There is a tool that every trader use to control the damage you can accept in a trade. It is called stop loss order. It is an automated order that the trader enters following a newly opened position. This preset order tells the broker's computer when to get out of the trade. You may usually enter this value as points in percent (pip) or as dollar value.

Now the question that most traders face is, where to put the stop loss. No one wants to place an order too close to the actual trading price and get out of the trade in a small fluctuation. At the other end, we don't want to loose too much money at any trade.

The answer to that question is highly personal in my opinion. It depends on your account size, your appetite for the risk, how crazy you are, etc. But there is also some commonly accepted  ways of defining risk levels.

Most of the traders go for a fix percentage of their account as an acceptable loss. So if you have 10.000 $ in your account and you never want to loose more than 5% in a given trade, your maximum loss should be 500$. Now that is the step one.

The biggest mistake of beginner traders is to get this as a fixed position for a lot. So if you are trading one standard lot, this would be approximately 50 pips. This may be a large, or not enough range depending of market conditions. Let's take a look at the chart below.

It is the 1h chart at the time I am writing this article. The market is extremely volitile these days and you can see the pair has moved between 196.800 and 194.400 during the day (which is a 240 pips range).  If we decide to get in a trade now, 50 pips stop loss will be hit very easily.

Let's go to 4h chart and see the support levels for a long trade (buy trade).

First support level below the actual position is around 193.300, about 150 pips below.  It is likely that the pair may test this value one more time before going higher. So if we get in this trade right now, we should be ready to tolerate this back move until the support is broken.

So our 50 pips is not enough. We still want to keep our percentage fixed. We, then, should reduce the trade size. Instead of 1 standard lot, we should trade with 1/3 lot.

The problem at this point is that not every broker accepts less than 1 lot trades. If you do not have an account to tolerate 150 pips within the percentage you have already defined, you should not enter in the trade. Doesn't matter how good the trade is, how much money you can make, how likely that the pair will move in the direction you want. You don't have enough money to get in that trade.

First rule I have learned in forex trading is to be able to let it go. It happens often that the market is to volatile so that the risk is not acceptable for my account size. Yes these are the times you can make a lot more money than you can usually make. But remember, these are the times that you can loose a lot more money than you usually loose.

I hope it helps to my fellow new traders. Let me know if there is anything you want to see in my future articles.

Before you try your luck in forex trading, it would be wise to at least know some strategies that you can use to your advantage. Here are some of them:

1. Leverage strategy. For successful traders, this strategy is most advantageous as it enables you to trade more than what you invested.
2. Stop loss order strategy. This strategy protects investors in that it stops the trading process at a certain point, which means that your chance of losing a considerable sum of money is reduced.
3. Automatic entry order strategy. This strategy works well for many traders because trading happens when the prices themselves have reached a point wherein they become fit for trading already.

Succeeding in forex requires a cautious look at all these strategies and choosing one that suits your needs and preferences. There are many sites online that detail how these strategies really work. If you want to find out more, simply google the phrase “forex trading strategies”.

In the event that you will invest in forex trading, monitor your investments carefully, so you will know just where you stand.

Finally, do not risk all your savings in forex trading. Only invest a minimal amount, especially if you are still testing the waters.

What are stocks?

When you buy stocks, or shares, you're buying part of a company. A company will offer a number of shares for sale. You can buy some, hold them as long as you like, buy more, or re-sell them.

Buying and selling is also known as trading. Once trading begins, the price of the stock can rise or fall.

Most stock is bought and sold at a stock exchange. Examples of stock exchanges are Nasdaq, the New York Stock Exchange, and the London Stock Exchange. You can also buy over-the-counter (OTC) stocks, which are not listed on stock exchanges.

You don't buy and sell stocks yourself, but act through a stock broker or brokerage firm. Usually you make the decisions, and the broker represents you on the market. You can also choose to let the broker invest your money for you.

You might buy stock at a low price, and sell at a higher price to make a profit. Or, you might invest in companies that will pay regular dividends over several years, for a more stable flow of income. The stock you buy depends on your financial goals, and your personal investment style.

There are two types of stocks: common, and preferred.

• Common stocks give you voting rights in the company. If you want to stage a hostile takeover, you would buy up as many voting shares in the company as possible. In general, common stocks give you a say in the way the company is run. Dividends fluctuate, depending on the fortunes of the company.

• Preferred stocks return a fixed amount, with regular payments, but you have no voting rights. If the company has financial problems, the dividends on preferred stocks are paid before those of common stocks.

A company pays dividends in cash, or in shares. Taxes may apply to cash dividends.

Price of Stock

What determines the price of stock?

Broadly speaking, the price of stock depends on supply and demand. The more people buying the stock, the more its price rises.

The market price of a stock is not the same as its intrinsic (real) value. A stock price can rise, simply because other people are buying. People may buy in hopes of quick wealth, or because they have emotional ties to the product or service - or, just because everyone else is doing it.

Scams, such as Pump and Dump, take advantage of this. Worthless stocks become inflated in price by increased buyer activity, based on hype and high-pressure sales.

Avoid stock market scams and bad investments, with five simple rules.

1. Research, research, research.
   
   Research is your best friend on the stock market. Usually, companies offering stock for sale must disclose financial statements and other company information. Know the company history, the key players and company structure. Look at past performance, and strategies for the future. Know the industry as well as the company. Examine the economic factors affecting its success or failure.
   
   Never invest in a company or industry you don't understand. If you do, it's not an investment. It's a blind gamble.

2. Put personal feelings aside

   Emotional factors can affect the price of stocks. Often, stock prices are driven by greed, emotion, or pure ignorance.
   
   Keep a cool head. Don't buy out of impulse or passion.
   
   Don't buy into wind power, for example, because you believe in saving the environment. Buy because the company has a solid performance record, a strong demand for its product or service, and good potential for growth and profit.
3. Diversify your stock portfolio
   
   Buy stock in more than one company. If you're just starting out, choose at least three or four different companies. Even the most reliable stocks can take a sudden dip.
   
   For instance, Maple Leaf Foods (MFI) stock was $16 a year ago. Recently, several people died of listeria found in Maple Leaf meats. In August of this year, stock hit an all-time low of $7.60.
   
   MFI stock is now rising again, largely due to investor interest in the low prices. The company has a solid history and will probably bounce back. However, this illustrates the potential for a sudden price dive even in established companies.
   
   If your portfolio includes several investments, you have a backup if one or two do poorly. Even seasoned investors make mistakes, or are subject to factors beyond their control.
4. Know when to hold 'em
   
   If a company's revenues go down, so do the stock prices. Is it temporary, and will the company recover? Wise investors know when to hold their stock, and when to cut losses, and sell.
   
   Don't listen to gossip or rumors. People will offer stock market tips, or claim to know stock market secrets, wink wink nudge nudge. Inform yourself, do your research, and make your own decisions.
5. The greater the risk, the greater the reward
   
   In general, the more risk you're willing to take, the more potential for high return. Also, the more chance the investment will fail, and you lose your money.
   
   Reliable companies command higher stock prices. Returns are less, but so is the risk.
   
   If a stock offers high return with low risk, be wary.

Experiment without Spending

Before investing your hard-earned money, set up a mock portfolio with several stocks. Follow your investments online, and chart their progress. Amend your choices, "buy and sell", and watch them perform in real time, without risking a penny.

What is the Capital Gains Tax?

As usual, the tax man is after a piece of your pie. If you sell your stock at a profit, a capital gains tax applies. Taxes may also apply to stock dividends.

You have a capital gain if you sell your stock for a higher price than you paid. If you sell your stock for less than you paid, it's known as a capital loss.

If you hold your stock for longer than a year, it's a long-term capital gain. Under a year, you have a short-term capital gain. Short term capital gains are taxed as regular income.

Long-term capital gains holders pay a tax of up to 15%. However, in 2008, investors in the 10 - 15% tax bracket paid a long-term rate of 0%. This won't change until the year 2010, when the rate will go back to 15%.

Be aware of the tax advantages or disadvantages of any stock you purchase.

What's Your Investment Style?

Are you a hard-nosed rogue or an armchair softie? Does losing money fill you with stress and worry, or do you hunger for challenge? Are you looking for a quick profit, or a long-term retirement strategy?

Understand yourself and your goals before you invest. Read up on the investment styles and strategies of top investors like Warren Buffett, his mentor Benjamin Graham, and people like Kirk Kerkorian or Jesse Livermore. You'll find that their styles are different, but they all believe in the five simple rules listed above.

Stock Brokers

When you're ready to invest, choose a stockbroker or brokerage firm that you trust. Licensed brokers are either full-service or discount brokers.

• Full-service brokers charge a higher fee. They provide information, details and guidance to the investor.

• Discount brokers charge a lower fee, provide minimal information, and usually don't give any guidance.

Decide on the type of service that's best for you. Again, research is your friend.

With a basic understanding of the stock market, you can make confident, informed decisions, and increase your chances of investment success.

I believe it is very important to see how one is trading under different conditions. Not all trades are easy, not all are winning either.

I am not going to put many examples at once. Rather I prefer to put one example at a time, and discuss.

Here is the trade I want to discuss about:

Pair : EUR/JPY

Position : Short

Open at : 161.749  @ 8/25/2008 - 11:36:59 AM

Closed at : 161.422 @ 8/25/2008 - 12:41:46 PM

Profit : 27 pips (about  300$ for a standard lot)

Although this was a winning trade, it is not an ideal one.

I am not a full time trader. I have my own full time job and I trade whenever I have time. This was the problem of this trade. Nothing is ideal in the world.

Let's see the chart for a second. This is 1h chart which includes the trade time and couple of hours more.

When I got on the computer, the pair has already started a big fall. After checking the trends on daily chart, I have decided that the move would go on. So I got in.

After a 35-40 pips fall, pair started to loose its speed. Now again, in a not so ideal world, where there are a lot of part time traders, I had to make a decision if I leave the trade open or not, before leaving the computer.

I have set the stop loss at +300$, and left the computer. When I came back, I saw that the stop loss was touched right after I left. The pair kept going down after it. But, you cannot always be in front of the screen to catch all.

There are many part time traders like myself, who cannot follow the charts for hours everyday. It is a part of the rules for us,  to make decisions with what we have, sometimes to be satisfied with less profit than what we could have made.

This is my first article about my trades. Let me know if you find it useful, give me your comments about how to make it more useful.

On July 13, 1995, the executive vice president of Daiwa's New York branch, Toshihide Iguchi, wrote a thirty-page letter to the president of Daiwa Bank in Japan. In his letter, Iguchi confessed to losing $1.1 billion while dealing in U.S. Treasury bonds over the past eleven years. Daiwa filed an initial report with the Japanese Finance Ministry's Banking Bureau on August 8, 1995. The Bureau told Daiwa to investigate the accusations, and a final report was submitted one month later. On September 18, 1995, six days after receiving the findings from Daiwa, the finance minister reported the findings to the U.S. Federal Reserve. Following the conclusion of the U.S. Federal Reserve Board investigation, Daiwa was fined $340 million-a reduction from the original $1.3 billion fine-and pled guilty to sixteen federal felonies, including two counts of conspiracy to defraud the United States and the Federal Reserve Bank, one count of misprision of a felony, ten counts of falsifying bank books and records, two counts of wire fraud, and one count of obstructing a bank examination. Furthermore, the U.S. Federal Reserve Board forced Daiwa to end all U.S. operations within ninety days of the ruling. Toshihide Iguchi had been hired by Daiwa in 1977 to manage the back office of the branch's securities business.

The New York branch managed the custody of U.S. Treasury bonds, bought by customers and by the bank itself through a subcustody account held by Bankers Trust. In 1984, Iguchi was promoted to trader, but he did not relinquish his back-office duties, thus creating the first breach of internal controls. The scam began when Iguchi lost an initial $200,000 in 1984 and tried to regain his losses by selling off bonds in the Bankers Trust account. Because Iguchi was both a trader and securities manager, he was able to conceal his unauthorized transactions by falsifying the Bankers Trust account statements that he managed through the back office of Daiwa's New York branch. Unfortunately, Iguchi could not recoup the losses, and the debts began to grow even larger. When customers wanted to sell off securities or collect interest on bonds that Iguchi had already sold, he settled their accounts by selling even more securities and falsifying the records. In the course of the eleven-year scandal, Iguchi sold approximately $377 million of Daiwa's customer securities and $733 million of Daiwa's own investment securities; he purportedly forged 30,000 trading slips to cover his losses.

Interestingly enough, in the end not one Daiwa Bank customer lost money in this scandal. During the 1995 federal investigation, Iguchi revealed that two additional unnamed traders had also incurred serious losses totaling approximately $97 million between 1984 and 1987. These losses had been concealed from bank regulators by shifting the losses to Daiwa's overseas affiliates and a shelf company set up in the Cayman Islands. During the investigation, it was discovered that the bank had been operating an unauthorized trading area, which was disguised as a storage room during regulatory examinations. It was also revealed that U.S. regulatory agencies had warned Daiwa in 1993 and 1994 about their poor internal controls; one in particular was Iguchi's dual role as a trader and securities manager. Perhaps the most damning blow to Daiwa's reputation was the fact that the bank knowingly engaged in a cover-up of the situation. Upon receiving Iguchi's first letter in July 1995, Daiwa began selling off assets before reporting the fraud to authorities, and it seems as though they also attempted to transfer the losses to Japan in order to avoid U.S. scrutiny. Furthermore, U.S. officials were discontented with Japan's finance ministry for belatedly reporting the fraud to U.S. authorities despite regulations requiring immediate notification.

Iguchi pleaded guilty to misapplication of bank funds, false entries in bankbooks and records, money laundering, and conspiracy and was sentenced in New York to four years in prison and a $2.6 million fine, which he will probably never be able to pay. Iguchi requested to serve the first fifteen months in solitary confinement in Manhattan's Metropolitan Correction Center-for fear of what the other prisoners would do to him-before being transferred to a relatively plush minimum-security facility in Pennsylvania. Several of Daiwa's senior managers were forced to resign, and on September 20, 2000, five years after the initial charges, a Japanese court ruled that eleven current and former board members and top executives were to pay the bank $775 million in damages, a decision that was immediately challenged. Today, Daiwa has withdrawn from all overseas banking operations and has instead been focusing on becoming the strongest regional bank in Osaka, Japan.

Ben Graham is the father of two basic stock market disciplines: security analysis, and value investing.

Graham believed that stock market prices were often wrong, because of the emotional factors involved. He developed the concept of "Mr. Market", an emotional and unstable character, to explain fluctuations in the market.

Mr. Market appears every day in your office, and offers to sell you some stock. One day, he might be hysterical with glee, and the next he's morose and hopeless. The intrinsic value of the stock doesn't change, but the price varies with the moods of Mr. Market.

Graham acquired his wealth by targeting undervalued companies. He looked for companies whose stock prices were temporarily down, but whose fundamentals were sound for the long run.

Ben Graham is the mentor of investment guru Warren Buffett, and has influenced several generations of stock market investors.

Warren Buffett b.1930

Also known as the "Oracle of Omaha", Warren Buffett is the world's richest man in 2008. He uses a value investing strategy influenced by Ben Graham.

Buffett buys companies as long-term investments, at a discount to their intrinsic value. He stresses the importance of research, and looks for companies with strong management, good potential for long-term return, and an attractive price.

His investment strategy involves discipline, patience and value. While he claims no investment favorites, Buffett is currently interested in family-owned businesses in Europe, and predicts hard times for newspapers.

Buffett owns Berkshire Hathaway, whose first-quarter profit plunged 64% this year, with $991 million in investment losses. In July, Berkshire Hathaway offset the loss by announcing the sale of Anheuser-Busch to a Belgian company for $2.49 billion, earning a profit from the purchase price of 1.9 billion in 2005.

The world's richest man pays himself a salary of $100,000 a year. It's a figure that hasn't changed in twenty-seven years.

Peter Lynch b.1944

Peter Lynch bought into Automatic Data Processing (ADP) and Yum! Brands' (YUM) Taco Bell, before Wall Street noticed their existence.

Peter Lynch uses a bottom-up approach and concentrates on a company's fundamentals, instead of listening to market chatter. He invests for the long run, and pays little attention to short-term market fluctuations.

His chameleon investment style adapts with the times, but he relies on core principles. He believes that no one can predict economic fluctuations. Lynch advocates research, and warns against long shots for building wealth.

Kirk Kerkorian b.1917

Kirk Kerkorian turned 91 this year, and has a net worth of $16 billion. Known as the father of the mega-resort in Las Vegas, Kerkorian is a self-made man, who started earning money for his family at age nine. As a young man he learned to box. Under his brother's tutelage, Rifle-Right Kerkorian fought his way to the Pacific amateur welterweight championship.

In World War II, Kerkorian learned to fly with the Royal Air Force. After the war, he bought a Cessna and began flying wealthy passengers into the small railway town of Las Vegas.

He quickly saw the potential of Vegas. In 1947, Kerkorian gave up gambling, bought a local airline for $60,000, and renamed it Trans International. He operated the airline for twenty-one years, then sold to Transamerica for $104 million.

His most famous success was a piece of Vegas land, purchased for just over $960,000, in 1962. He leased the land to Caesar's Palace for four million, and sold it to them six years later, for five million more.

His fortune comes from shares in DaimlerChrysler, MGM Mirage (MGG) and Metro-Goldwyn-Mayer (MGM). He has a talent for identifying opportunities early. Kerkorian will buy, sell and then return to a company. He twice sold MGM, then took it over for a third time in 1996.

Kerkorian's recent investment in Ford Motor Co. kept stock trading at its highest levels in almost six months.

Jesse Livermore 1870-1940

Jesse Livermore made and lost millions, and once declared bankruptcy. He was notorious for short selling during the stock market crashes in 1907 and 1929, to the point that JP Morgan asked him to stop.

Livermore focused on markets as a whole, instead of on individual stocks. He would adopt a buy-and-hold strategy in a bull market, and sell when it lost momentum.

His fluctuating fortunes came from breaking two of his own rules: never listen to stock tips; and, always cut losses short.

Livermore always had an exit strategy. He committed suicide in 1940, owing more than a million dollars.

Edward Lampert b.1962

Lampert is Chairman of Sears Holdings Corporation (SHLD) and the founder of ESL Investments, Inc. Lampert created ESL at the age of twenty-five, in 1988. The company's returns average 29% a year, and Lampert is number sixty-eight on the Forbes list of 2008.

He looks for a mature business that is easy to understand, and has a strong cash flow. He targets companies with the potential to generate a large cash flow over the long run. Lampert is less focused on the management team, and willing to bring about changes in the company structure to realize a profit.

His numerous investments in the retail sector include Home Depot (HD). Other investments include CIT Group (CIT) and AutoNation, Inc. (AN).

George Soros b.1930

George Soros is a Hungarian-born American investor, speculator, philanthropist and political activist.

He's infamously known for breaking the bank of England on Black Wednesday, 1992, by selling short more than $10 billion worth of pounds.

His investment strategy revolves around the knowledge that financial markets are chaotic, and prices depend on the human beings who buy and sell. Often, buyers and sellers act out of emotion, rather than cool logic.

Soros looks for opportunities by studying value and market price of assets. He follows a theory of reflexivity, based on the idea that investor bias affects market transactions.

These days, Soros prefers philanthropy over speculation. By 2003 he had given away more than four billion dollars to help the underprivileged, in nations such as South Africa, Central Europe and Russia. In 2007 he gave $100 million to fund internet access in Russian universities.

George Soros holds shares in BUCY - Bucyrus International Inc.; ANR - Alpha Natural Resources Inc. and WIND - Wind River Systems Inc.

Carl Icahn b.1936

Icahn made headlines in 1985 with his hostile takeover of TWA. He's known as a tough negotiator and clever market strategist.

Icahn takes minority stakes in public companies and pushes for change. He does not believe in following trends. Icahn says, "... consensus thinking is generally wrong. If you go with a trend, the momentum always falls apart on you. So I buy companies that are not glamorous and usually out of favor. It's even better if the whole industry is out of favor."

In May, Carl Icahn took on internet giant Yahoo (YHOO). Icahn bought as many as 50 million shares, preparing for a proxy fight to remove Yahoo's Board of Directors. On July 21, 2008, he agreed to join the Board of Directors and end the hostilities ... at least for now.

Philip Fisher 1907-2004

Fisher was a formative thinker in the growth stock school of investing. His book, "Common Stocks and Uncommon Profits", is a standard for investors. Fisher believed in investing for the long haul, and wrote that the best time to sell a stock was "almost never".

Fisher did extensive research to help build his wealth, and preferred the technique he called "scuttlebutt" or the business grapevine, to seek out information.

Fisher bought Motorola in 1955, when it was a radio manufacturer. He held onto it until his death in 2004.

William J. O'Neil

At the age of 30, O'Neil was the youngest ever to have a seat on the New York Stock Exchange. He's the founder of Investor's Business Daily, and author of two successful books.

O'Neil uses a mix of quantitative and qualitative strategies in his investing approach.

His investment style is to seek out the growth stocks that have the highest profit potential and will show a swift price rise. He coined the acronym CANSLIM to identify such stocks.

Bill O'Neil's motto is "buy the strong, sell the weak." He seeks out companies that perform as leaders, with something new to offer, and a proven rise in current and annual earnings.

Every great investment guru has an individual approach, but all follow the same basic rules: know the company and the market; never listen to market gossip; and always keep a cool head.

OK! What do you think?

What is a Day Trading?

Day Trading is, taking a position in the market and closing your position by the end of the day, if not well before. A day trader could hold a position from few seconds to few hours. It is all about making profits using price movement of stocks that occurs in a day.

If you think that price of a stock would move up, then you are bullish and you buy. When the price moves up, you sell the stock, book profit. Likewise, if you think that price of a stock would move down (a fall), you are bearish and you sell. When the price comes down, you buy the stock, book profit. It Works either way.

“If it works either way, what could be wrong about that?”

Well, it is fairly easy to learn and highly difficult to master.

Financial Leverage

In Day Trading, you pay only a margin amount. Say if you are obliged to pay 30% of the stock price, it gives you financial leverage.

Two Facets of the Coin

Day Trading could make you rich, could pull money from the market, and could be anything you dream about. Unfortunately, the coin has the other facet too. There is a fair amount of chance that the market could throw you out!

What is “Traders Psychology” on earth?

It does not matter whether you agree with me or not, there such a thing called Traders Psychology. To become a successful Day Trader, you must have the emotional intelligence it takes. I don't think it is good idea to develop sleep disorder or hypertension, for the reason you are making profits in stock market.

The good news for you is, you can be wealthy and healthy by Day Trading, provided you understand how your psychology prevents you from loving what you do.

It is not enough to earn thru trading, it is important that you have to love it!

I often see people who are poor in managing emotions, sitting at trading terminal with racing heart. One could become greedy or fearful. Greed & Fear are the two dynamic forces that move the market, especially for a Day Trader.

Don't try to kick the market back if it kicks you. No getting even, no chance to display your ego, nothing! Learn the secret of becoming market's beloved. Try to know when and where the market opens its door for you to enter and to exit. Be patient and learn from experience. But don't pay much for your learning. Keep it economical. There comes a Trading Plan

Trading Plan

You know, software programming is an art itself. Still, the programming community gives, constant efforts to make things better for programmers, there comes Software Engineering. Likewise, a system that undermines your emotions, gives a protocol to communicate with the market is all about a Trading Plan.

There is no best Trading Plan that suits everyone. You have to tailor your own. A good plan must tell you what and what not to do, when and when not to do, how to handle surprises the market gives you. Basically it is procedure that tells you how to go about trading, in strict sense. A Day Trading with no Trading Plan is like you drive the highway with no direction, with no road map.

Market - The Ground Truth Reality

No way you can escape from reality. A seasoned trader always smells the market. The market talks to those who have an intimacy with it. Like there are ways to develop intimacy with people, there are ways to develop intimacy with the market. You must watch, you must listen to and you must understand the dynamics of the market. OK! I hear you saying “Enough of pessimism!” I just wanted to show you where are your breaks before showing you the accelerator. No more, no less.

Strategies

The strategies of day trading basically assume that Market Discounts Everything. It means the market shows you what majority market player's intention. It does not matter what you believe. Don't swim against the current. Move along the direction. This is the essence of “smelling market trend”. There are popular strategies those are tried and tested to help you. I would like to tell you about the popular ones.

Scalping

Scalping is the trading where the trader buys or sells a stock for very little profit. Say for 0.10 or 0.15 cents / paisa or an appropriate amount to your currency. Scalpers make quick profits and they do not expose themselves to Risk much. To practice scalping, you have to buy/sell for very little profits in very little time. You do this again and again till you get a decent profit. Frequency of trade would be usually high for scalp trader. In scalping, it is important that you must exit your position quickly if you find the market turn against you. Your success is determined by the number of time you won out of your attempts. So it is obvious that one should lose less then what one earns.

Momentum Trading

Momentum trading is a method where you wait till you get a momentum on any stock. Any stock can move up or down in price with a drastic acceleration, at times. That accelerated movement in price is known as momentum. There could be a bullish / bearish breakouts and many other market parameters can cause a momentum. A momentum player is one who book profit on a stock's momentum price movement.

Range Trading

Range trading is really an interesting trading activity. You buy and sell stocks within a Range. The range is defined by support and resistance levels of the stock on the day. Resistance is the price, above which the stock may not move (if you don't consider surprises). Support is the price, below which the stock may not come down. Thus, knowing the supports and resistance, you can figure out a range in which the stock would be moving up and down. Knowing the range, you can make profits.

For a good range trading, it is universally accepted fact that a stock must have good volatility. The volatility of the stock is the tendency of the stock to move up and down in prices, several times a day. See, you can't waste your time, waiting too long for a stock to move up or to move down. A volatile stock is one that moves up and down frequently. This tendency could be measured by beta value of the stock. I suggest you do some readings on beta value, support and resistance, though I plan to write about them sometime later.

News Playing

News playing is a popular strategy where you buy a stock if positive news hits the market and sell a stock if the news is negative. It may look nice and easy. I warn you it is not. Often you may not now what is news and what is fact. Though news playing is favorite method for many traders, I personally discourage it for following reasons, unless you are sure about the news.

Do not forget the fact that promoting news is a “media business”. Further, technical analysis argues that Market Discounts Everything. It simply means the price movement takes in own course of action irrespective of your own view on certain news. It does not matter what do you think about the news, it is all that matter what the majority market players think about the news. It is not the news that hits the market; it is perception and sentiment that hits the market. Do not expect the market to behave in rational way always!

Go With The Volume

You can choose any strategy for your day trading; still there are some simple basic things you must know. One of them is Volume. Any price movement that is not supported by volume in the market is vulnerable to turn otherwise. It is a basic fact that a change in volume always indicates a change in stock's trend. I suggest you some reading on Volume Indicator and Trends.

What Pain You Can Afford?

Before enter a trade, clearly decide how much money you can afford to lose on the trade. In other words, be strict in your exits if the market turns against you. That is the “stop-loss”, which prevents you from incurring more loss. In my opinion, a good trade, especially in range trading, 2% loss is smart, though it could be ambitious for you.

Accept Reality; the STOP LOSS

It Is All About Winning The War Not Every Battle!

Good day trading is not about winning every battle; it is about winning the war. There is no system that could give you profit on every trade you do. Learn how to keep your loss smaller than the profits you make. You can earn even a penny; you must be able to earn it consistently. Unexpected profits and unexpected loss indicates something wrong with your trading plan.

What Is The Source of Your Trading Capital?

Surplus money? Your savings? Money borrowed? I cannot give any comment on this, as it is highly subjective and relative. It depends on your confidence, skill, your Traders Psychology, etc., WAIT ! I strongly suggest you to practice, to test your strategies, and to refine your emotional intelligence with very small trading capital, irrespective of the source of money. It is a complex decision you must take and nobody else could do it for you. Good trading skill is not something you can get overnight; it takes its learning curve. Love learning. Be patient till you become skilled. I suggest you some readings on Risk Management, when it comes for day trading.

Risk Management

Risk management is something you can't afford to forget. A good risk management includes a good trading plan, being strict in stop-loss, and everything you find sensible I don't write. I told driving highway with no direction when it comes for trading plan. I would like to say it is like a blind driving highway if you don't have a risk management system that works for you. Caution!

Trading Discipline

Stick to your trading plan and do not get deviated by emotions (Traders Psychology)

Do your homework and plan well before the market time. Don't alter your plan during market hours unless you are an expert trader (obviously, this article is not for an expert trader)

Quit your broker's office when you think you don't understand the market that day.

Never trade when you are ill or worried.

Even though you practice all the above said, there could be situations where you make a huge profit or a huge loss. If so, stop. Do not think of trading for a day or two (don't rush; market will be there for you always), then, do think what had happened for a day or tow, then prepare yourself for the next trading day.

Do You Want a Conclusion?

Yes I have one. Day trading needs professionalism. It is a skill, an expertise. You have to lean, practice, test and refine. I would like to say “You can live on day trading if you become an expert, by understanding it little by little”

Can You Live on Day Trading?

Oh! Let me ask you now “Can you live on day trading?”

Bulls Run on Indian Stock Market and Naive Traders

The world witnessed skyrocketing stock market in India, in recent years, especially in last year till the great fall in Jan 2008. I remember a 1000 points rally on SENSEX took only a week.

When market is on Bullish, it is obvious that traders want to make short-term profits. As most of my clients do not have detailed understanding of Technical Analysis, I saw them buying stocks relying unreliable sources. They tend to believe false news and rumors. When the market is bullish, one could see many self-appointed experts giving recommendations on stock picks. As the market always reflects sentiment of majority market participants, there is no acid test that could predict market behavior.

Many a time, I could see a client buying Infosys, few days earlier to the announcement of its quarterly results, expecting the price would move up. For his surprise, from the day Infosys gave exceptionally good results, price of the stock started falling down, thanks to the sentiment created by the good earnings of Infosys, price of every other stock in Information Technology sector would move up. The reason that is hidden to the eyes of a naïve trader is that Infosys was overbought on the day, and because of its good results, there was selling pressure due to profit booking, by the majority market participants, by Institutions and by long term investors, who would had bought Infosys at lower price. After all, good speculative trading is all about understanding the science of demand and supply.

An Entrepreneur's Dilemma: How To Support Naive Traders

Although my official responsibility as Stock Broker is limited to executing trades on behalf of my clients, actually I was in need of supporting my clients to push the business, where competition has become the way of life.

Decent gains and no huge loss is good trading practice for me, if not for every one on earth. Technical predications on future behavior of the market are the outcome of in-depth, sensible analysis of a set of technical indicators that supports the analyst's strategy.

What I Found As The Best Choice In Bullish Market: Relative Strength

After thorough research and detailed readings, I selected Relative Strength, popularly known as RS, as my ground base to pick a stock on daily basis for my clients. RS denotes the strength of a stock in comparison to the strength of entire market. Though calculating RS under various circumstances is beyond the scope of this article, it is sensible to have a layman's idea. RS is represented as a numeric figure that ranges between 1 and 100, considering 100 as the best RS. It is a ratio of past price movement of a stock to the past movement of the market. Logically, when the market is going skywards, the stock that has best RS value would go up in price. If the market moves up by 10%, the stock that has best RS would move up more than 10%. On the other hand, if the market falls down by 10%, for some unforeseen reason, the same stock would move down by less than 10%.

Decent Gains and No Huge Loss

RS guarantees decent gains and no huge loss. Norman G. Fosback writes “Chart and trendline analysis is grounded partially on highly subjective, crude, and largely inefficient measurements … One of the best tested systems is relative strength” , in his book "Stock Market Logic". I stared picking stocks that have good RS and I found them making good upward movement in roughly 95% cases.

According to Fosback, Robert A. Levy, a fund manager and an expert in using computers to simulate the price movement of stocks, has given concrete evidence that shows that the relative strength works best in a rising market.

On a day I recommended NOIDA TOLL BREIDE, which had a relative strength of 95, though I found few other stocks having RS value of 95 or 90, I recommended NOIDA for the reason that it was lowest in price among good RS stocks on the day. That day NOIDA made new life high, which made me more confident in my stock picking strategy. Forsback further writes “Aside from the overall market atmosphere, the only important caveat which need applied to the relative strength system is a check on unusual causes of observed price strength, such as tender offers, which might induce a one-time price strength boost”

Surprise of the Naïve Client

The day I recommended NOIDA, the naïve client asked “How did you know that NOIDA was going to make a new life high today?”

When a contract is initiated between two participants it adds to the open interest. Both parties agree to a certain type of transaction say, A agrees to buy 100 shares of stock at a certain price while B agrees to sell the same at that price. If both parties are closing the existing agreement then open interest will decline so many contracts.

When a contract is traded the participant changes but the open interest remains the same. What is important for a stock trader is the change in open interest on any given day. If open interest is increasing it indicates that participants are willing to commit more money in the market. That means the current trend can continue whether it is up or down or range trading.

On the other hand decreasing open interest indicates winding up of positions/contracts. That means the current trend is nearing its end for the near term. For example, if the current trend is down, then the contracts will of the type short and unwinding of these contracts means short covering. That indicates rally in the stock for the time being.

As volume is an important parameter in confirming a breakout in a stock, similarly open interest change can confirm the trend in a stock. If open interest rises while the stock is rising, it means that many long contracts are initiated and the stock is in uptrend. Any pullback can be used as opportunity to buy the stock.

If open interest rises while the stock is falling, it means that many short contracts are initiated and the stock is in down trend. Any rally will be later used for getting out of the stock for a better price.

If open interest falls while the stock is rising, it means lot of short covering and tells that it is a bear market with temporary rally. Here also stock can be sold for a good price.

If open interest falls while the stock also falls, then it means that trend is nearing its end and the next bull market may start soon.

Knowing open interest is beneficial in trading stocks but it itself not the complete indicator. Proper sense must be applied when taking decisions. For example, the quantity to buy or sell must be decided based whether stock is at its all time high or low or depending the risk/reward ratio along with inferring direction from open interest.

There is money to be made on the forex market. But you will have to use your head and rationale thought to make money at it. Don't fool yourself, you will lose sometimes. Nobody ever plays the forex and wins all the time. The trick the professional traders use is to win big, lose small.

It sounds so simple, why is not everyone making righteous cash on this cash cow machine? Simple, there has to be losers for there to be winners. The part the so called experts, explicatively leave out of their high profile advertisement. But they are trying to sell you their system that will make you rich. Ever wonder why they just don't trade their system instead of making millions trading.

It should go without saying, they are not trading, they are making money selling a flawed system. A system that usually is complicated to a fault, confusing the buyers of the system.

I have traded many years and learned the old fashioned way to success, using tried and true methods that bring in the “green” time after time. I have tried many systems over the years, usually getting my money back because I write them back requesting it and explain the faults in the system and why it sucks.

I employ some indicators, however, the best and free system I use is the higher high, higher low system. That may be a mouthful,sounding like many systems I described before. Nothing is farther from the truth. Actually its simple enough.

The chart shows first, lower highs, lower lows, and then a reverse in direction. The chart clearly shows how to pick off these plays and entry points. To the left we see an arrow pointing up. At that point in time, all was looking well, going higher and blasting out. Of course it did not and broke back down through support. This is why I will never buy a stock or pips in the forex until there is a pullback.

We see the chart bounces back up but make a lower low creating a entry point. The next lower low didn't last long but money could have been made. This is the point where support and resistance comes into play. The yellow line shows the reversal area but it also was an area of support. If I am in, I am going to sell at least half at the support area. That is going to protect me from a reversal back to the upside and its just makes plain good sense. To further protect me I am going to have a trailing stop once the play starts to make distance from my entry point.

Once it reversed it broke a resistance area where one of the lower lows were at, actually making a huge move quickly. To many people try and jump on these huge moves and ride it only to get stopped out using a stop loss, thus blaming the broker for purposefully creating this situation to take his money away from him. This is usually a trader blaming his trading skills on something he has heard from other traders. However, when picking a broker make sure to do an internet search to make sure they are on the level. There are some that don't live up to expatiations of traders.

It broke resistance and pulled back hard but did not make a lower low. We see now that it made a great move to the upside. Good technical analysis is about taking the great set-ups, pulling the trigger when the odds are in your favor, as you can see at the yellow line, I pulled the trigger on the second candle up and sold half at resistance.

That is what a professional trader is looking for. That is THE set-up. Taking profit at resistance and then watching the chart as it develops looking for another entry point, wheater to the upside or downside. It really doesn't matter in the forex.

What we see is it breaks resistance and then moves into a sideways pattern. Pay attention to that sideways pattern, it is the big money maker. I search over and over looking for that pattern because which ever way it break out, it will usually break out big. And that is where the pros are going to be making the big money while the rookie couldn't wait long enough or tried the counter trade off the five minute chart and gets stopped out pretty quickly. Look at the chart and pick out the entry points I did not post.

Always remember the most useful saying in trading any market. Greed Kills! When you trade emotionally and always trying to squeeze that little extra out of the market, you will lose. That is the one guarantee all experienced traders can give you, even if they are selling the hottest online trading system in the world.