The very first step in entering the world of trading is to put aside some monies with which you will use ONLY for trading.This is the just the first step and it’s one where many new students of trading already make an error. The reason: They don’t know that there is a proper procedure for setting aside money for this purpose.

Here are three rules to setting aside money to do any trading, whether your intention is to trade options, futures, currencies or stock:

1. Be sure it’s DISCRETIONARY MONEY. This means that you have already achieved enough success in your financial life that you have reached a point of a degree of stability. This means, for example, that the basic needs of you and your family are taken care of, as well as some enjoyment features. Then, over and above what you need to maintain your lifestyle, you have managed to set aside a ‘nest egg’ that is considered ‘extra’ money, money that you don’t need to live on.

‘Discretionary’ refers to the fact that you can do whatever you wish with that money. WHAT THIS REALLY MEANS, HOWEVER, IS THAT IT’S MONEY THAT YOU COULD AFFORD TO TOTALLY LOSE! By ‘losing’, I refer to ALL of it! Every last dime of it! Gone! Zip! (Am I making myself clear?)

Not only must the possibility of losing it be considered, but there are other factors, e.g., will losing it cause changes in your lifestyle, marital pressures or loss of some future dream, e.g., the college expenses of your child?

What I recommend is that every person even THINKING of learning to trade, sit down with his accountant and go over his ENTIRE NET WORTH situation to ensure that this money is, in fact, discretionary.

2. Be sure it’s NOT UNDER PRESSURE. This refers to the fact that some students of trading have made the mistake of BORROWING money with which to trade. Not only does that money have to be paid back, but interest must be paid on it AND all of this done within a certain TIME FRAME. This puts, as many students find out the hard way, far too much pressure on you to start making a PROFIT before you’ve fully grasped the PROCESS of trading. (This is referred to in my previous post.)

Another way that this money can be under pressure is if it MUST start making money right away, e.g., to pay incoming bills. This also is a death knell to the trader that needs both TIME and LOSSES in his portfolio in order to learn how to trade.

3. While there is no set SIZE of portfolio that is required to trade, keep in mind that larger sizes allow for more mistakes to be made before ‘catching on’ to how to trade profitably. Also, the laws are set up to give more ‘breaks’ to those with larger portfolios. Day trading requires at least $25,000. Portfolio margin requirements are much less stringent when one has at least $100,000. There are more benefits when one has at least $250,000 with which to trade, etc.

In my next post, I’ll address the question of overall trading rules on one’s portfolio.

All of us students of options trading have heard that the number one reason, the most common element of FAILIRE to make it to the level of professional trading is a lack of proper portfolio management.What’s the problem? Why don’t people get it? Why isn’t it obvious that if you don’t handle your money correctly, you’ll soon have to more money to handle?

Having been a student of options trading now for long enough to have learned some hard lessons, I herein suggest that while there are many reasons and an entire myriad of complex individual stories out there, the basic and largest reason that students of options trading don’t reach their goal is this: Most of these students chase PROFITS instead of PROCESS.

A word of explanation: Of course, we’re all in this to make money. Of course, profits are our ultimate goal.

The challenge is that trading options is not as easy as it might appear or, perhaps, as easy as it is sometimes presented by educational companies. For example, many trading students begin their training career by studying and trading stocks or equities. In this well-known and easily understood process, you buy at one price and, if and when the stock goes up on price, you can sell and make a PROFIT. If the price, after you buy the stock, goes down, you take a loss. (If you learn short trading, the process is the exact opposite and you can make money when the price goes down. But it’s still a one-to-one process — straight-forward and simple.)

But in options trading, the very definition of an options contract tells you that there are several factors, other than the price, to consider.

Here are the six parts to any options contract:

a. A price at which the contract becomes effective, called a strike price
b. A specific time frame, at the end of which the contract becomes null and void
c. A complex connection to what is called volatility or the amount of erratic-ness in the marketplace
d. The current price of the stock or equity upon which this contract is centered
e. The current interests rates in the market
f. The amount of potential dividends.

Because of these factors, you can BUY or SELL and have the price of the stock go UP or DOWN, in any combination, and you can still LOSE money. Just the fact that the clock is ticking as you hold an options position can cause you to lose or gain money. News breaking out in the marketplace can change a trade that’s making money to one that’s now starting to lose money, etc., etc.

I’ve stressed the LOSING of money in these examples because that’s what most students of options do, especially at the beginning of their careers.

So, what’s the KEY to surviving one’s trading curve and LEARNING to trade while not losing so much money that he never makes it to the PROFIT part?

Simple, though not easy: FORGET about profit-making! As a student of options, you must FOCUS on the PROCESS of trading. Have, as your goal, LEARNING how to trade. Profits will come in due time, my friend, in due time.

“The highly successful trader is a person of extreme self-confidence.” All of us students of options trading have heard that and have read it every trading book we’ve read.

OK. Fine.

But what if my confidence is a bit tarnished? What if I’m not naturally a highly confident person? What if I STARTED out with confidence, when I began to trade options, but, because of losses, my confidence level has begun to erode? (That’s only a natural human phenomenon, isn’t it?)

For those of us that take pride in the fact that we’re such good options studiers and good options students, we note the fact that there aren’t any ‘confidence schools’ out there for which we can sign up!

So, how, exactly, does one increase one’s self-confidence?

Here’s the challenge: confidence gaining has a built-in ‘catch 22.’ If you don’t have it, the only way you can get it is by accomplishing great things. But in order to accomplish great things, you must have lots of confidence.

The answers to this riddle are simple:

First, accept the fact that confidence is most felt and enjoyed at the conscious level of the mind. That’s the THINKING level and the ‘voices’ that come from that section of the mind are saying, “You can do it! You can do it! You’re terrific!”

Second, realize that though confidence also exudes from the subconscious mind, the BELIEVING level, the ‘voices’ that come from that section can be positive or negative.

Finally, know that it’s the subconscious level that will determine our level of confidence when it comes to options trading!

Therefore, as serious students of options, we must concern ourselves with programming that subconscious level of our minds. You see, although it’s not doing any THINKING it’s, by far, the more powerful of the two. Thus we must do things to TRAINING it into BELEIVING that we truly are worthy of success and able to master any task.

Here’s the key to training any subconscious mind: provide it with a history of SMALL successes. Recall that it’s not the THINKING part of our brain. Since that’s true, it cannot distinguish between a large, significant success and a small, relatively insignificant one.

Thus the procedure to build self-confidence appears:
a. Perform a successful act, ANY successful act
b. Pour out the congratulatory thoughts to yourself over that act
c. Repeat and repeat many times, until the ACT of doing something successfully starts to become a HABIT of doing so and the subconscious mind becomes convinced that you ARE a person of high capabilities.

If this procedure sounds a bit simplistic to you, consider that MOST people are lacking in personal self-confidence in LIFE and when they come to the options trading table and it shows itself readily, both in the lack of accomplishments and in the portfolio diminishment.

If they continue along this path, they will become a statistics themselves – yet another options trader that didn’t make it.

We can take heart, ladies and gentlemen, that the self-confidence that we need to succeed in options trading (and in life) CAN, indeed be learned, it CAN be gained and improved and it CAN be the basis of our ultimate success.

All we need do is to do it on purpose.

Speaking of day trading, futures contracts that have been around for decades, trading at physical exchanges, are now trading electronically and in smaller-sized contracts. Collectively, they’re called the ‘eminis.’While there are several such contracts available, including those on the DOW, RUT, gold and oil, the most popular seems to be the eminis of the spx or, more specifically, the spx futures, with the symbol ES/.

The spx (S&P) eminis are quite a phenomenal financial instrument because of their liquidity and relatively easy access to even the private, home-officed day trader. Introduced by the Chicago Mercantile Exchange in the late ‘90s, they are smaller in size, tick values and margin requirements than their counterparts.

It’s their massive liquidity that’s so appealing because even the larger traders can’t affect the bid/ask spread for the retail trader.

Each price whole number is broken down into two ‘points’ worth $50 apiece. Thus a trader that bought at 994.00 could exit at 995.00 for a full point of profit or $50, one that bought at 990.00 could exit at 992.00 for two points of profit or $100, etc.

The minimum unit of fluctuation for the ES/ is .25 points and is called a ‘tick.’ Thus an ES/ tick is worth $12.50 or one-fourth of a point.

As you can see, trading the eminis requires a bit of a paradigm shift, so here’s SEVEN ITEMS TO CONSIDER BEFORE JUMPING IN:

1. See what the minimum requirements are to get approved to day trade the eminis, before you even launch your study of them.
2. Get some good formal training before venturing into this new area and be SURE you have the basics down.
3. Do goodly amounts of practice on a virtual trading program before you start using your real, hard-earned money.
4. Don’t trade (repeat) DON’T TRADE WITH MONEY THAT YOU CAN’T AFFORD TO LOSE.
5. Focus, as in all trading, on your portfolio management rules – how much will you risk on each trade, at which point will you stop trading, when will you take profits and not look back, etc.?
6. Keep detailed and comprehensive records of each and every trade, along with a trading diary, so that you can properly evaluate and analyze your results. This is the only way that you can better them.
7. Get a personal mentor that is a successful eminis trader himself and/or join a group of active eminis traders, in order to get both information and inspiration.

Talking about mentors, look at what Traders International has to offer in terms of teaching and live trading of e-minis.  Traders international will show you in real time live, as how to day trade e-minis with an effective, simple and proven system.  You may want to SIGNUP for a FREE live trading session HERE.

In the end, remember that the most important parts of trading are self-confidence, self-discipline and risk management.

So, let’s say you’ve decided to become a day trader.First, notice that I said “become” a day trader, not “do” day trading! That to which I refer is that day trading, just any other form of trading or just like any other form of professional work, is an art that must be developed over much experience, work and time. In short, you’ve got to get immersed in it.

While, in some of the previous posts, I’ve cited some of the lures of day trading, now I’ll offer a five ‘hot tips’ on day trading:

Tip #1 – Cut your losses short. While most traders enter a trade with their eyes glossed over with the amount of PROFIT they might be able to make, don’t do as ‘most traders.’ Be primarily concerned with how much you can LOSE and have, as your goal, to become an expert on reducing and preventing those LOSSES. When you’ve become an expert at NOT LOSING, you’ll suddenly find that, in the process, you’ve also gotten proficient at making PROFITS!

Tip #2 – Be a trend follower. Traders tend to select different approaches. One tends to be a reversal trader, i.e., one that seeks the right timing of when an underlying has been going in one direction for a while, but is about ready to turn and go in the opposite direction. The goal of this trader is to see that ‘bottom’ or ‘top’ coming and jump in ahead of it to get great prices that will pay off after the reversal actually occurs.

The other trader is the trend follower, i.e., he sees a trend and jumps onboard to ride that train that has already begun moving in a direction, with the opinion that it will continue in that direction long enough for him to make a profit.

The former approach includes a time needed for the reversal to happen that day traders often don’t have. Therefore, just from the perspective that the day trader must be in and out of his trader before the bell rings, closing the day’s trading, if you’re a day trader, be a trend follower, because that trends is occurring RIGHT NOW.

Tip #3 – (This is a tough one.) Even though the pace is fast, even though you must make quick decisions, even though you’ll experience sudden, dramatic losses, you MUST CONTAIN YOUR EMOTIONS. This is easier said than done and will be the fodder for many more future posts.

Tip #4 – In the fast moving environment of day trading, you HAVE no time to think, evaluate, analyze or do a study. All of those must be done in ADVANCE of placing the trade. Therefore, it is prerogative that you have a set of very clear, precise, step-by-step rules and procedures on what to do in ANY eventuality in a trade. When you’re emotional, you must depend solely on these rules and following them ‘blindly’ when in the sand storm.

Tip #5 – Have the COURAGE to spring for the trade when your indicators, set in your written rules, appear. This can be challenging, especially after a string of losing trades, but it’s what the winners do!

Finally, in day trading, as in any other form of trading, always take full responsibility for your actions or inactions and remember that most of trading depends, not on knowledge or technical skill, but on self-confidence, self-discipline and good money management practices.

Every student of trading that is considering the day trading style, learns very quickly three things:1. There are, literally, hundreds of decisions that must be made in the world of trading. In fact, trading can be described as simply a long series of decisions.
2. There is a lot of emotion involved with laying your hard-earned money on the line in hopes of a profit.
3. Day trading requires a lot of FOCUS, CONCENTRATION and SCREEN TIME.

Between these three common factors, a trader will sometimes consider one of the many trading systems that are being marketing abroad.

A trading system is a piece of software that does most of the work for you. It selects the trade, sets it up, takes it off for, hopefully, a profit, all automatically, without you’re being there or your awareness of it. They, of course, are based on complex mathematical probabilities calculations designed to produce larger, more frequent profits than the smaller, less frequent losses.

Do they really work?

As with many trading phenomenon, you’ll find a wide range of opinions. But, as in all trading, remember that, for the most part, people that express an opinion are basing it on their personal experience. That may be helpful but it is still THEIR experience and thus had little to do with how YOU will handle it or experience it.

The old adage, “None of them work all of the time — All of them work some of the time” applies here.

If you’re truly interesting in investing in an automated day trading system, here’s the best advice that I can give you: Select a system that appeals to you and that is from a company that offers a FULL MONEY-BACK GUARANTEE.

This is crucial because if the producer of this product is willing to go that far, then he’s basically sharing some of the risk with you! He’s saying that he KNOWS, for a fact, that the system will produce the results cited and that he’s willing to put HIS money on the line right along with you.

Beware of companies that WON’T give you a full money-back guarantee! The reasons are obvious.

Also, when you have say a 30 or even a 60 day period in which to try out the product, you have the great advantage of being truly INFORMED before you make the final COMMITMENT. Nothing is worse that plunking money down for a system of which you have little assurance that it will really do what it says it will and for which you have no recourse if it doesn’t.

By the way, when checking out the day trading system, here’s what to look for: NOT the amounts of profits on the winning trade, but the WINNING PERCENTAGE of trades. Just like in direct, personal trading, the CONSISTENCY is an extremely important ingredient.

Trading systems aren’t for everyone. In the end, be sure to take full responsibility for all of your trading, no matter what the form.

One of the things that you’ll hear from trading friends is that day trading is a highly stressful activity where you must sit in front of your computer, eyes glued to the price movements, all day. If you’re in a trade, you can hardly take a bathroom break because of what might happen within the short time frame, say 2 minutes, that you’re gone!And that’s saying nothing about the amounts of money that are at risk. You can lose your entire portfolio, which might be a life savings of over 30 years of hard work, in a matter of five minutes!

If these things are true, why does almost every trader consider going into day trading, at least, at one point in their trading career?

Here are some of the lures:

1. As stated in the previous posts, the very definition of day trading includes the fact that ALL of your positions will be closed before the end of the trading day is cited, by long time day traders, as a PEACEFUL thing. They say things like, “Sure, you’re under stress while in the heat of battle, but once that bell rings, at least you KNOW whether you’ve won or lost and it’s OVER until tomorrow!”

2. Do you hate to pay so many high priced commissions for your trading? In day trading, the commissions structure is based on a ‘per share’ basis, not a ‘per trade’ basis as many traders pay. This is particularly helpful when you consider the professional approach to trading – partialling in and out. This refers to NOT placing your full sized trade on or off at one time, but, instead, ‘fading’ in and out of trades with partial amounts of risk. Partialling allows you to take partial profits when the trade is going with you, yet to ‘cut and run’ if it starts to move against you.

3. The buying power of day trading is larger than it is in regular trading. This can, of course, be a boon or a bane, because it also means your LOSING power is greatly enhanced.

So why jump into day trading? Some day traders cite these reasons:

1. Work only a few hours per day and with the potential to make lots of money
2. All you need is a computer with high speed internet
3. Trade from anywhere in the world, where internet is accessible
4. Trade full time or part time.
5. Trade any time of day or nite (as in the case of the eminis. More on this, later)
6. No dress code required! (in the privacy of your home)
7. You can treat it as a business, but you don’t have employees, lots of overhead expenses or customers with which to deal
8. No travel time to and from work
9. You don’t have to trade today if you don’t want to or don’t feel like trading
10. Take time off (non-paid) whenever you want and as much as you want
11. Spend more time with family
12. Be your own boss and determine your own paycheck
13. Deduct expenses from your taxes, just like any other business

Like all things in life, it’s not all sweetness and apple pie. Read the next post and get LOTS more information before you even THINK seriously about day trading!

Every trader or student of trading that I know, at one point or other, thinks about doing some day trading.Some try it a few times and find that it’s not for them. Others make a more serious attempt to make a living from day trading.

Here are a few thoughts for your consideration.

Just what IS day trading?

One of the many decisions that a trader must make has to do with the time frame of the trade. Investors, take a big picture, long term horizon, by planning to be in a trade for months or even years. Long term traders, with a specific target goal in mind, might be in a trade for weeks or months. Swing traders plan of being in a trade for days or weeks. But the unique day trader WILL BE OUT OF THE TRADE BEFORE THE END OF THE TRADING DAY.

(Sometimes people think of day trading as meaning that the trader trades every day. This is NOT necessarily true. The term refers to the LENGTH of the trade, not to the FREQUENCY of trading.)

In short the DAY trader never is in a trade overNIGHT.

Say, for example, that you live in the central standard zone. The market opens at 8:30am and closes at 3pm. Any trades that you will place, starting at 8:30am or later, must be closed out and ‘put to bed’ THAT DAY, before the market closes at 3pm. That’s day trading.

Why is it so important to close it out that day?

Here are three reasons that successful day traders cite:

1. Peace of mind! “When the day is over, it’s OVER!” brag day traders. They love the fact that in day trading, you get your answer, about whether you were right or wrong in your prediction about the market, QUICKLY, often in a matter of minutes. It may not be the answer you want, as we shall see, in future editions of these posts, but at least you have the sense of finality in that you KNOW what the answer is and now, it’s 3pm and you can relax and enjoy your evening. There’ll be no loss of sleep wondering what the wild market has done with your precious positions overnite.

2. Margins can increase and knock out your trade. When you place a trade that has certain margin requirements, OK. You know what they are and you’re willing to place them. But, suppose you still have the position on at closing and, during the overnite session (if there IS one in the products that you’re trading) the margins are greatly increased, you can wake up to find that you’re trade has been kicked out!

3. Overnight worldwide events, often unpredictable and turbulent, can cause huge price fluctuations in futures markets, for example. Here again, you may wake up to great profits or great losses. It’s NOT a good position to be in, either financially or emotionally.

As we’ll see in future posts, there are several attractions of day trading that attract traders to move from swing or long term trading to this procedure. We’ll also see that some of those lures are AMORAL, i.e., they’re double-edged swords.

In the early days of the self-help movement, Norman Vincent Peale made headlines with his thrust of PMA – positive mental attitude.He took Sigmund Freud’s early personality development theories, added some thoughts from Victor Frankl’s Search For Meaning and threw in his own projections of good mental visions to preach to the world about PMA.

How does PMA apply to trading? It applies just as much and in the same way that it applies to life and to human beings. But here, I’ll mention only one. But it’s the one that I would argue is the EL PRIMO, the Number One requirement of successful trading — personal self-confidence.

Not to be confused with narcissistic, self-ego, the self-confidence in a trader means that he trusts himself.

Yes, of course, there is much to learn, in the world of trading, that is technical, informational and logical. There are thousands of ways to trade, indicators, trading systems, platforms, strategies, etc., etc.

But I would argue that there is ONE trading system that fits who we are.

Our challenge is to find that ONE trading system and to work it in a MASSIVE, FOCUSED, CONSISTENT EFFORT FOR AS LONG AS IT TAKES TO FULLY MASTER IT.

Many of we students of trading have the willingness to do that.

But here’s the catch: In order to find the trading system that fits me, to adopt the markets and strategies that fit my personality, to develop a trading style that fits my psyche, I must first KNOW WHO I AM!

For example, for me to trust any person, that person must show me that he’s WORTHY of my trust. This doesn’t happen overnight. And although it’s slow to be built up, it can easily and quickly be torn down to almost unrecoverable levels! So I must, over time, get to know that person before I entrust anything to him.

Likewise, trusting myself is a bank account system, where small deposits must be made often, but a small incident can cause a huge withdrawal.

Therefore, after I learn WHO I AM, I can, hopefully, learn to TRUST ME.

When I trust myself in a trade, it shows when, for example, I’m in the ‘heat of battle.’ I’m in a trading situation where I must make a quick decision. Should I get out of this trade? Should I put more money into it? Should I give it more time? How can I adjust it to make it turn my way?

It’s at these times that the ‘voices’ within are at battle. They’re very LOUD voices and they start YELLING at each other.

But, all the while, there’s a very soft, gentle nudging quiet voice that emulates from my heart.

If I can silence the other voices and learn to listen to this quiet one and to trust it completely, then I have a chance of making it to the level of professional trading.

Yes, positive mental attitude IS necessary for success. It’s great to hear it from others and to ‘hear’ from our brain. But it works best when it issues from our heart and is our guiding light.

It’s extremely predictable.Every time I ask my trading mentor about an existing trade, how to proceed, how to adjust it, when to close it, etc., his very first question is always the same: “What’s your risk in the trade?”

It’s happened so many times, that I’m FINALLY starting to get the idea: BEFORE one places a trade, he must know the full risks involved, DURING a trade, one must always know how that risk is being played out and AFTER a trade, one way we measure its success is by the ratio of the result compared to the amount of risk taken.

Another thing that has occurred to me: the MONEY isn’t the only thing at risk! (Yes, risk is where I give FREE money to the market. When it’s a LOT of money, I hope that the recipients appreciate and enjoy it. But they’re nameless and faceless, to me, so it just looks like a big Black Hole.)

What’s also at risk is something that, at times, can hurt even more than the money (if that’s possible): my ego.

Being wrong, having egg on my face and being loud and boisterous about what’s going to happen, just before the opposite occurs are all bad enough.

The real challenge comes in when the inner voices that WERE saying, “You DID a bad thing” are now saying, “You ARE a bad trader!”

When I take the act of being wrong about my prediction of the market as personal, then it’s time for me to take a break from trading! The real RISK, here, is that I can let it sink into my subconscious mind and do some real damage.

Therefore, as a student of trading, aspiring to professional levels, I have but one recourse – don’t let my ego get involved with my predictions!

OK. Fine.

But just how does one DO that?

Step 1: Recognize that you have no control over anything that the market does or doesn’t do.

Step 2: Acknowledge that when you make a prediction, it’s OUT THERE, like placing a hand-written note on a bulletin board somewhere. It’s totally separate from YOU, personally. It’s just a projection of what LOGICAL THINKING says that the market SHOULD do.

Step 3: The market is as illogical and erratic as can be. It happens every single day that the BEST analysis, at some point or other, will be wrong.

That’s not just in trading. It’s like that in life. So, ‘What else is new?’

Bottom line: We’ve all heard the admonition, “Trade small.” It refers to placing only very small percentages of our portfolio at risk in any one trade. But it refers to our MENTAL life, as well. When you place a trade, have VERY LITTLE OF YOUR EGO INVOLVED.

The market doesn’t do what it ‘should.’ It doesn’t do what it ‘shouldn’t.’
It just does what it DOES.