Day Trading For Dummies, 5th Edition

Title Page
Copyright Page
Table of Contents
Introduction
	About This Book
	Foolish Assumptions
	Icons Used in This Book
	Where to Go from Here
Part 1 Getting Started with Day Trading
	Chapter 1 Doing Day Trading Right
		Defining Day Trading: It’s All in a Day’s Work
			Speculating, not hedging
			Understanding zero-sum markets
			Being disciplined: Closing out each night
		Committing to Trading As a Business
			Trading part time: An okay idea if done right
			Trading as a hobby: A bad idea
		Identifying the Personality Traits of Successful Day Traders
			Independence
			Quick-wittedness
			Decisiveness
		Understanding What Day Trading Is Not
			It’s not investing
			It’s not gambling
			It’s not dangerous — if you use risk capital
			It’s not easy
	Chapter 2 Introducing the Financial Markets
		Having a Firm Grasp of How Markets Work
			Supply and demand
			Exchanges versus over the counter
			Payment for order flow
			Understanding zero-sum games
		Opening an Account and Placing an Order
			Opening a brokerage account
			Placing your initial order
			Closing out your order
			Taking your cash
		Defining the Principles of Successful Day Trading
			Working with a small number of assets
			Managing your positions
			Focusing your attention
		Understanding Risk and Return
			Recognizing what risk is
				Considering the probability of a loss
				Finding the probability of not getting the return you expect
			Getting rewarded for the risk you take
				Opportunity cost
				Risk-free rate of return and the time value of money
				Risk-return tradeoff
			Grasping market efficiency in the real world
		Differentiating Trading, Investing, and Gambling
			Investing is slow and steady
			Trading works fast
			Gambling is nothing more than luck
		Managing the Risks of Day Trading
			It’s your business
			It’s your life
	Chapter 3 Assets 101: Stocks, Bonds, and Commodities
		Grasping the Different Things to Trade
		Defining a Good Day Trading Asset
			Looking for liquidity
				Volume
				Frequency
			Homing in on high volatility
			Staying within your budget
			Making sure you can use margin
				Changing margin rules for pattern day traders
				Obeying your brokerage firm’s margin policies
		Taking a Closer Look at Stocks
			How U.S. stocks trade
			Where U.S. stocks trade
				The New York Stock Exchange (NYSE)
				Nasdaq
			Alternative exchanges
			The high-risk over-the-counter exchanges
				OTC Markets
				Penny stocks
			Dark pools
		Minding Meme Stocks
			Banding the apes together
			Fearing the FOMO effect
			The old pump and dump
		Examining Bonds
			How bonds trade
			Listed bonds
			Over-the-counter trading
			Treasury dealers
		Considering Commodities and How They Trade
	Chapter 4 Assets 102: ETFs, Options, and Derivatives
		Explaining Exchange-Traded Funds (ETFs) in Plain English
			Traditional ETFs
			Strategy ETFs
				Inverse ETFs
				Leveraged ETFs
				Option and managed futures ETFs
			How U.S. ETFs trade
			Being aware of the risks of ETFs
		Dealing in Derivatives
			Getting to know types of derivatives
				Traditional options
				Non-traditional options
				Futures
				Warrants
			Buying and selling derivatives
				Understanding how derivatives trade
				Knowing where derivatives trade
		Comprehending Arbitrage and the Law of One Price
			Understanding how arbitrage and market efficiency interact
			Creating synthetic securities
			Taking advantage of price discrepancies
			Reducing arbitrage opportunities: High-frequency trading
	Chapter 5 Assets 103: Currencies and Crypto
		Understanding Core Currency Concepts
			Fungibility
			Fiat
			The Fisher effect
		Cashing In with Currency
			How currency trades
			When currencies trade
			Meet the major and minor pairs
			Where currency trades
			Alternatives to currency trading
		Getting Familiar with Cryptocurrency
			Bitcoin and blockchain
			Other cryptocurrencies
				Stablecoins
				Non-fungible tokens (NFTs)
			Creating cryptocurrencies
				Creation
				Forks
				Initial coin offerings (ICOs)
			Understanding how cryptocurrencies trade
				Unlocking valuation with technical analysis
				Watching out for pump and dump
				Opening up your wallet
			Trading crypto in traditional brokerage accounts
			Watching out for the risks of cryptocurrencies
	Chapter 6 Increasing Risk and Potential Return with Short Selling and Leverage
		Understanding the Magic of Margin
			Making margin agreements
			Understanding the costs and fees of margin
				Determining margin rates
				Margin in the derivatives markets
			Managing margin calls
			Enjoying margin bargains for day traders
		The Switch-Up of Short Selling
			Selling short
			Choosing shorts
			Losing your shorts?
				Squeeze my shorts
				Calling back the stock
		Leveraging All Kinds of Accounts
			In stock and bond markets
			In options markets
			In futures trading
			In foreign exchange
		Borrowing in Your Trading Business
			Taking margin loans for cash flow
			Borrowing for trading capital
				Borrowing against your house
				Putting it on the card
				Accepting risk capital from a prop trading firm
			The costs of free riding
		Assessing Risks and Returns from Short Selling and Leverage
			Losing your money
			Losing your nerve
	Chapter 7 Managing Your Money and Positions
		Setting Your Earnings Expectations
			Finding your expected return
			Determining your probability of ruin
		Gaining Advantage with a Money-Management Plan
			Minimizing damage while increasing opportunity
			Staying in the market longer
			Getting out before you lose everything
			Accounting for opportunity costs
		Examining Styles of Money Management
			Limiting portions: Fixed fractional
			Protecting profits: Fixed ratio
			Sticking to 10 percent: Gann
			Finding the ideal percentage: Kelly criterion
			Doubling down: Martingale
			Letting a program guide you: Monte Carlo simulation
			Considering past performance: Optimal F
		Seeing How Money Management Affects Your Return
		Planning for Your Profits
			Compounding interest
			Pyramiding power
			Making regular withdrawals
	Chapter 8 Planning Your Trades and Trading Your Plans
		Starting to Plan Your Trades: Just the Basics, Please
			What do you want to trade?
			When will you be trading?
			How do you want to trade?
				Beginning the day with a morning review
				Drawing up a sample order
			Figuring out when to buy and when to sell
			Setting profit goals
			Setting limits on your trades
				Stop orders
				Limit orders
				Stop-limit orders
				Order cancels other
				Order sends other
			What if the trade goes wrong?
		Closing Out Your Position
			Swing trading: Holding for days
			Position trading: Holding for weeks
			Investing: Holding for months or years
		Maxims and Clichés That Guide and Mislead Traders
			Pigs get fat, hogs get slaughtered
			In a bear market, the money returns to its rightful owners
			The trend is your friend
			Buy the rumor, sell the news
			Cut your losses and ride your winners
			You’re only as good as your last trade
			If you don’t know who you are, Wall Street is an expensive place to find out
			There are old traders and bold traders, but no old, bold traders
Part 2 Developing Your Trading Strategy
	Chapter 9 Picture This: Technical Analysis
		Comparing Research Techniques Used in Day Trading
			Knowing what direction your research is
				Top-down research
				Bottom-up research
			Examining fundamental research
			Looking closer at technical analysis
				Price changes
				Volume changes
		Using Technical Analysis
			First things first: Should you follow a trend or deviate from it?
			Finding trends
				Drawing trendlines
				Calculating indicators
				Observing trend phases
			Those ever-changing trends
				Monitoring momentum
				Finding breakouts
		Reading the Charts
			Wave your pennants and flags
			Not just for the shower: Head and shoulders
			Drink from a cup and handle
			Mind the gap
			Grab your pitchforks!
		Considering Different Approaches to Technical Analysis
			Dow Theory
			Fibonacci numbers and the Elliott Wave
			Japanese candlestick charting
			The Gann system
		Avoiding Technical-Analysis Pitfalls
			If it’s obvious, there’s no opportunity
			Overanalyzing the data
			Success may be the result of an upward bias
	Chapter 10 Following Market Indicators and Tried-and-True Day Trading Strategies
		Psyching Out the Markets
			Betting on the buy side
			Avoiding the projection trap
		Taking the Temperature of the Market
			Pinpointing with price indicators
				Measuring a rate of change: Momentum
				Trading on the tick
				Tracking the trin
			Volume
				Force index
				On-balance volume
				Open interest
			Volatility, crisis, and opportunity
				Average true range
				Beta
				The VIX
				Volatility ratio
		Measuring Money Flows
			Accumulation/distribution index
			Money-flow ratio and money-flow index
			Short interest ratios
		Considering Information That Crops Up During the Trading Day
			Price, time, and sales
			Order book
			Quote stuffing
			News flows
		Identifying Anomalies and Traps
			Bear traps and bull traps
				Chart traps
				Contrarian traps
			Calendar effects
				The January effect
				The Monday effect
				The October effect
	Chapter 11 AI or DIY: Eliminating Emotion with Program Trading
		Creating Your Own Trading Program
			Figuring out what to automate
			Knowing the limitations of robots
			Looking at basic brokerage offerings
		Adding AI to the Mix
			Charming your chatbot
			You’re already behind
		Programming Your Day Trading
			Recognizing what you want to automate
			Telling your chatbot all about it
			Backtesting once, backtesting twice
		Building on Some Standard Strategies
			Range trading
			Contrarian trading
			News trading
			Pairs trading
		Arbitraging for Fun . . . and Profit
			Understanding how arbitrage and market efficiency interact
			Taking advantage of price discrepancies
		Scalping, the Dangerous Game
		Understanding Risk Arbitrage and Its Tools
			Arbitrating derivatives
			Levering with leverage
			Short selling
			Creating synthetic securities
		Examining Arbitrage Strategies
			Convertible arbitrage
			ETF arbitrage
			Fixed income and interest-rate arbitrage
			Index arbitrage
			Merger arbitrage
			Option arbitrage
		Being Aware of Those Pesky Transaction Costs
	Chapter 12 Day Trading for Investors
		Recognizing What Investors Can Glean from Traders
			Being disciplined
			Actively looking at a broad market
			Dealing with breaking news and breaking markets
			Setting targets and limits
			Judging execution quality
				Looking at total execution costs
				Improving execution
		Applying Momentum
			Earnings momentum
			Price momentum
			For investors only: Momentum-research systems
				Value Line
				William O’Neil
		When an Investor Should Consider Trading
			The idea has a short shelf life
			Your research shows you some trading opportunities
			You see some great short opportunities
	Chapter 13 Researching Research Services
		Understanding the Trade of Trading
			Enjoying freebies from the exchanges and the regulators
				Chicago Board Options Exchange Education Center
				CME Group Education
				Institute for Financial Markets
				IntercontinentalExchange
				Nasdaq/OMX
				National Futures Association Investor Learning Center
			Hitting the road for conferences
				Money Show
				Trader and Investor Summit
			Taking training classes
				Coursera
				Day Trading Academy
				EdX
				Investopedia
				MIT
				Online Trading Academy
				TastyLive
				TopstepTrader
		Getting the Research You Need
			(Price) quote me on that
				CQG
				DTN
				eSignal
				Oanda
			Charting your strategy
				MarketDelta
				MetaStock
				NinjaTrader
				OmniTrader
				StockTwits
				Trade-Ideas
				Tradr
			News, newsletters, gurus, and strategic advice
				Briefing.com
				Coinbase
				Elliott Wave
				Investing.com
				TradeTheNews.com
		Doing Your Due Diligence
			Where to start your research
				Commodity Futures Trading Commission
				FINRA BrokerCheck
				National Futures Association BASIC
				Securities and Exchange Commission
			Questions to ask
	Chapter 14 Determining Your Profit and Your Profit Potential
		Before You Trade: Testing Your System
			Backtesting
				Starting with a hypothesis
				Running the test
				Comparing the results with market cycles
			Simulation trading
			Backtesting and simulation software
				AmiBroker
				Investor/RT
				MetaStock
				NinjaTrader
				TradeStation
				Trading Blox
		During the Day: Tracking Your Trades
			Setting up your spreadsheet
			Pulling everything into a profit and loss statement
			Keeping a trading diary
			Automating your trading diary
		After You Trade: Calculating Overall Performance
			Reviewing types of return
				Income
				Capital gains
			Calculating returns
				Calculating compound average rate of return (CAGR)
				Calculating performance when you make deposits and withdrawals
			Determining the risk to your return
				Batting average — er, win-loss percentage
				Standard deviation
			Using benchmarks to evaluate your performance
				Performance relative to an index
				Performance relative to your time
				Performance relative to other traders
Part 3 Taking Your Trading Beyond a Hobby
	Chapter 15 Setting Up Day Trading Like a Business
		Planning Your Trading Business
			Setting your goals
			Finding volatility
			Fixing hours, vacation, and sick leave
			Investing in your business
			Evaluating and revising your plan
		Choosing a Brokerage
			Getting proper pricing
			Evaluating types of platforms
				Software-based platforms
				Web-based platforms
			Counting out commissions
		Discussing Brokers for Day Traders
			Brokers for stocks and a bit of the rest
				Ally Invest
				Charles Schwab Active Trading
				ChoiceTrade
				Cobra Trading
				E*TRADE
				Fidelity Active Trader Pro
				Firstrade
				Interactive Brokers
				Lightspeed Trading
				Robinhood
				SogoTrade
				TD Ameritrade/Charles Schwab
				TradeStation
			Brokers for options and futures
				eOption
				Infinity Futures
				tastyworks
			Brokers for foreign exchange
				ATC Brokers
				FOREX.com
				OANDA
		Being Aware of Brokerage Scams
		Setting Up Your Trading Laboratory
			Where to sit, where to work
			Counting on your computer
			Seeing it on the big screen
			Connecting to the Internet
			Staying virus- and hacker-free
			The department of redundancy department: Backing up your systems
		Getting Mobile with the Markets
		Controlling Your Emotions
			Dealing with destructive emotions
				Doubt
				Fear
				Greed
				Anger
				Anxiety
				Boredom
				Depression
			Having an outlet
				Exercise
				Meditation
				Friends and family
				Hobbies and other interests
			Setting up support systems
				Books
				Counseling and coaching
				Finding other traders
			Watching your walk-away money
	Chapter 16 Regulation Right Now
		Looking Back on the Road to Regulations
		Reviewing the Regulators
			Stock and corporate bond market regulation
				The U.S. Securities and Exchange Commission (SEC)
				The Financial Industry Regulatory Authority (FINRA)
				The exchanges
				The Federal Reserve System
				The Securities Investor Protection Corporation
			Treasury bond market regulation
			Derivatives market regulation
				Commodity Futures Trading Commission (CFTC)
				National Futures Association (NFA)
				The exchanges
			Foreign exchange (forex) regulation
				Options and futures on currency
				Banks and oversight
		Working with Brokers’ Rules
			Gauging suitability
			Making sure the money is legit
			Following special rules for pattern day traders
			Reporting taxes
		Watching Out for Insider Trading
		Preparing for Rule Changes in Crisis Conditions
		Taking on Partners
	Chapter 17 Taxes for Day Traders
		Getting the Lay of the Land: What You Need to Know Based on What You Trade
			Commodities and futures
			Currency trading
			Options
			Stock trading
		Hiring a Tax Adviser
			The many flavors of tax experts
			Questions to ask a prospective adviser
		Doing Your Taxes Yourself
			Finding out everything you want to know
			Making it easier with online tax preparation
		Identifying Income Categories You Need to Know
			Earned income
			Investment income
			Capital gains and losses
				Calculating capital gains and losses: Covering all your basis
				Understanding the wash-sale rule
			Miscellaneous income
		Tracking Your Investment Expenses
			Qualified and deductible expenses
				Clerical, legal, and accounting fees
				Office expenses
				Investment counsel and advice
				Safe-deposit box rent
				Investment interest
				State income taxes
			What you can’t deduct
				What? I can’t deduct commissions?
				Attending stockholders’ meetings
				Attending investment seminars
			Recognizing the limitations
				At-risk rules
				Passive activity losses and credits
				Interest expense limitations
				Two percent limit
		Top Secret Tax Information for IRS-Qualified Traders Only
			Mark-to-market accounting
			Greater deductibility of business expenses
		Discussing Other Important Tax Info: Forms and Deadlines
			Using the right tax forms
			Paying all year: The joy of estimated taxes
		Using Self-Directed IRAs
Part 4 The Part of Tens
	Chapter 18 Ten Good Reasons to Day Trade
		You Love Being Independent
		You Want to Work Anywhere You Like
		You’re Comfortable with Technology
		You Want to Eat What You Kill
		You Love the Markets
		You Have Market Experience
		You’ve Studied Trading Systems and Know What Works for You
		You’re Decisive and Persistent
		You Can Afford to Lose Money
		You Have a Support System
	Chapter 19 Ten (or So) Good Reasons to Avoid Day Trading
		You Want to Discover Investing by Day Trading
		You Love Fundamental Research
		You’re Short on Time and Capital
		You Like Working As Part of a Group
		You Can’t Be Bothered with the Details of Running a Business
		You Crave Excitement
		You’re Impulsive
		You Love Going to the Casino
		You Have Trouble Setting Boundaries
		You Want to Get Rich Quick
		The Guy on TikTok Said It Would Work
	Chapter 20 Ten Common Day Trading Mistakes
		Starting with Unrealistic Expectations
		Beginning without a Business and Trading Plan
		Ignoring Cash Management
		Failing to Manage Risk
		Not Committing the Time and Money to Do It Right
		Succumbing to FOMO!
		Switching between Research Systems
		Overtrading
		Sticking Too Long with Losing Trades
		Getting Too Emotionally Involved
	Chapter 21 Ten Tested Money-Management Techniques
		Take Money off the Table
		Use Stops
		Apply Gann’s 10 Percent Rule
		Limit Your Losses with the Fixed Fractional System
		Increase Returns with the Fixed-Ratio System
		Follow the Kelly Criterion Formula
		Figure the Amount to Trade with Optimal F
		Measure Risk and Sizing Trades with Monte Carlo Simulation
		Take a Risk with the Martingale System
		Throw It to the Fates
Appendix Additional Resources for Day Traders
	Great Books for Great Trading
		Basic trading guides
		Technical analysis guides
		Schools of price theory
		Trading psychology
		History and memoir
	The Trader’s Internet
	Other Mainstream Media
Index
EULA