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So, You Want to Be a Day Trader…?

So, you’ve been doing your homework and are considering getting into trading. Maybe you were drawn in by the idea of making enough in the markets to finally buy that Maserati you’ve been wanting. Or, you’ve been daydreaming of the day you can finally tell your boss where he can shove those TPS reports. Whether you’re supplementing or replacing your income, a financial decision like this requires great reflection. Before you go all in, let’s talk about what trading entails and the steps you’ll need to take before you can achieve success.

What is Trading?

Trading in this specific context refers to buying and selling securities based on specific strategies. These strategies are developed by using technical analysis. Which we, as traders, use to identify low risk, high reward, high probability trade setups. Traders will often utilize advanced software and indicators to perform accurate analysis or trade setups and management. There are many different types of trading including: day-trading, intra-swing trading, or long term position trading. It is different than investing in that it allows for extraction of income and does not hinge on a percentage growth of capital. Think of it like investing for people with ADHD.

Pros & Cons of Trading:

As with anything in life, there are good and bad things to consider when beginning the life of a trader.

PROS:

You’re able to make money in both bullish and bearish markets.
Risk can be actively qualified and quantified for each trade.
High liquidity of personal assets.
Able to utilize multiple strategies and setups to profit from opportunities.
You can make your own financial decisions.
Focus on extracting income from trading, not % returns over time.

CONS:

Taxation is a liability if your corporate structure is not set up properly and you are trading full time for an income.
More decision making required due to being more active in the markets.
It can be risky in many different ways, further outlined below.

Types of Risk in Trading:

Outlined below are just a few of the types of risks you may encounter when trading. By knowing them and preparing yourself, you stand a great chance of becoming a successful trader.

Price risk (price fluctuations) – Increase and decrease in price movement can cause significant losses, especially if you don’t know what you’re doing before you enter into a trade.
Liquidity risk (volume) – Different market factors can make it hard to unload the security you’re holding if demand is low. This can leave you tied up in a trade that may not be desirable.
Credit/capital risk (insufficient capital) – Trading the wrong markets or not having enough capital to trade successfully can be a big challenge. If you don’t have enough money to trade successfully, this is probably not for you.
Capital markets risk (global risk) – Global catalysts (war, political, natural disaster) are often unpredictable, but can still directly affect your trades.
Volatility risk (news risk) – Announcements from the Federal Reserve, economic data, and business information are among some of the common causes of market volatility.

Ok, Let’s Do This!

Now that you’ve looked over that list and you know you can handle it… What’s next? Building a strategy that works for you will help ensure your eventual success. We at NeuroStreet like to break it down into two categories: Trader Type & Trader Style. A traders type relates to their time horizon, goals, commitment level and availability to trade. A traders style relates to their trading strategy. Many traders (including NeuroStreet traders) use a combination of styles to allow their strategy to remain effective in changing and dynamic markets. We will explore trader types and styles in more detail in our next blog post.

(Market) Timing is Everything: Learning Entry Points

Let’s talk about TIMING. When you’re a trader, knowing when to enter or exit a trade can mean the difference between a huge win or a huge loss. Every second counts, which is why it’s important to know what to watch: We use Momentum Oscillators and Indicator Confluence to time market entries and exits based on entry pattern rules and market structure.
In this article, we will focus on the 3 types of zone-based entries we use to trade.

#1 – Limit Entry
A LIMIT ENTRY is when you enter a trade at the Value Line in the Supply or Demand Zone. You can automate this trade as a pre-entry. While it has higher odds of getting filled than a zone or zone/confirmation entry, it also has a higher level of risk and less chance of reward.

#2 – Zone Entry
A ZONE ENTRY is when you enter into a Supply or Demand Zone as Price Trades Throughout the Zone. This type of entry has the lowest risk and most reward. Sometimes you are even able to set up for pre-entry and it has better odds of getting filled (compared to a zone/confirmation entry). However, this does have lower odds of getting filled than a limit entry and sometimes will require manual entry.

#3 – Zone/Confirmation Entry
A ZONE/CONFIRMATION ENTRY is when you enter at or near the Value Line as price leaves the Supply or Demand Zone. While the risk & reward level is similar to the limit entry, this type of entry is less likely to get stopped out. Which means, it will have confirmation of price action. There is a chance you may end up chasing the price and have lower odds of getting filled. This also requires manual entry.

By balancing risk & reward, you can figure out what type of entry point will work best for you. Your strategy and trader psychology play a large part in this decision. It’s important to know the pros and cons of each situation. This way, you can decide what works best for you.

A Better Way to Trade: Focus on Supply & Demand

Supply & Demand Theory, also known as the “Auction Market Theory”, is the driving force behind price action fluctuations in the markets. Supply & Demand trading aims to identify where there is an imbalance in order flow between buyers and sellers. Below you’ll find 3 things to watch when trading using this methodology.
#1. Get in the Zone

Are you in a supply zone or a demand zone? If supply is greater than demand, prices will decrease because there are more sellers than buyers. If demand is great, you’ll see prices on the rise. In a supply zone, prices will be above the current bid price, hitting at the ask and in a demand zone they will be lower or hitting at the bid. Identifying who is in control will put you on the path towards greater trade success.

#2. Identify the Pattern

Reversal or Continuation? The next step is to identify where the pattern is headed. If you’re seeing a trend reverse or continue, you’ll know whether to buy or sell depending on which zone is most active, Demand or Supply. In a supply zone, you will likely have a bias to sell short since supply is high and price can reverse at this area by falling to lower levels. If you are in a demand zone, you will have a bias toward a long position since demand is high and price will likely rally. Knowing your plan and strategy ahead of time will make this easier.

#3. Rally or Drop?

Is your overall price going up or down? Identifying patterns of when a price “rallies” or rises and when a price is dropping will also help determine which zone and pattern you’re seeing in action. There are commonly 4 patterns you’ll see:

Rally/Base/Rally
Rally/Base/Drop
Drop/Base/Drop
Drop/Base/Rally

If you’re headed towards a Rally pattern, you’ll want to buy low and sell high. If you’re headed towards a Drop pattern, you’ll want to sell short to gain a profit.

Identifying patterns, whether with or without technical analysis tools, will help you on the path towards successful trading. This along with a solid strategy will help combat the trading jitters and keep you from letting emotions steer you away from a profitable future.

Trading indicators are great, but nearly all have a common flaw: lag. That’s not to mean trading indicators aren’t relevant, but there’s a more potent trading strategy that doesn’t involve adding thousands of indicators to your chart. That’s where the price action...

So, You Want to Be a Day Trader…?

What is Trading?

Pros & Cons of Trading:

Types of Risk in Trading:

Ok, Let’s Do This!

(Market) Timing is Everything: Learning Entry Points

A Better Way to Trade: Focus on Supply & Demand

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