Day trading is certainly not for everyone, and perhaps not for most of our users either. But if you have the time, the will, and a steely determination to succeed, we'll provide you with some powerful tools to help make it a lot more profitable too.
By SEC regulation, for stocks, you have to have a minimum of $25,000 in your account to be patterned day trader. The definition of that "pattern" means that you open and close a trade during the same day, at least 5 times during any given week. You may have only traded a total of 5 times for that week, but because it happed during the same day, it would still count as day trading, and the minimum cash and margin account would be required.
That same cash requirement does not apply to trading Futures trading. For that, most brokerages require only that you have twice the margin as the cost of your contracts, or a minimum of $5000.
The kind of day trading we practice with ETF's here, may only produce a few trades a day, and is not not the kind of manic activity you might have heard about or seen elsewhere. Instead, we typically follow intra-day trends using a 5 to 60 minute chart using a couple of key trading techniques.
You will need a real time data service, and there are plenty to choose from, we currently use Tradestation or eSigna, and for a free service - www.freestockcharts.com is not bad.
We'll apply to our charts the two most dominant cycle frequencies identified by spectral analysis. While there might be several other cycles that could be active, we seek to use the best TRADING cycle showing the smoothest (parabolic) action on the price chart.
You'll learn that we don't like to load up our charts with a lot of other technical indicators. The reason is simple, most severely lag the actual data they are applied to, and also give a false impression of predictability.
But, when used properly, even a lagging indicator can offer some perspective - like a moving average. A second indicator, is a variation on a simple moving average. For our purposes, we will use 2 averages, the first based on the opening of the price bar, the second average based on its closing price. The purpose of this indicator is to follow the current trend of the stock (index), and to note when that trend begins to change.
Most of the time, we follow an 8-10 bar average on both (a bar representing a single time period on chart you are using i.e., hourly, 15 minute, 1 minute, etc.). Here's an example of what that would like on a 5 minute chart:
We apply the color red the opening price, and blue to the closing price. When the red line crosses above blue, a bearish trend is developing. Blue over red - bullish. The crossing of those colors representing a possible change of direction in the trend.
The third indicator we'll place on our charts, is a Donchian channel. It is a representation of previous highs and lows over a specified look back period, normally 14-21 bars.
The Donchian channel helps us remain in the trend by recognizing when the stock (index) is trading in the upper half of the channel (bullish) or lower half (bearish).