Here’s an overview of what you need to do to prepare yourself to make your first trade as a day trader.
1. Read Stock News
Read. Read, read, read. Read. Also, read. You’re going to read these lessons, then you’re going to read research materials, and you’re never going to stop. Don’t read to distraction or as a way of procrastinating, but it’s hard to imagine doing too much reading, especially in these period of learning.
Here are some more quotes from luminaries for you, you big reader.:
Paul Tudor Jones. “The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.”
JD Livermore. “There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.”
WD Gann. “TIME is the most important factor in determining market movements and by studying the past records of the averages or individual stocks you will be able to prove for yourself that history does repeat and that by knowing the past you can tell the future. There is a definite relation between TIME and PRICE. Now, by a study of the TIME PERIODS and TIME CYCLES you will learn why tops and bottoms are found at certain times and why Resistance Levels are so strong at certain times and bottoms and tops hold around them. The most money is made when fast moves and extreme fluctuations occur at the end of major cycles.”
2. Trading Chat Rooms
Get online and explore trading chat rooms. Learn the lingo and find out how people think about trading.
3. Read a Day Trading Course
Search out some online trading courses. Or sign-up for our chat room with the link above and get access to our 80 page course for free.
4. Attend a Local Trading Conference
(Optional) Attend a “money” show or traders conference.
We realize this will likely be the first item on your budgetary chopping block, but if you can afford to, make an educational vacation out of it.
There are plenty out there, and while your mileage may vary, it’s a great way to immerse yourself in an environment dedicated to trade, to converse and connect with people who share your interests, to ask experts questions, to get a feel for the industry. This is especially helpful if you’re planning on trading out of a home office. Exchanging notes with your peers, becoming conversant in the ideas and practices of the industry— these things reinforce what might otherwise remain abstract theory.
You might have an understanding of an idea, but that doesn’t necessarily make you conversant on the subject, and that’s what your goal should be. Bounce your misconceptions off of experts and peers, and you’ll reinforce what you know and purge yourself of misunderstandings that might cost you money later.
Anyone who has suffered the pain of raising a hand in class only to discover the immaculately conceived notion in your head doesn’t readily present itself as eloquently as you expected, if it indeed exists at all, understands that if you don’t have the precise words for your thoughts, you don’t really have the thoughts at all. It’s easy to hear someone explain something and indulge yourself in the fantasy that you too are as eloquent as they, but guess what. You’re wrong.
Surrounding yourself with people who know as much or more than you for a day or two is a great way to test your understanding and debug your understanding.
Attending a conference can be most inexpensive way to build confidence. The lessons you learn this way save you the more costly lessons that happen during your first year of trading. Minimize those by reading and talking and reading and paper trading and talking and reading.
We only belabor this point because this is a kind of self-deceit closely akin to the fantasies of prowess and trade acumen that can cloud your vision later on. Talk. Read and talk. Read and talk and paper trade. Lather, rinse, repeat.
What is paper trading? It’s the real deal, as close an approximation to a day of trading as you can muster, minus the essential ingredient of trading: emotional control. You’ll be sitting at your desk, watching your chosen stock throughout the day, writing down all the hypothetical moves you would make, but you won’t actually click the button.
And when you’re ready, brace yourself. As familiar with the process as you may be, as ready as you may feel, as much money as you believe yourself to have missed out on while paper trading rather than doing it for real (you’re wrong about that), there are going to be some bumps along the way.
5. Setup your Two Trading Accounts
Establishing your two-account system.
If you’ve decided your aim is to become a full-time trader, we highly recommend you open two trading accounts that you use exclusively for different purposes. One will be an account with an online discount broker, used for making longer-term trades on the New York Stock Exchange (NYSE), and the other will be a direct-access trading platform, which you’ll use to make shorter-term trades on the Nasdaq.
When you’re shopping around for an online broker, you’re looking for: reasonable commission rates, an accessible and easy-to-navigate website that doesn’t experience lag when you switch from screen to screen, a well-organized screen, and built-in protections against making data-entry errors. You want a quick confirmation system, real-time portfolio updates, and account balances. Comprehensive and accessible research data are important.
You absolutely MUST have alternative means of contacting the broker in case of an emergency.
Shop around for the lowest possible margin rates. There’s quite a range of them out there, so you don’t want to accept the first price you find. Also, if the broker requires a minimum dollar amount to open an account, the lower the better, obviously.
You get what you pay for with, generally. Discount brokerages typically don’t offer advice, while a more full-service brokerage will offer highly personalized service.
Direct-access trading platforms
Level II provides you with a real-time trading platform that lets you see the quotations of individual market makers registered in every Nasdaq-listed security as well as the offers and bids on lots. These platforms include order entry screens, giving you access to make trades with other clients directly via electronic communications networks (ECNS). The screens display all the market participants for a selected stock, granting you more transparency.
Exchange names and market makers representing brokers are also found on these screens. We’ll dig in further on how to interpret all this data later.
Watching market news.
Paying attention to financial news is crucial, but maybe not in the way you might expect. If you think traders sit around watching CNBC or Bloomberg waiting to jump on any big news being announced and react to it like a school of piranhas feeding on a soaring or dying stock, you’r wrong. Traders don’t do that. Smart traders know that anything you’re watching on a television screen has most likely been leaked or shared over professional news networks some time ago, enough time that the stock might have already undergone heavy buying or selling and essentially absorbed the news. Traders who already own the stock are more likely to use the upswing following an announcement of good news to sell the stock at a price momentarily elevated by the misconception among some traders we mentioned as inaccurate.
Any of the major networks are good: Bloomberg, CNBC, Fox Business. Find one the one that suits your taste or political affiliation or masochistic cravings for self-abuse. It’s your world.
What you’re trying to do is take the temperature of the market, watching the particulars but focusing on the big picture.