THREE WAYS TO MAXIMIZE YOUR SUCCESS IN DAY TRADING

1. Trade the Best, Leave the Rest
   As part of the algorithmic trading by computer systems, the majority of stocks will trend with the overall market unless they have a reason not to. So, if the market is moving up, the majority of stocks will be moving up. If the overall market is going down, the prices of the majority of stocks will also go down. But there will inevitably be a handful of stocks that will buck the trend of the market because they have a catalyst. These are the Stocks in Play. These are what retail traders are looking for – that small handful of stocks that are going to be running when the markets are tanking, or tanking when the markets are running.
   
   If the market is running, and these stocks are running too, that’s fine. You just want to ensure you are trading stocks that are moving because they have a fundamental reason to move and are not just moving with the overall market conditions: these are the Stocks in Play. Stocks in Play generally have unexpected fresh news, either positive or negative. Here are some examples:

• Earnings reports
• Earnings warnings or pre-announcements
• Earnings surprises
• FDA approvals or disapprovals
• Mergers or acquisitions
• Alliances, partnerships, or major product releases
• Major contract wins or losses
• Restructurings, layoffs, or management changes
• Stock splits, buybacks, or debt offerings

You need to be careful that you as a retail trader are not on the wrong side of the trade against the institutional traders. But how do you stay out of their way? Instead of trying to find institutional traders, you find out where the retail traders are hanging out on that day and then you trade with them. Think about a schoolyard for a moment. You don’t want to be off in the sandbox doing your own thing, trading a stock that no one is paying attention to. You’re in the wrong place. Focus where everyone else is focused: focus on the stock that is moving every single day and receiving literally a ton of action. That is what day traders will be looking at.

2. Find the Right Stocks in Play
   There is more than one way to select Stocks in Play and make money trading them, and there is definitely more than one correct way. Some traders trade baskets of stocks and indexes. Some day traders primarily trade Exchange-traded funds (ETFs). Many have developed proprietary filters to find stocks. Others concentrate on trading the markets as a whole with index Futures. Professional traders at the trading desks of the big banks often simply trade in a sector like Gold or Oil or Tech. But remember, we are retail traders with limited amounts of capital, so we must be efficient with selecting our Stocks in Play.
   

Every day, there are new series of stocks that are in play. Trading Stocks in Play allows you to be the most efficient with your buying power. They often offer much better risk/reward opportunities intraday and allow you to execute your ideas and trading rules with more consistency. Trading the right Stocks in Play helps you to combat algorithmic programs.

The most important characteristic of high relative volume stocks is that these stocks trade independent of what their sector and the overall market are doing. When the market is weak, it means that the majority of stocks are selling off. When the market is strong, the prices of the majority of stocks will be going higher.

3. Buy Long, Sell Short

Day traders buy stocks in the hope that their price will go higher. This is called buying long, or simply long. When you hear me or another trader say, “I am long 100 shares AAPL,” it means that we have bought 100 shares of Apple Inc. and would like to sell them higher for a profit. Going long is good when the price is expected to go higher.

But what if prices are dropping? In that case, you can sell short and still make a profit. Day traders can borrow shares from their broker and sell them, hoping that the price will go lower and that they can then buy those shares back at a lower price and make a profit. This is called selling short, or simply short. When people say, “I am short Apple,” it means they have sold short stocks of Apple and they hope that the price of Apple will drop. When the price is going lower, you owe 100 shares to your broker (it probably shows as -100 shares in your account), which means you must return 100 shares of Apple to your broker. Your broker doesn’t want your money; they want their shares back. So, if the price has gone lower, you can buy them cheaper than when you sold them earlier and make a profit. 

Short sellers profit when the price of the stock they borrowed and sold drops. Short selling is important because stock prices usually drop much more quickly than they go up. Fear is a more powerful feeling than greed. Therefore, short sellers, if they trade right, can make astonishing profits while other traders panic and start to sell off.

However, like anything in the market that has great potential, short selling has its risks too. When buying stocks of a company for $5, the worst-case scenario is that the company goes bankrupt and you lose your $5 per share. There is a limit to your loss. However, if you short sell that company at $5 and then the price, instead of going down, starts going higher and higher, then there won’t be any limit to your loss. The price may go to $10, $20, or $100, and still there will be no limit to your loss. Your broker still wants those shares back. Not only can you lose all of the money in your account, but your broker can also sue you for more money if you do not have sufficient funds to cover your shorts.

Resources: 

• Watch this video of our trading community during the Pre-Market prep where we find the stocks in play for the day. 
• Develop your trading skills with this free real time day trading simulator. 
• Check out the most advanced tools for traders and investors: https://tradingterminal.com/
• Learn about one of the best technologies for active trading.  
• A Glossary of terms frequently used in day trading.

Would you like to ask Andrew Aziz some questions or share your own experiences? He would enjoy hearing from you at  [email protected]