HOW TO DEVELOP YOUR OWN PROFITABLE DAY TRADING STRATEGY
Developing a profitable trading strategy is not as complicated as you might be led to believe. Many people will tell you that it’s extremely difficult to build your own trading system, but it’s actually pretty straightforward. The next part of this book will show you how to develop your own trading strategy in seven simple, but very important, steps.
Step 1: Selecting a Market
Step 2: Selecting a Time frame
Step 3: Selecting a Trading Style
Step 4: Defining Entry Points
Step 5: Defining Exit Points
Step 6: Evaluating Your Trading Strategy
Step 7: Improving Your Trading Strategy
Step 1: Selecting a Market
With the fame of online trading, more and more financial instruments are available to trade. You have a variety of choices, not just stocks, options, and futures. In recent years, financial instruments like Exchange Traded Funds (ETFs), Single Stock Futures (SSF), and the Foreign Exchange Market (forex) have become available for the private investor. In addition, the existing financial instruments have been enhanced. Exchanges started introducing electronic contracts and mini contracts of popular commodities like gold, silver, crude oil, natural gas, and grains.
These futures contracts have become very popular amongst day traders, and the volume of the mini and electronic contracts quickly surpassed the volume of the pit-traded commodities. These days, you can basically trade ANYTHING. For example, if you want to participate in the real estate market without owning properties, you can invest in Real Estate Investment Trusts (REITs), or even Real Estate Futures of a particular area, like Chicago or Denver (traded at the CME). In this chapter, we’ll focus on the four main markets: stocks, forex, futures, and stock options. We’ll examine each of these markets according to the following criteria:
1.) Low Initial Capital Requirements
Low initial capital means that you can start your day trading activities with a low initial deposit. It’s always better to trade with small capital and then move up to larger capital when you’re comfortable enough with the market.
Leverage is the second key. With sound risk management in place, highly leveraged markets allow us to place a small amount of capital into the market and realize larger profit potentials. This will enable us to build up a small account quickly.
The third factor is liquidity. We’ll focus on liquid markets to avoid problems caused by market manipulation and slippage. When trading a market, we want to ensure that we receive quick and accurate fills for our orders, and also that a large order placed by a market-maker or broker does not move the market in an erratic way.
The fourth factor is volatility. You can make money in any market, as long as it’s moving. A market that’s just going sideways and doesn’t move in any direction is extremely difficult to trade. It’s easier to trade a market that’s either going up or going down.
Throughout the course of this book, you’ll learn how to trade any market, but it certainly helps to know something about the market you’re trading. So, we’ll include a brief description of markets and participants in the beginning of each of the following sections.
The stock market is a private or public market for the trading of company stock at an agreed price. Companies are given a value by investors. The value of the company is divided into many shares. These shares can be bought or sold (raising or lowering the value of the company).
When you buy stocks, you essentially own a little piece of that company whose shares you just bought. You’ll become a shareholder. So, the more shares you buy, the larger the portion of the company you own. If the value of the company rises, the value of your shares rises. If the value of the company decreases, the value of your shares decreases. When the company makes a profit, you may receive some of that profit in the form of dividends; the profit is shared amongst all the people who own the stock.
Ownership of shares is normally called equity.
There are two main types of stocks – preferred stock and common stock – and there are many advantages to owning preferred stock over common stock. Here are the main ones:
1. When you’re holding a preferred stock, then the dividend is paid to you before any dividends are paid to common stock holders.
2. A preferred stock typically pays a fixed dividend that does not fluctuate, unlike the dividend of a common stock.
3. Owners of preferred stocks have a greater claim on the com- pany’s assets.
For example, in case of bankruptcy, preferred stock holders are paid first, before common stock holders. However, as a day trader, you really don’t have to worry about the different kinds of stocks or dividend yields, since you’re just holding a stock for a few minutes or hours.
1.) Capital Requirements
you can start with minimum capital of amount you have my thought you can start with 50$ minimum in first month. then slowly-slowly you increase your capital.