Emini Trading Blog

Archive for the ‘Trading As A Business’ Category

As we have seen, there are numerous skills needed to day trade for a living. Proficiency in such areas as entries, position management, exits and self-discipline will profoundly affect our level of success. While advancement in these areas impacts our profitability, without a deposit of real money in a brokerage account, no trades will take place since access to any market will not be granted.

Part III: Money needed

1) For emini futures trading, many brokerages require $5,000 to open an account. Regardless of the minimum to open, margin must be met. The lowest e-mini S&P margin claim for day traders I have seen is $500.

2) To be a day trader with a stock equities firm, a minimum deposit of $25,000 is typical.

3) Access is by far easiest in the retail foreign exchange (FOREX) markets since deposits of as little as $250 will enable entry. However, the extreme leverage used to facilitate these accounts means that even a small move, relative to the market’s volatility, can blow-out your account. While greater regulatory oversight seems to be imminent, at this time aspects of these markets are significantly less standardized than futures and equities.

One way to be sure your account is preserved is to set a limit for the maximum dollar amount you will risk on any one trade. Professional fund managers rarely risk greater than 2% and routinely put 0.5-1% of the money they are in charge of at risk. Perhaps you will allow a greater percentage. If so, consider using the following formula. It has been designed to allow you to earn the most amount of money possible while keeping an empty account at “arm’s length”.

In terms of dollars, add up the difference between entry and exit and multiply that number by 20. Next, add to that the commission costs. If the final product is less than your account’s value, the risk amount is acceptable. However, if the total is greater than what is in your account, the risk is too much. In such a case, reduce your risk by modifying your entry or stop. If neither seems advisable, implement the ultimate risk-reducer: Pass on the trade!

Well, it is now time for you to present your closing arguments. Pull together your answers from your review of time, skills and money needed to day-trade for a living. If you are deficient in any area, determine what it will take to make up the difference. Remember, becoming a master trader is a process that requires many consistent small steps.

If you meet or exceed these recommended minimums, congratulations! Your positive answers show that your current level of trading time, skill, and money available makes success in trading a real possibility for you. If you decide to proceed, remember to be positive and realistic. Obey the rules of sound trading and obtain expert guidance when needed. Since the judge in this case is impartial, know that the market will not single you out. In trading, unlike any judicial system, whether the result is outstanding or dismal, it is always because of you. May all your trades be successful!

Many would-be day traders of e-mini S&P futures or any other market yearn for a “magic formula”, an epiphany that in a short time would bring handsome profits with minimal effort. Perhaps you wonder if such a thing exists. At first glance the answer appears to be yes. If you have watched or read a play-by-play account of an expert trader executing a trade, you have seen uncommonly difficult choices carried out with reflex speed and apparent ease.

Since the entire trade is handled in a seamless fashion with a winning result, it appears that such a formula may be what this winnig trader possesses. However, the truth is here is no such thing. Instead, this ability, like all abilities, is developed over time through trial and error. It is practiced and enhanced through deliberate effort, and administered by self-coaching and mentoring.  Only after consistently focusing on acquiring skills essential to profitable trading can the expertise needed to day trade for a living and subsequent financial success be found.
 
Part II: SKILLS NEEDED

Our review of the skills needed to succeed as day traders is divided into two parts:

1. Recognizing trade opportunities
2. Profiting from opportunities.

RECOGNIZING TRADE OPPORTUNITIES

Recognizing viable trade opportunities starts with the essential skill of knowing the trend of the market within the time-frame from which we base our trade decisions. Trading with the trend is highly advisable – especially for beginners. You must be trained to know which highs and which lows are most significant. Without this skill it is likely you will initiate trades with a higher probability of losing than winning!

On a scale of 1-10, what is your present understanding of trading concepts such as support/resistance, Fibonacci ratios, price action and the impact these have on price behavior? Write down your answers. 

Little else aids profitability like not losing. Unforeseen, sudden and drastic changes in price can happen at any time. Therefore, you must set a limit for the risk you will bear. First determine the most advisable stop-loss price for the trade you are considering. Now base your entry-price off that price. Doing so will likely lessen the frequency with which your stops are hit, and perhaps minimize the distance between your entry and stop-loss prices.

PROFITING FROM TRADE OPPORTUNITIES

Don’t rationalize. Don’t hold a trade that began as a day-trade for an extended period. Rather,  protect profits via stop-loss adjustments and stick to your exit target rules.  Don’t let winning trades turn into losers!

Next time we’ll look at the money needed to day trade successfully.

Perhaps due to curiosity, ambition, or even necessity you are considering day trading as a means to produce monthly cash flow. While the potential earnings, lifestyle and personal satisfaction are what appeal to most, the following three-part series focuses instead on what it really takes to start out on the right foot.
 
Part I: TIME NEEDED

This consideration of the amount of time needed to successfully day trade for a living has been divided into three areas:

1. Education
2. Daily routine
3. Business management, preceded by a word of caution.

Ironically, in a business as technical, highly leveraged and ever-changing as trading is, those pursuing it need to be reminded that there is no substitute for sound education! A string of previous trading successes, your ability to memorize stock symbols and see macro-economic scenarios will ultimately fail to sustain you in the long run.

It takes time to find, consume and absorb quality day trading education. You must learn how to gauge a market’s strength or weakness, how to ascertain entry areas with favorable probabilities, how to manage wisely your open positions and advisable. Since learning rates are subjective, how much time you need to spend each week studying the markets is up to you. Two hours, eight hours, thirteen hours? Write your answer down on a piece of paper, and do it!

“A good trader is a lifetime student of the markets.”

A day trader’s daily routine revolves around market hours. Thanks to streamlined exchanges and access to currency trading, the number of available markets is now unprecedented. Therefore, active trading occurs practically around the clock! Follow a consistent routine to build good habits. Write down your trade routine, step-by-step, so you don’t miss anything.

Managing your day trading business starts with comparing your goals for the day with your performance. If the trade-platform you use records your trades (like TIVO does for TV), you can re-play your good and bad trades and learn from them. Repeating our good moves and not repeating our mistakes is a must, so take the time to note these in a trade diary. Before closing out your trade review, be sure pertinent trade-metrics have been logged. To give this effort it’s proper due, figure one to two hours.

Join us next time for part two of the series, as we examine the skills needed to day trade for a living.