I Used This Strategy to Make Millions… You Could Too
Dear Penny Stock Millionaire,
If you’re new to the markets, you’ve probably heard a lot of people mention day trading … but do you fully understand how to day trade and what it really is?
I’ll start with the quick-and-easy definition: Day trading is where a trader enters a position in a stock before closing it out that same day — hopefully for a profit. Simple right?
Since day traders don’t hold anything overnight, their capital isn’t at risk of a stock gapping up or down the next morning, possibly causing massive losses to their accounts.
Most stocks make the bulk of their gains over weeks and months, so day traders typically play for reasonably small percentage moves. But in the right market, many day traders can find multiple opportunities for trades every day.
Sound good? Cool.
Now it’s time for the best part: educating yourself.
The more you learn, the better. This primer can help get you started.
Let’s take a look at what day trading is all about …
How to Day Trade
First of all, you’ve gotta be ready for action. Day trading requires greater dedication, reaction speed and psychological toughness than longer-term trading strategies.
Think about it: You’re playing with smaller movements that happen quickly, while still paying the same amount in brokerage fees per trade. If you don’t have all the pieces of the puzzle in place before you get involved, you can kiss your money goodbye.
Fortunately, you’ve picked a great time to learn how to day trade. Because now it’s easier than ever to learn which pieces of the puzzle you need to concentrate on. It just requires the right educational material and the will to study your ass off.
If you’re going to succeed at day trading, you need to approach it as a business. That means you need the right trading software, charting platform, a good broker, and the discipline to only take trades where the odds are in your favor.
Here’s what you need to know about how to day trade…
Develop a Trading Plan
The first step toward getting ahead with any trading strategy is having a trading plan — and this is probably fives times as true for day trading.
Having a trading plan means:
- You know exactly which stocks you should be looking at.
- You have identified the sort of price behavior you want to see before entering into a trade.
- How you’ll enter your orders.
- Where you’ll get out if you’re wrong.
Yeah, it’s a bit of a grind to work these things out at first, but it’s a total necessity. You don’t want to put off developing your strategy in the heat of the trading session, or you will screw it up.
The Best Times to Day Trade
Not all times of the day bring the same opportunities for day trading. Generally, there’s a flurry of activity in the first hour or two after the market opens.
The middle of the day is usually sleepy for most stocks, but as the final hour of the trading day approaches, volume and volatility often picks up again as traders try to get their positions in before the market closes.
Since day traders need volatility to profit, most trades will be triggered and executed either after the open or within the closing hour of the market.
Since most trading opportunities happen in a small portion of the trading day, preparation for these times is absolutely key.
Types of Stocks You Can Day Trade
With thousands of different stocks traded on the major exchanges each day — all within different sectors — featuring different market caps and presenting unique day trading opportunities, it can be challenging to determine the best place to focus.
Here are a few ways to learn how to day trade like a pro and break down the ocean of day trading possibilities:
S&P 500 Stocks
The S&P 500 stocks are the 500 largest companies traded on the New York Stock Exchange (NYSE) and NASDAQ. These are companies like Microsoft, Ford, Netflix, and Amazon.
The trading volume in most of these stocks every day is enormous — most traders rarely have trouble placing an order at any time of the day and getting it filled.
But the downside when you trade these stocks is that you’re competing with the uber-rich big dogs.
Your competition: the world’s best traders, hedge funds and proprietary trading firms.
Apart from the competition, these stocks generally aren’t as volatile as smaller companies. They’re mainly reputable companies and it takes some pretty extreme circumstances to make these stocks move a lot in price during the day.
Thankfully, this isn’t the only part of the market a day trader can trade in…
High Volume Penny Stocks
A stock’s so-called volume can be easily determined by the amount of shares traded during the course of a day — both in terms of buy and sell orders. The higher the amount of activity in either direction, the higher the volume of a given stock.
So, a high volume stock is one that’s being traded in large amounts.
If you go and look at the top daily movers for stocks on any given day, what do you generally notice? All penny stocks, for the most part.
Compared with the large-cap stocks, your competition in penny stocks is largely idiots. But that’s why I love I love the niche, and why I focus almost entirely on penny stocks!
But, let me warn you, not all penny stocks are right for day trading.
Many of these tiny companies have barely any trading volume each day — i.e. no one is there buying and selling throughout the session.
It’s no use trying to identify a great day trade when there’s no chance of getting into the stock, so if you’re day trading, stick to high volume penny stocks.
Knowing How to Work Your Orders
When you trade longer term, you can, for example, place a buy order at $10, your stop loss at $9 and walk away, confident that your trade idea seems solid. Even if you mess up by a few cents on a few orders, the math of the trade generally works.
This isn’t really the case for day trading. Since you’re playing for those intraday moves, your margins are a lot thinner, and you really have to on top of your order entry.
Another example: You might want to buy a stock at $10, with your stop loss at $9.90, looking to take your profits if the stock hits $10.20 later in the session. If you screw the order entry up and miss out on a few cents here and there over many trades, you can completely mess up your risk/reward ratio and possibly turn a profitable strategy into an overall money loser.
That’s why it’s so important to know how to day trade, what you want to buy and sell, at which prices and with which order types, preferably before the market gets anywhere near those prices.
The Bottom Line
At first glance, day trading may seem similar to longer term stock trading, but once you really understand it, it is wildly different.
Once you do understand how day trading works, it can be a very lucrative trading strategy. The fact of the matter is I tried trading like other traders when I first started out. Invest in big slow moving “safe” stocks. It wasn’t for me. I wanted to make money faster. When I discovered day trading and penny stocks, it changed my life, and not just my life, its changed the lives of my students too, just ask Tim Bohen, or Tim Gritanni.
They were dedicated to learning and trading using my strategies and have made millions. If they can do it, you can do it to.
Editor, Penny Stock Millionaires