Why Day Trading is a Great Investment Option
For Many People…
Trading stocks seems to be a complicated process that takes hours of research to do well in. However, Trading Strategies for Beginners taught myself, along with many others, that trading stocks only takes a few hours to begin a journey of making profit. Not only does the book explain what stock trading is, but it demonstrates the different types of trading and the different strategies that many investors use. Mark Swing presents many techniques that benefit beginner and experienced traders alike.
What is the Best Form of Trading and Why Should You Consider It?
Swing mentions that Day Trading is the best form of trading for multiple reasons. First, you do not need much money to begin day trading compared to other types. Also, you are taking fewer risks as you are only holding for a day (hence the name “day”). If it interests you enough, you can even make a full time job out of day trading knowing that your salary is paid by the time you go to bed. On top of all that, there are fewer transaction costs involved with brokers.
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
-Warren Buffet
How You Can Get Started with Your First Day Trade
There are multiple trading platforms that professional traders use, but Metatrader 5 (MT5) is the best option for most traders. It is available on all mobile and computer operating systems, so anybody can freely use it. Not to mention that the platform is completely free. To begin using MT5 (or any other trading platform), you have to open a brokerage account of your choice. After you do so, you are ready to begin your journey of day trading.
Market analysis is where your real journey begins, as it is how traders study charts to determine what they will do next with their trading decisions. There are two types of popular market analysis – fundamental analysis and technical analysis. Here is a comparison of the two types so you can decide which one you prefer:
Fundamental analysis – Tries to derive the underlying value of a financial instrument or asset by studying and assessing current economic data.
Main aspects of the data include: the status of the economy, political stability, governmental policies (such as interest rates), observing what other traders do, and major news events.
Advantages of this type include: reasons why a market trend happened, being able to determine the long-term position of price, and getting to understand the markets better.
Disadvantages of this type include: lacks definite timing, not suitable for short-term trading, information overload, and different interpretations of economic data.
Technical Analysis – Attempts to analyze the markets using information from the past.
Main aspects of the data include: relies on price data, and the ideas that price behavior is superior to economic data, markets move in observable patterns, and that history will repeat itself.
Advantages of this type include: The ability to choose any timeframe, read trending charts, and use the timing feature in charts to (which specifically helps day trading).
Disadvantages of this type include: difficulty using charting, analysis paralysis (over analyzation confusion), automation not interpreting charts correctly, and the market might ignore any patterns that have formed during major world events.
How I’ve Applied Swing’s Strategies
After reading Swing’s book, I was able to predict certain market patterns in the stock market. I wanted to invest more time into the subject so I went to Investopedia, an online stock simulation website. One of Mark’s biggest helps was learning candlestick patterns in day trading. They allow for traders to read the stock market like an open book, similar to how musicians can read sheet music easily. Certain patterns predict whether the stocks will rise or fall in price within a day. For example, a pattern known as “spinning tops” can determine if the market is going downwards during an upward trend and upwards during a downwards trend. Other examples I learned are “bullish engulfing patterns” and “bearish engulfing patterns”, both of which involve a full body of a certain type after a small body of the other type.
