Make And Protect Your Money With This Simple Day Trading Tip
Imagine this; you wake up in the morning, go straight to your computer and start to look for stocks and equities that
could make you money. You are searching for stocks that could potentially make you money in just minutes to
hours, all within that very same day. This is how the day begins for a stock market day trader. The beauty of this is
that a day trader can basically work from anywhere in the world, all that is required is a decent internet connection.
Want to work in your pajamas? Well, there is certainly no dress code when you work for yourself, while sitting in
front of your computer screen! You can also work as little or as much as you want, setting your own schedule.
Sounds great right? Who would not want to be a day trader?
It sounds like the worlds greatest profession, doesn’t it!? But hang on… without proper knowledge the average
person who attempts to step into the day trading world will not last a year, much less a few days in the business.
And by “not lasting” we mean, lose all of your money. And in many cases, this can happen very fast. There are
many fallacies out there sold to unknowing people who want to pursue this potentially amazing career. But if you do
not take heed and gain a serious understanding of what it takes to truly succeed, you will become another statistic
of the markets.
Let’s look into how you can avoid the pitfalls and live the day traders dream.
Most day traders try to make money using two simple techniques. The first technique is called scalping, this is when a trader isolates a stock declining or rising sharply into a major support or resistance zone. The trader will try to capture a small gain in the equity. The scalp play will usually last a few seconds to an hour, depending on the
particular equity, and it is expected to be sold quickly.
The second technique is the typical day trade. This is where a trader will look at multiple time-frames and try to isolate a pattern that consistently plays out on the charts, multiple times, over and over. This trade usually last several minutes to several hours. Due to the fast trading action, day trading can become very stressful and will require a lot of concentration. Most day traders will find a couple of chart set-ups that they favor and continually look for those patterns and setups to appear before executing a trade.
While both techniques appear very similar, the difference in scalping and day trading is that you can think of day trading as more of a systematic approach. Day traders have a standard set of factors that they look for consistently. While scalping is the fast aggressive opportunity seeking an alternative.
Today, I’m going to share one simple tip that can help save scalpers and day traders from daily heartache.
I simply call this the “light volume rule.” Often, I find many day traders trying to sell short equities at a resistance
level on the chart. While this is fine and usually a good way to make money, it is very difficult to do under certain
conditions. You see, as a day trader we must examine and take the pulse of the market every day. We do this by
looking at the volume in the SPDR S&P 500 ETF Trust (NYSEArca:SPY).
When the SPY volume is light it will generally favor market upside in the S&P 500, NASDAQ Composite and the Dow Jones Industrial Average stocks after 11:00 ET. I cannot tell you how many times a trader will try and short an equity around the lunch hour, when volume starts to drop off.
if the SPY is trading less than 35 million shares by 12:00 pm ET, please be careful trying to day trade equities on the short side, especially the SPY or S&P 500 e-minis contracts (ES-U19). There is simply a lack
of institutional selling pressure when the volume is light. It should also be noted that the financial institutions move
markets. It is not the person at home with an E-trade account watching fast money that moves the markets, it is the large financial institutions that carry the real power.
Traders and investors can easily look at this chart below and notice that the market volume is extremely light.
Please note, the low of the day was made at 11:00 am ET. Since that 11:00 am low the markets have slowly rallied
higher, making any short trade very difficult. Hopefully, if you are new to day trading you will adopt this policy of
monitoring the volume in the SPY every trading session. It has helped save many day traders from taking a bad
trade during the light volume part of the session. Hopefully, noticing this important intra-day volume trend that has
been working for years can also help you make a lot of money on your long side day trades.