trading: 1. Technical Analysis.2. Money Management.3. Trading Psychology. 4.Execution. All these concepts are like the 4 wheels of a car, and without one wheel, a trader will not be able to achieve success in day trading.

Step 1 - Technical Analysis- Technical Analysis is a method used to predict the future price movement of an instrument by analysing the old data in different ways. Current and past price action is the most reliable method to predict future price movements in stocks/indices. Technical Analysis is fun if a trader is on the right track. But we have a lot of information about technical analysis, and it is difficult to connect all the dots.

Step 2 - Money Management- “Even a poor trading system could make money with good money management” In trading, you will be in the game until you avoid big dents to your portfolio. Money Management is a process with a set of rules to allocate the required position size to reduce the risk while aiming for good returns in day trading. So, ensure not to lose more than 2–3% of your portfolio when a trade goes wrong on any day.

Step 3 - Trading Psychology-Psychology means the mental factors or emotions governing a situation or activity. So, when we say trading psychology, it implies cognitive factors related to trading. There are 4 major emotions revolving around trading are greed, fear, regret, and hope. Learn E: emotion control: F: fear control: G: control of Greed & finally H: Have full HOPE (Faith)in your efforts. All these factors emerge because of a lack of knowledge and conviction. Back-testing, meditation, and maintaining a trading journal helps to achieve better trading psychology.

Step 4 – Execution-Execution is the real Holy Grail in Trading. We need to ask a question to ourselves, "What is important to me in trading - making money or trading every pattern?".

 

Consciously we may pick the 'making money' option, but without much consciousness, our daily activity does not support it because we like to trade all the patterns in all the stocks. Hence, executing one profitable strategy over a period is the most important aspect to make money in day trading.

                                          xiv-Execution is the real Holy-Grail.

We already know that psychology and mindset is very important in trading. So besides having a proper trading system, the part that matters as well, is how did you execute on it. Two traders could trade the exact same system but achieve completely different results and the reason is execution. The execution part has a lot to do with emotions. You can know what/when/how to do, but if you get too scared or excited about doing it and do it too soon/late, you will have a completely different P&L compared to the trader who did everything as planned. This is why the greatest thing you must fear is not the market but yourself.

 Never take the position with 'MKT' or 'SL-M' order type. Always use the 'LMT' or 'SL-M' order type to take entry/exit your position. This one tip can save you from losing several million!

 Simple concepts work well- Simplicity is the highest form of complexity. Many profitable day traders use simple moving averages (MA) in their trading system.

Tops and Bottoms- Do not aim to catch the tops and bottoms in trading. Only two people can catch tops and bottoms - 1) God and 2) Lier. Instead, focus on making better entry & exit, which provides a high probability of success.

Avoid Revenge Trading-Believe that you paid some money to the Market to learn the critical lessons.

Power of ONE-Aiming to develop mastery in one trading system is more critical than learning many trading techniques.

Anything can happen in the Market- A simple way to counter this issue is by having a hedge position with another broker.