Day trading

ETF
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Intraday trading or day trading is another very short term speculating approach to investing.   In a previous post we talked about growth investing with companies.  Day trading belongs in it’s own domain aside from growth investing and usually will use an entirely different set of financial tools.  Rather than using a stock that represents a company, day traders will use ETF’s and currency markets for trading.  These tools CAN produce much faster profits for those who are willing to take on the HIGHEST of HIGH RISK investments.  Other ETF’s will simply mirror an INDEX fund for a LOWER RISK type of approach.

If you haven’t had a chance to read through the information on “beginning the process” to investing or “types of investors” you will want to either click on the links here or go back to those pages from the main menu and read them. It is highly recommended you know something about your personality and how to control your emotions before going any further with day trading.

If you have already read over that information and you feel you are fit for this type of investing and playing specific stocks or currency pairs for QUICK profits, Congratulations!

What is an ETF?


You might be wondering what a ETF is right now.  ETF stands for “Exchanged traded fund”.  It is a way to invest in a certain sector or industry as a whole.  An ETF can mirror the performance of a index fund which might own multiple stocks that make up the market as a whole or it could be a stock that mirrors or acts in opposite to the VIX which is a measurement tool for measuring FEAR and GREED in the markets.

ETF

When I mention fear and greed I am talking about playing volatility in the markets.  So if the S & P 500 goes down substantially, instead of losing money like everyone else might experience, you can play a ETF that does the exact opposite of the S & P 500 index and you can end up making a lot of many very fast.

You have to be careful though with your entry and exit strategy or market timing because you can also lose money very fast as well. This is why it is considered gambling in a sense and is very high risk,

The two most common companies that create exchange traded funds are Ishares and Powershares.  Each has it’s own list of ETF’s that all perform in different ways and allow investors access to the INDEX (VIX) performance and INDEX FUND (mutual fund) performance across all markets.

Which one do you use?


This question is completely up to you as HOWTOPLAYSTOCK.com is not a financial adviser and does not tell people where they need to invest.  If you want to look for ETF’s and find out what they do and which one you want to use, go to either Ishares or Powershares websites and start researching the different prospectus on each ETF.  That is where you will find descriptions of what each stock does and how it performs as well as taxes on the capital gains made from trading them.

Please do your research on this because it is crucial to KNOW what your ETF does, how it performs and what taxes are treated like when you have capital gains to pay to the IRS.

Day trading Pit Falls to avoid!


We won’t go into much detail yet on this but knowing your settlement dates with your broker and knowing a little about technical and fundamental analysis will help you with the market timing when it comes to entry and exit positions on a stock.

What is a settlement date? A settlement date is a date that your broker gives you after you have made a sell of a stock. This is the time it takes to allow the transaction between Buyer and the Seller to settle.  Normally on any stock, that time for the transaction to settle is 3 days however there are some stocks that only take 1 day. (Some brokers may vary but that seems to be a standard.) Why is this important?

Settlement dates taken from my Broker (Sharebuilder/Capital One Investing)

settlement dates

 

 

 

 

 

 

If you sell a stock and jump back in and buy it again before your settlement date, you can’t sell it until the 3 days are up on the first trade that took place.  So in theory, you are stuck in a trade and if the stock price takes a nose dive in between the time you are waiting on your first trade to settle, then you can LOSE a ton of money and have no control what so ever.  (One of my failures explained here in the sentence above) That was how I lost 2,000.00 on one of my trades back in August of 2015 playing volatility of the markets.

NOTE: Market timing is something I want to emphasize in this next segment.  Numerous interviews have been done and numerous hedge fund managers have exposed the Truth about timing in the markets.

In this next segment on timing I will expose what hedge fund managers and financial experts and investors like Ray Dalio, Warren Buffet and Tony Robbins have said about timing.

The truth behind timing the Markets


If you are intraday trading and playing currency markets like FOREX, you want to pay close ATTENTION to what I am about to tell you.  Statistically speaking, ONLY 4 % of hedge fund managers for mutual funds as a whole, OUTPERFORM the S & P 500 INDEX returns which is (roughly 9 % Annually on average over the last 75 years).

What does this mean?  It means out of 100% of mutual fund managers who control a vast majority of 401K plans for folks in Corporate America, out of 100% ONLY 4% of those managers will Outperform a 9% return on a vast majority of the populations investments through their 401K.  This public information was provided to us by Tony Robbins in his book “Money Master the Game“, where he interviewed 50 of the worlds TOP day traders,  hedge fund managers and owners of the majority of the worlds wealth when it comes to investing.

You might be saying to yourself, so what, what does that have to do with timing?  Well I will tell you that Hedge fund managers and mutual fund managers are intraday trading a good majority of the time.  Every day they are dumping and buying new investments for hard working folks who don’t have the time to be ACTIVE investors.  They are “timing” the markets when they decide to dump a stock and buy a new one for the funds they work for.

So if 96% of professional day traders aren’t even matching the returns of the S & P 500 annually, what does that tell you about timing in a more long term mind set of thinking about your investment decisions?  Timing simply does not work for the Long Haul.  Eventually YOU will LOSE.

This is something to consider with serious thought before jumping in and trying to time the markets and trying to be a day trader for a long period of time.

The lessons I learned from day trading 


Pros – Day trading for me came in very handy when I lost my job.  It provided me income so that my bills were covered during the 8 month stretch I made with day trading.  It also was a very good learning lesson for how brokers work and learning how to implement technical and fundamental analysis for timing my entry and exit strategy.

Cons – Based on my own experience, I was able to day trade on a 10,000.00 investment for about 8 months before I started taking more heavy losses on trades and having to try and make it all back only to lose BIG again later on.  The lesson to my story here is this – DO NOT EXPECT the PROFITS to last forever, even if you do end up winning a few trades.

Conclusion


I had a 92% WIN rate on 33 consecutive trades for timing stock market indices in 2015 and in that time I made roughly 2,000.00 but I also lost enough in just 2 of those 33 trades, that I eventually hit my exit amount or the amount I was willing to lose off of a 10,000.00 investment I started with.

What did I do next you might be wondering???  I still had money (keep this in mind). I still had money to play stock because I had a exit strategy in place before I EVER started a single trade.  I took the 8,000.00 that was left and decided to invest more long term with lower RISK and build on my security investments.

So the conclusion to my story is this – If you haven’t started on a Long Term Approach to investing first, I would highly suggest doing that first before trying to TIME the markets.  Remember what was said about market timing?  It simply does NOT WORK long term.

You WANT TO keep your money and NOT lose it, so if you have any suggestions for people on how to not lose money or other day trading strategies or stories. Please feel free to share them with us so we can all learn from them. Thank You!

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