Definition of Day Trading

1. Disclaimer

Day Trading is not for the fainthearted. Day trading involves financial risk, therefore do not trade with money you can’t afford to lose and do not trade on borrowed money. The reason you are seeing this “WARNING” here is I want to be honest with you that trading day trading is a risky activity. You could lose a lot of money. If you are not comfortable with this, then again don’t engage in day trading. However, if you are a risk taker and understand the financial risks and rewards involved, you are welcomed to explore all the possibilities in the exciting world of day trading trading but do read the rest of this page. Any opinions, news, research, analysis, prices, trade recommendations or other information contained on this website is provided as general market commentary, and does not constitute investment advice. I will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Trade at your own risk. All information and material discussed in this topic is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, do not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profits or losses, and agree to hold myself responsible in any and all ways. I do not assume responsibility for errors, inaccuracies or omissions in these materials. I do not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials.

2.   The Controversy on Day Trading

With the explosion of the internet, stock market trading has become real time with open access for everyone, and with this revolution came the explosion of Day Trading – the buying and selling of a security within a single trading day at low costs! You and I would let ourselves down for not exploiting this god given chance.

Day trading, as the name implies, is when you buy and sell financial investments during the day and settle all your outstanding positions prior to the market closing. The profit potential of day trading is perhaps one of the most debated (and misunderstood) topics. The biggest problem with day trading is that it is almost seen as a form of gambling. This is perfectly understandable when you consider the number of day traders out there that lose money rather than making money. The thing is though, there is such a thing as a professional gambler and the truth lies somewhere in the middle.

Many professional money managers and financial advisors shy away from day trading, arguing that in most cases the reward does not justify the risk. They often cite that no day trader is world renown, whereas icons like Warren Buffett and Peter Lynch are a testament to the success that can be attained by more traditional forms of value investing. Conversely, those who do day trade insist there is profit to be made. They say the success rate is inherently lower as a result of the higher complexity and necessary risk of day trading, combined with all the related scams.

Overall, the street remains divided on the issue. At the very least they agree that day trading is not for everyone and involves significant risks. But from a strategical standpoint, and if you know what you should do and do it well just like a good poker player, day trading can actually bring down the risk of incurring a loss overnight due to differences between an opening price and the previous day’s ending price.

3.   What is the Essence of Day Trading

“Speed and fear” is the essence of day trading. The most important thing to remember is to protect your capital rather than capturing profits. Always remind yourself to buy and sell quickly and take profit on small price changes.  Do not be greedy and do not attempt to bag the elephant. Basically the center assumptions  of “speed and fear” are:

i. A brief exposure to the market lower the chances of running into an adverse event. (See, scalping has the advantage to let you fight greed and let you ride safely during these uncertain time.)

ii. Smaller moves are easier to obtain as bigger imbalance of supply and demand is needed to warrant bigger price changes.  This means you have to  sit down at your computers the entire day and watch for any price movements. There is nothing relaxing or fun about watching price fluctuations and ticker quotes, just like fishing. If you do not have the patience for this, then it’s probably better you find another way of making extra money.

iii. Smaller moves are more frequent than larger ones. Even during relatively quiet markets there are many small movements that a scalper can exploit.

iv. Accept the fact that day trader lose in a while. Be ready to take small loss but never allow small losses to snowball.

4. How to make money using day trading?

a. Open a cash upfront trading account to enjoy low brokerage so that you can take profit on small price changes. The best method is to open a cash upfront account with a local security firm. This brokerage can be even lower because most security firm gives cheaper brokerage for intraday trade

b. Less is more in day trading. Your priority is to fall in love with money, not stocks or knowledge. The less you rely on technical analysis and value invsting, the more money you will make.  These things dun contribute to day trading in KLSE and that is the beauty of it because it means you dun have to spend alot of time studying impractical things. Always remember day trading prey on market weakness and rides on news, rumours and investors sentiment. Let’s discuss their pitfalls

The pitfalls of technical analysis
The disadvantage of technical analysis and chartist is that you will experience paralysis by analysis. The market has  no memory and the past is not an indicator of the future. Relying on charts completely will not help you to pick up the signals about the changing of a trend until the change has actually taken place. That means you are drawing trends based on past performance and you don’t make that trade because an indicator is not in the right place, or you just wait for the ideal time to come which never does. Or, better yet, you don’t get out of that losing trade because the technicals said that “It will come back”.

The pitfalls of value investing
Margin of safety, PE, EPS, NAPS are often impractical in KLSE because our market is not as advanced or as deep like US, Europe, Tokyo, Hong Kong and Shanghai stock markets, many of our blue chips are heavily owned by foreign funds who abandon ships at the slightest fear, and our stocks are heavily manipulated by syndicates, not to mention there are also frequent fraud cases. Frequently we have witnessed blue chips stocks underperformed penny stocks during bear market and penny stocks outperformed blue chips stocks during bull market. Margin of safety, PE, EPS, only work in a free, advance and non-manipulated economies. You can google a bit and you will know our ranking is way behind many other countries.

c. Study what stocks are “steaming” at present moment and create a portfolio of it. Steaming stocks refers to the most liquid and volatile stocks at present moment i.e stocks that have plenty willing buyers and sellers allowing you to move in and out of positions easily and  allowing traders to profit from moves of just a few cents. Steaming stocks are always reflected by the  Buy-Sell transactions, Buy-Sell volume and the corresponding BQ-SQ relative to the total outstanding shares issued.  They are the most important source of information in order for day traders to predict the velocity and price directions.  To check whether you portfolio has lose its steam, you have to diligently export and update it everyday after market closes.  Your portfolio should typically consist 5-10 stocks but usually the a few stocks should easily stands out among the rest. Also the same few steaming stocks should appear in the list for the next 2-3 days because market also need some time to digest news, rumours and sentiment.

d. Always double check your steaming stocks in investlah and bursa community forums. This is to make sure your steaming stocks are also concurred by mass public and is also the fastest way to uncover further news and rumours.  Dun worry. Even though most people said forums are full of liars, but if most forumers said a same good thing about a counter, chances are there is a high degree of truth behind it.

In addition, you must also do your homework on the followings
•   newspaper headlines and biz news including the edge, CNN money and Bloomberg
•   bursa announcement, esp on director shareholdings, quarterly result and dividend announcement
•   buy or sell calls by investment banks or analyst
•   keep an eye on the after-market DJ and Europe spot and futures index. Understand that world markets will react to each other every day. That means, if the U.S Markets fell yesterday night, as a chain reaction, the Asian Markets may also fall today, and vice versa. So, before your market opens, you have to check how the markets on the other side of the globe closed last night.

5.   Day trading illustrated

31 Jan 2011 5.01pm

-   Extract and export the list of Bursa closing stocks in MS Excel

-   Identify the steaming stocks with the most buy transactions, buy volume and BQ-SQ relative to the outstanding shares issued means a lot of people have entered into a lot of transactions to buy a lot of shares for a particular stock during the day and a lot of people remain wanted to buy at closing time but failed to do so.

-   Investlah forum and newspaper indicated that there is good M&A news!

1 Feb 2011 8.50am
-   DJ rises 450 points last night with favourable Europe news

-  You queue 2 steaming stocks from your portfolio with that has only risen marginally yesterday. This means these stocks remain steaming from yesterday’s closing and there is further upward price potential.

1 Feb 2011 9.10am
Ok, bought your shares at the best buy price

1 Feb 2011 10.30am
-   Monitor the regional market to make sure  Shanghai, Hong Kong, Tokyo and Korea stock markets are all steaming

-   Monitor your steaming stocks to make sure the BQ continues to exceed SQ by a widen margin

-   The Price has gone up by 1 tick. But because everything look alright and steaming, we can safely give another 1 hour to “marinate” the stocks better

1 Feb 2011 11.25am
-   Lunch time in about 1 hour.

-   Sell Stock A with $500 profit and Stock B with $60 loss brokerage loss because there’s no price change. Be satisfy with the net profit of $440 and do not risk your net profit with next half session.

-   Enjoy the rest of the day off

6.   The End

Make sure you do some charity with the profits you have earned. Remember you can lose money but never lose your confidence