Day trading stock picks
During the bull market of the 1990s and 2000s, speculative activity was rampant. Day trading was the game of the times. Traders who barely understood how markets functioned were attracted to the game by the promise of quick profits and easy money. There were shades of the 1920s speculative frenzy, but most investors ignored the warnings. Sadly, the new generation of traders was blinded by the promise of profits and failed to heed the lesions of history. Many paid dearly for their greed and ignorance.
Volatllity in stocks:
Volatility is as much a function of price as it is a function of day trader expectations, trader emotion, and trading activity. These factors, along with new trading technology and low commissions, created a backdrop of increasing market volatility from 1982 through 2000. As world stock markets continued to move higher, these factors and forces combined in a unique way to foster the growth of highly speculative activity. As long as the game continued, things were good and the future looked rosy. Day trading activity was brisk, and brokerage houses enjoyed a period of considerable growth.
The shares of brokerage house Merrill Lynch were at $2 per share in 1990. By January, 2001, the stock made an all-time high of $80 per share. After the trading public got burned by crashing technology stocks, shares of Merrill Lynch had fallen to a low of $33 per share. Other brokerage firms also suffered in the declining market environment, as their credibility was injured by losing stock picks and various scandals involving preferential treatment of large clients.
At the same time, the declining futures markets, combined with deeply discounted commissions, resulted in a consolidation of futures brokerage firms. In part, online trading helped exacerbate the decreasing commission structure of stock and futures brokerage firms. In short, both industries were suffering severely by 2002.
Picking stocks:
To become a day trader, you must prepare a list about your beliefs especially as they relate to the markets and trading and complete a self-assessment exercise. This would do something nice for yourself to let you continue on your journey toward trading excellence. The same general principles apply to two broad areas; personal and trading, letting you review some proven goal setting guidelines that are applicable for any area of endeavor that you choose. Here are some key areas in which excellent day traders set goals:
1. Personal
a. Spiritual
b. Mental
c. Emotional
d. Physical
e. Organization (for example, time management and record keeping):
f. Remember to formulate a business plan for your trading business.
2. Day Trading
Process-oriented goal areas, those things that will lead to positive results, also known as profits.
i. Written trading plan
ii. Daily trading disciplines
1. Pre-trading checklists include the concepts embodied in the Ten Tasks of Trading.
Knowledge keys:
The most important element of day trading understands your personal mission and how it relates to trading.
To trade profitably and consistently over the long term, you must understand both the distinctions and connections between your personal mission and your trading mission.
Self-assessment is a critical part of trading mastery.
Your personal belief systems will impact your trading, positively or negatively.
Creating a useful set of personal and trading beliefs is essential to trading.
Goals are the bridge between your mission and your day-to-day trading execution.
You need to have a well-balanced set of written goals.
Your personal goals will impact your trading life.
Making money in the market has nothing to do with predicting the market or picking the right stock.
The golden rule of trading is: Cut your losses short and let your profits run.
When you enter a trade, you must know the point at which you will get out to protect your capital.
The golden rule of trading restated in terms of R multiples is: Keep losses at a level of 1 R as often as possible and make profits that are high-R multiples.
You do not need to make money on the trade you are taking right now to make money in the markets.
Expectancy tells you how much you can expect to make with your system, on average, per dollar risked, over many trades.
Position sizing is that part of your system that tells you how much you are going to risk on any given trade. In addition, there are as many potential systems for position sizing as there are systems for picking stocks, only position sizing will have much more of an impact on your bottom line than stock picking. Position sizing will have much more impact on your bottom-line results than stock picking ever will.
When you have a positive expectancy system and can take plenty of trades, then with discipline and proper position sizing, you can make substantial returns in every 200-trade block. If those 200 trades happen to occur in a single week, then you may never have a losing week.
Other Articles
