COPYRIGHTED MATERIAL Day Trader by mikeholy

VIEWS: 25 PAGES: 20

									                                 Index
                                        market efficiency, 253–254
•A•                                     merger, 263–264




                                                     AL
accounts, opening, 102                  option, 264
accountants, certified public, 159      overview, 251–252
accounting                              risk, 256–259




                                                 RI
 fees, 165                              scalping, 254–255
 marked-to-market, 170                  statistical, 265–266




                                            TE
accredited investors, 93                tools, 259–265
accumulation                            transaction costs, 255–256
                                       Art of War, The (Tzu), 310

                                       MA
 defined, 204, 228
 index, 228                            ask, 55, 99, 254
agents, enrolled, 159                  assessing, risks and returns, 249–250
alpha, 75, 176                         assets
                                        capital requirements, 52
                                       D
alternatives, day trading, 301–306
American options, 264                   common stock, 16
                                TE

AMEX (American Stock Exchange), 57      defined, 54
AmiBroker, backtesting service, 177     financial futures, 15
amortizing bond, 60                     forex (foreign exchange), 15–16
                          GH



AnalyCorp, 150                          liquidity, 50–51
analysis. See research                  marginability, 53–54
analysis guides, technical, 308–309     overview, 49–50
                      RI




Andrews, Alan, 210                      volatility, 51–52
Andrews pitchfork, 210                 at-risk rules, 168
                 PY




anomalies                              Average Effective Spread, 278
 defined, 232                          average execution speed, 277
 types, 232–235                        Average True Range, 225–226
           CO




anxiety, controlling, 130              Awaken the Giant Within (Robbins), 310
Application for Change in Accounting
    Method (IRS), 169
arbitrage
                                       •B•
 capital structure, 260                Background Affiliation Status
 convertible, 260–261                      Information Center (BASIC), 87
 defined, 77, 251                      backtesting
 fixed income, 261–262                  defined, 34
 index, 262                             overview, 174–176
 interest rate, 261–262                 simulation software, 177–78
 law of one price, 252–254              strategies, 284–285
318   Day Trading For Dummies

      bar, 198                                     overview, 60–61
      Barber, Brad, Do Day Traders Make            trading, 61–63
           Money? Evidence from Taiwan, 21         treasury dealers, 62–63
      Barron’s, 190, 278, 314–315                 book(s)
      Barron’s Dictionary of Finance and           conventions in this, 2
           Investment Terms (Downes &              day trading, 307–312
           Goodman), 307                           history and memoir, 311–312
      Barthelme, Frederick and Stephen,            icons in this, 4
           Double Down: Reflections on             organization of this, 3–4
           Gambling and Loss, 311                  schools of price theory, 309–310
      Barton, Mark, 128                            stress management, 134
      BASIC (Background Affiliation Status         trading psychology, 310–311
           Information Center), 87                BOP (beginning of the total time period),
      basis, 163                                       183–184
      basis point, 35                             boredom, controlling, 130
      bear                                        borrowing
       defined, 199                                margin loans for cash flow, 248
       market, 41                                  for trading capital, 248–249
       traps, 233                                 bottom-up research, 196
      Beat the Street Contest, 306                boundaries, setting, 293
      beginning of the total time period (BOP),   BOY (beginning of year asset value), 183
           183–184                                breaking news/markets, 272–273
      beginning of year asset value (BOY), 183    breakouts, finding, 205–206
      behavioral finance, 129                     Broadband Reports, 110
      benchmarks, evaluating performance,         broker, 55
           190–191                                brokerage firms
      beta, 74–75, 176, 226                        foreign exchange, 107–108
      bid, 55, 99, 254                             futures, 106–107
      bid-ask spread, 254, 277                     opening accounts, 102
      bid-offer, 277                               options, 106–107
      bills. See bonds, 60                         selection, 97–102
      Black-Scholes model, 227                     stock, 102–106
      bond markets                                 type of platform, 100–102
       leverage, 244                              bubbles, 270
       purpose, 11                                bucket shops, 82
      bonds                                       Buffett, Warren, 18, 78
       amortizing, 60                             bull
       defined, 60                                 defined, 199
       discount, 60                                market, 41
       listed, 62                                  traps, 233
       markets, 11, 244                           business expense, deductibility, 170
       over-the-counter trading, 62
                                                                               Index   319
business plan                               requirements, 52
 evaluating, 29–31                          structure, 260
 fixing hours, 28                           structure arbitrage, 260
 importance, 296                            trading, 248–249
 investing, 29                             Capital Assets Pricing Model, 176, 226
 picking markets, 27–28                    Capital Gains, Minimal Taxes (Thomas),
 sample, 30–31                                 307
 setting goals, 26                         Capital Market, NASDAQ, 58
 setting up, 28–29                         Cara, Bill, 313
business risk, 80                          Carter, John F., Mastering the Trade, 308
buy orders, 37                             cash, trading, 64–65
buying derivatives, 67–69                  CBOE (Chicago Board Options
                                               Exchange)
•C•                                         Learning Centers, 114
                                            overview, 68
CAGR (Compound Average Rate of              Volatility Index (VIX), 226–227
     Return), 183                           Web site, 66
calculating. See also measuring            CBOT (Chicago Board of Trade)
 Average True Range, 225–226                Classes/Training, 114
 expected return, 142                       overview, 69
 indicators, 202–203                       certified public accountants, 159
 momentum, 204–205                         CFTC (Commodity Futures Trading
 performance, 182–191                          Commission)
 probability of ruin, 142–144               overview, 86
 relative strength, 270                     research, 124
 returns, 182–187                          Charles Schwab Active Trader, 103
 standard deviation, 145, 188–190          charts
 tick indicators, 222                       charting services, 121–122
 volatility ratio, 227                      charting software, 46
 win-loss percentage, 188                   cup and handle, 208–209
 win ratio, 188                             defined, 198
calendar effects, 234–235                   flags, 206–207
call option, 244, 258                       gaps, 209
calls, 264                                  head and shoulders, 207–208
CAN SLIM, 271–272                           pennants, 206–207
candle, 212                                 pitchfork, 210
Candlestick Charting Explained (Morris),    reading, 206–210
     309                                    traps, 233
Candlestick charts, 212                    chat rooms, 137–139
capital                                    Chicago Board of Trade (CBOT)
 gains, 162–164, 182–183                    Classes/Training, 114
 loss, 162–164                              overview, 69
320   Day Trading For Dummies

      Chicago Board Options Exchange         conventions, used in this book, 2
          (CBOE)                             convergence, 203
       Learning Center, 114                  convertible arbitrage, 260–261
       overview, 68                          convertible bond
       Volatility Index (VIX), 226–227        defined, 260
       Web site, 66                           overview, 67
      Chicago Mercantile Exchange (CME)      convertible debenture, 260
       Education Center, 114–115             convertible preferred stock, 260
       overview, 69                          corn, trading, 27
      ChoiceTrade, 103                       corporate bond market
      choosing, shorts, 242                   exchanges, 85
      classes, day trading, 117–118           regulation, 83–85
      clerical fees, tracking, 165           correction, 204
      closing out, positions, 39–40          costs, transaction, 255–256
      CMC Markets, 107                       counseling, stress management, 134
      CME (Chicago Mercantile Exchange)      coupons, 60
       Education Center, 114–115             covariance, 226
       overview, 69                          CQG, quote service, 120
      CNBC, 315                              crossover, 203
      coaching, stress management, 134       Crowd: A Study of the Popular Mind, The
      commissions, 167                           (LeBon), 311
      commodity                              cup and handle, chart formation,
       markets, 11                               208–209
       trading, 65                           currency, trading, 64–65
      Commodity Futures Trading Commission   curve-fitting, 175
          (CFTC)                             CyberTrader
       overview, 86                          overview, 103
       research, 124                          simulation software, 177
      common stock, 16
      CompleteTax, 161
      Compound Average Rate of Return
                                             •D•
          (CAGR), 183                        Dalton, James and Robert Bevan, Mind
      compound interest, 153                     Over Markets: Power Trading with
      compound return, 183                       Market Generated Information, 309
      computer recommendations, 109          data mining, 175
      conferences, 116                       day trader. See also day trading
      confidence, ego versus, 136–137         conferences, 116
      congestion, 204                         independency, 281
      consolidation, 204                      Internet, 313–314
      continuation, 204                       mainstream media, 314–315
      contrarian traps, 233                   organizations, 312–313
                                                                                  Index   321
 pattern, 90–91                              distribution
 personality traits, 17–19                    defined, 204, 228
 resources, 307–315                           index, 228
day trading. See also day trader; trading    divergence, 203
 alternatives, 301–306                       Do Day Traders Make Money? Evidence
 books, 307–312                                  from Taiwan (Barber, Lee, Liu and
 creation, 82–83                                 Odean), 21
 defined, 10                                 dollar-weighted returns, 186–187
 discipline, 12–13                           Double Down: Reflections on Gambling
 gambling versus, 304–305                        and Loss (Barthelme), 311
 mistakes, 295–300                           Douglas, Mark, Disciplined Trader:
 myths, 19–24                                    Developing Winning Attitudes,
 partners, 93                                    The, 311
 professionally, 13–15                       Dow, Charles, 210, 309
 reasons for, 281–287                        Dow Theory, technical analysis
 reasons to avoid, 289–294                       approach, 210–211
 reports, 21–22                              Dow Theory Today (Russell), 309
 success rates, 23–24                        Downes, John, Barron’s Dictionary
 video games, 305                                of Finance and Investment
Day Trading the Currency Market: Technical       Terms, 307
    and Fundamental Strategies to Profit     downtrend, 209
    from Market Swings (Lien), 307–308       drawing, trendlines, 201
dealer, 55                                   DTN, quote service, 120
decisioneering, 150                          due diligence, 124–126
deductibility, business expense, 170
deflation, 53
delta, volatility, 145
                                             •E•
demo accounts, trading in, 305–306           E-Mini index futures, 98
depression, controlling, 130–131             E*TRADE, 103
derivatives                                  earned income, 161–162
 defined, 54, 65                             earnings momentum, 269
 market exchanges, 87                        ECN (Electronic Communication
 market regulation, 85–87                         Networks), 59
 risk arbitrage, 257                         edge divided by odds, 149
 trading, 65–69                              education. See classes
 types, 66–67                                efficiency, market, 76–77
direct access brokers, traditional retail    ego, confidence versus, 136–137
    brokerage versus, 98                     Electronic Communication Networks
discipline, 12–13, 268                            (ECN), 59
Disciplined Trader: Developing Winning       Electronic Day Trader: Successful Strate-
    Attitudes, The (Douglas), 311                 gies for On-line Trading, The
discount bond, 60                                 (Friedfertig and West), 308
322   Day Trading For Dummies

      Elliott, Ralph, 211                     exercise, stress management, 132
      Elliott Wave                            expectation, unrealistic, 295–296
       newsletter, 123                        expected return
       technical analysis approach, 211        calculating, 142
      Elliott Wave Principle: Key to Market    defined, 74, 188
           Behavior (Frost & Prechter), 310   expenses
      emotions, controlling, 129–135           business, 170
      enrolled agents, 159                     investment, 164–169, 171
      EOP (end of the total time period),      nondeductible, 168
           183–184
      EOY (end of year asset value), 183
      equation. See also formula
                                              •F•
       compound annual growth rate, 183–184   fair lottery, 79
       fixed fractional, 147                  false breakout, 205
       fixed ratio, 148                       family, stress management, 133
       Modified Dietz method, 185             fear, controlling, 131
       money flow index, 229                  federal regulations, 157
       Optimal F, 150–151                     fees, 165
       time-weighted rate of return, 186      Fibonacci numbers, technical analysis
      equity. See stocks                           approach, 211
      eSignal, quote service, 120             Fibs. See Fibonacci numbers
      estimated taxes, 171–172                Fidelity Active Trader Pro, 104
      ETFs (Exchange Traded Funds), 63        Fimat PreferredTrade, 104
      European options, 264                   finance, behavioral, 129
      evaluating                              financial futures, 15
       business plans, 29–31                  finding, trends, 200–204
       performance with benchmarks, 190–191   fixed fractional, money management
      Exchange Traded Funds (ETFs), 63             style, 146–147
      exchanges                               fixed income arbitrage, 261–262
       American Stock Exchange (AMEX), 57     fixed income investments. See bonds
       defined, 55                            fixed income securities, 261
       Electronic Communication Networks      fixed ratio, money management style,
           (ECN), 59                               147–148
       floor-based, 56                        flags, chart pattern, 206–207
       joining, 302–303                       floor-based exchange, 56
       NASDAQ, 57–58                          Forbes Stock Game, 306
       New York Stock Exchange (NYSE),        force index, 223–224
           56–57                              foreign exchange (forex)
       Over-the-Counter Bulletin Board          market, 247–248
           (OTC BB), 58–59                      overview, 15–16
       Pink Sheets, 59                          regulation, 87–88
      execution quality, judging, 276–278       trading, 27
                                                                                  Index   323
FOREX.com, 108                                 gaps, 209
forms, IRS (Internal Revenue Service),         garbitrage, 263
     171                                       ghost trading. See simulation, trading
formula. See also equation                     Global Market, 58
  calculating performance on a                 Global Select Market, 58
     percentage basis, 183                     goal setting, business plan, 26
  Kelly Criterion, 149                         goals, setting profit, 34–35
Fortune’s Formula: The Untold Story of the     Golden Proportion, 211
     Scientific Betting System that Beat the   Goodman, Jordan Elliott, Barron’s
     Casinos and Wall Street (Poundstone),         Dictionary of Finance and
     312                                           Investment Terms, 307
frequency, liquidity measure, 51               greed, controlling, 131
Friedfertig, Marc, Electronic Day Trader:      Green, Robert A., Tax Guide for Traders,
     Successful Strategies for On–line             The, 308
     Trading, The, 308                         GTForex, 65, 108
friends, stress management, 133                guides, technical analysis, 308–309
Frost, A.J., Elliott Wave Principle: Key to
     Market Behavior, 310
functional research, technical research
                                               •H•
     versus, 195–196                           half-Kelly strategy, 149
fundamental research, 197, 290                 Harris, Jeffrey, Trading Profits of SOES
futures                                            Bandits, 22
  E-Mini index, 98                             head and shoulders, chart formation,
  financial, 15                                    207–208
  overview, 66                                 hedgers, speculators versus, 10–11
  trading, 245–246                             hedging, 74, 302
                                               high-beta stocks, 75
•G•                                            High Yield Investment Program
                                                   (HYIP), 35
gain per day, 35                               hiring, tax advisers, 158–161
gain per trade, 35                             history books, 311–312
gambling                                       hobbies, stress management, 133
 day trading versus, 20–21, 292–293,           home equity line of credit, 248
    304–305                                    How to Make Money in Stocks: A Winning
 overview, 79                                      System in Good Times or Bad
gamma, volatility, 145                             (O’Neil), 271, 310
Gann system                                    How to Make Profits in Commodities
 money management style, 148–149                   (Gann), 310
 technical analysis approach, 212–213          Humphrey, B. Neill, Tape Reading and
Gann, William                                      Market Tactics, 309
 Gann system, 148–149, 212–213                 HYIP (High Yield Investment
 How to Make Profits in Commodities, 310           Program), 35
gap and crap, 209
324   Day Trading For Dummies

                                                   connection, 110
      •I•                                          day trader, 313–314
      icons, used in this book, 4                investing
      implied volatility, 227                      day trading versus, 20
      income                                       defined, 77
        capital gain/loss, 162–164                 experience, 284
        earned, 161–162                            learning, 289–290
        investment, 162                            overview, 40, 77–78
        returns, 182                               traditional, 303
      independency, day trader, 281              Investing For Dummies (Tyson),
      index                                           3, 289, 303
        accumulation, 228                        investment
        arbitrage, 262                             clubs, 303–304
        force, 223–224                             counsel, 165–166
        stochastics, 270                           income, 162
      IndexArb.com, 313                            interest, 166
      indicators                                   seminars, 167–168
        calculating, 202–203                     Investment Company Act (1940), 93
        defined, 202                             investment expenses
      Individual Retirement Arrangement            deductible, 165–66
           (IRA), 172                              non-deductible, 166–168
      Infinity Brokerage, 106                      qualified, 165–166
      inflation, 75                                reporting, 171
      Inner Game of Trading, The (Koppel), 311     tracking, 164–169
      insider trading, 92                        Investment Income and Expenses (IRS),
      InstaQuote, quote service, 121                  161
      Institute for Financial Markets, trading   investors
           resource, 115                           accredited, 93
      Interactive Brokers, 104                     breaking news/markets, 272–273
      InterbankFX, 108                             defined, 10
      interest                                     execution quality, 276–278
        compound, 153                              momentum, 268–269
        expense limitations, 169                   setting targets/limits, 273–275
        open, 225                                  short term, 275–276
        rate arbitrage, 261–262                    traders versus, 157–158
      internal rate of return (IRR), 186–187       trading discipline, 268
      Internal Revenue Service. See IRS          Investor’s Business Daily (O’Neil),
      Internet                                        271, 315
        access availability, 82–83               IRA (Individual Retirement
        chat rooms, 137–139                           Arrangement), 172
                                                                             Index    325
IRR (internal rate of return), 186–187     LeBon, Gustave, Crowd: A Study of the
IRS (Internal Revenue Service)                  Popular Mind, The, 311
     Application for Change in             Lee, Yi-Tsung, Do Day Traders
     Accounting Method, 169                     Make Money? Evidence
  forms, 171                                    from Taiwan, 21
  Investment Income and Expenses, 161      LeFevre, Edwin, Reminiscences of a Stock
  Profit or Loss from Business, 171             Operator, 128, 312
  Web site, 157, 160                       legal fees, tracking, 165
IRS-Qualified Traders                      Level 1 quotes, 99
  business expense deductibility, 170      Level 2 quotes, 99
  marked-to-market accounting, 170         leverage. See also margin
  overview, 169–170                          assessing risks and returns, 249–250
iShares, 63                                  bond markets, 244
                                             defined, 22, 27, 50, 243
•J•                                          foreign exchanges, 247–248
                                             futures trading, 245–246
Jankovsky, Jason, Trading Rules that         options markets, 244–245
     Work: The 28 Lessons Every              overview, 243–244
     Trader Must Master, 308                 risk arbitrage, 257–258
January effect, 234                          short-term trading, 238
Japanese Candlestick charting, technical     stock markets, 244
     analysis approach, 212                  strategies, 90
joining                                    Lien, Kathy, Day Trading the Currency
  exchanges, 302–305                            Market: Technical and Fundamental
  investment clubs, 303–304                     Strategies to Profit from Market
Jones, Eric, Mind Over Markets: Power           Swings, 307–308
     Trading with Market Generated         limit order
     Information, 309                        controlling emotions, 131
judging, execution quality, 276–278          defined, 16, 274
Just2Trade, 104                              overview, 36
                                           limited liability, 54, 73–74
•K•                                        limits, setting, 35–37, 273–275
                                           liquid assets, 50
Kelly Criterion, money management          liquidity, 50–51
    style, 149                             listed bonds, 62
Koppel, Robert, Inner Game of Trading,     Liu, Yu-Jane, Do Day Traders Make Money?
    The, 311                                    Evidence from Taiwan, 21
                                           Livermore, Jesse, 128
•L•                                        loans, margin, 248
                                           long, 241
large-cap stocks, 27                       long-term capital management, 240
law of one price, 252–253                  loss, probability of, 72–74
learning, investing, 289–290               loss limit, 35–36
                                           low-beta stocks, 75
326   Day Trading For Dummies

                                     market measurements
      •M•                             price indicators, 220–223
      main phase, 204                 volatility, 225–227
      mainstream media, 314–315       volume, 223–225
      Man Futures, 106               Market Technicians Association, 312–313
      managing                       MarketDelta, charting service, 121
       margin calls, 239             Marketwise, training classes, 117
       positions, 16                 Martingale, money management style,
       risk(s), 80, 297                  149–150
       stress, 127–139, 286–287      Mastering the Trade (Carter), 308
      The Marlin Newsletter, 123     MasterTrader.com, 104
      margin. See also leverage      material inside information, 77
       agreements, 238–239           maturity, 60
       bargains, 240                 MB Trading, 106
       calls, 239                    measuring. See also calculating
       defined, 53, 67, 246           liquidity, 50–51
       loans, 248                     markets, 219–227
      marginability, assets, 53–54    momentum, 220–222
      marked-to-market                money flows, 227–230
       accounting, 170                volatility, 51–52, 225–227
       defined, 68                    volume, 223–225
       election, 159–160             meditation, stress management, 132–133
      market                         Meetup, 313
       arbitrage, 253–254            memoir, books, 311–312
       bear, 41                      merger arbitrage, 263–264
       bond, 244                     Metastock, charting service, 121
       breaking, 272–273             MG Financial Group, 108
       bull, 41                      mid-line, 210
       capitalization, 56            Million Dollar Portfolio Challenge, 306
       CMC, 107                      Mind Over Markets: Power Trading with
       efficiency, 76–77                 Market Generated Information
       foreign exchange, 247–248         (Dalton, Jones & Dalton), 309
       futures trading, 245–246      mistakes, day trading, 295–300
       index, 190, 262               Modified Dietz method, 184–185
       makers, 58                    momentum
       measurements, 219–227          calculating, 204–205
       options, 244–245               earnings, 269
       picking, 27–28                 indicator, 205
       profile, 309                   investor, 268–269
       psychology, 218–219            measuring, 220–222
       stock, 244                     oscillators, 221
       zero-sum, 11–12                price, 269–270
                                      research systems, 270–272
                                                                            Index    327
The Money Show, investment              Mozy, backup system, 111
    conference, 116                     mutual fund
Monday effect, 234                       companies, 59, 224
money                                    manager, 40
 committing, 297–298                    Mutual Funds For Dummies (Tyson), 3
 language of, 34–35                     MyPivots.com, 314
 laundering, 89–90                      myths, day trading, 19–24
money flow
 accumulation index, 228
 defined, 227, 228
                                        •N•
 distribution index, 228                N (number of years), 183–184
 index, 229                             naked, 110
 measuring, 227–230                     NASD BrokerCheck, research, 125
 money flow ratio/index, 228–229        NASD (National Association of Securities
 ratio, 228                                 Dealers), 84–85
 short interest ratios, 229–230         NASDAQ 100 Index, 227
money management                        NASDAQ (National Association of
 effects on return, 151–153                 Securities Dealers Automated
 expected return, 142                       Quotation system)
 firm, 63                                creation, 85
 fixed fractional, 146–147               overview, 57–58
 fixed ratio, 147–148                    trading resource, 115
 Gann, 148–149                          National Association of Investors
 Kelly Criterion, 149                       Corporation, 304
 Martingale, 149–150                    National Association of Securities
 Monte Carlo simulation, 150                Dealers (NASD), 84–85, 125
 opportunity costs, 146                 National Best Bid or Offer, 277–278
 Optimal F, 150–151                     National Futures Association (NFA)
 probability of ruin, 142–144            BASIC, 125
 profit planning, 153–155                Investor Learning Center, 115
 styles, 146–151                         overview, 86–87
 valuing volatility, 144–145            need-to-make number, 131
money-weighted return. See              New Money Management: A Framework
    dollar–weighted returns                 for Asset Allocation, The (Vince), 308
monitor recommendations, 110            New York Board of Trade (NYBOT), 69
Monte Carlo simulation, money           New York Mercantile Exchange
    management style, 150                   (NYMEX), 69
Morris, Gregory, Candlestick Charting   New York Stock Exchange (NYSE),
    Explained, 309                          56–57, 116
Moving average                          news
 convergence/divergence (MacD), 270      announcements, 33
 overview, 202–203                       breaking, 272–273
                                         flows, 231–232
328   Day Trading For Dummies

      newsletters, 122–123                    defined, 244
      NFA (National Futures Association)      European, 264
       BASIC, 125                             expiration, 51
       Investor Learning Center, 115          overview, 66
       overview, 86–87                       OptionsHouse, 107
      NinjaTrader, charting service, 122     optionsXpress, 107
      nondeductible expense, 168             order book, 231
      North American Securities Admini-      order imbalance, 231
          strators Association, Report       order types, 37
          of the Day Trading Group, 21       organization(s)
      notes, 60. See also bonds               book, 3–4
      number of years (N), 183–184            day trader, 312–313
      NYBOT (New York Board of Trade), 69    over-optimization, 175
      NYMEX (New York Mercantile             Over-the-Counter Bulletin Board
          Exchange), 69                          (OTC BB), 58–59
      NYSE (New York Stock Exchange),        over-the-counter trading, bonds, 62
          56–57, 116                         overtrading, 299

      •O•                                    •P•
      October effect, 235                    pairs trading, 264–265
      Odean, Terrance, Do Day Traders Make   panic, reducing, 136
           Money? Evidence from Taiwan, 21   paper trading. See simulation trading
      offer, 99, 254                         part-time trading, 13–14
      office                                 partners, day trading, 93
       expense tracking, 165                 passive activity losses/credits, 168–169
       set up, 109–112                       pattern day trader
      OmniTrader, charting service, 122       defined, 90, 240
      on-balance volume, 224                  rules, 90–91
      O’Neil, William                        paying, taxes, 171–172
       How to Make Money in Stocks: A        pennants, chart pattern, 206–207
           Winning System in Good            pennies, 34
           Times or Bad, 271, 310            People in Profit (PIP), 35
       Investor’s Business Daily, 271        percentage change, returns, 183–184
       technical analysis system, 271        performance
      open interest, 225                      bond, 67, 246
      open-outcry, 68                         calculating, 182–191
      opportunity costs, 75, 146              calculating returns, 183–187
      Optimal F, money management style,      evaluating with benchmarks, 190–191
           150–151                            risk, 188–190
      options                                 types of return, 182–183
       American, 264                         personal risk, managing, 80
       arbitrage, 264
                                                                                   Index   329
personality traits, successful day trader,    Profit or Loss from Business (IRS), 171
    17–19                                     profit planning
Pink Sheets, 59                                compounding interest, 153
pip, 34–35                                     pyramiding power, 153–155
PIP (People in Profit/Pure Investor), 35       regular withdrawals, 155
pitchfork, 210                                prop traders, 301
pivot point, 202                              proprietary trading, 301–302
plain vanilla. See bonds                      psychology, market, 218–219
plan                                          Psychology Today, 134
 business, 296                                pullback, 204
 trading, 296–297                             Pure Investment (PIP), 35
planning, trades, 31–39                       put, 66, 264
platform, types, 100–102                      put option, 244–245, 258
point, 35                                     pyramiding, 153–155
positions
 closing out, 39–40
 managing your, 16
                                              •Q•
 trading, 40                                  qualified purchasers, 93
Poundstone, William, Fortune’s Formula:       quote service. See also price
    The Untold Story of the Scientific Bet-    types, 120–121
    ting System that Beat the Casinos         quotes, types, 99–100
    and Wall Street, 312
Prechter, Jr., Robert R., Elliott Wave
    Principle: Key to Market Behavior, 310
                                              •R•
price. See also quote service                 RapidSP Day Trading Simulator, 305
 changes, 199                                 rate of return, risk–free, 75–76
 improvement, 278                             reading, charts, 206–210
 momentum, 269–270                            real time, 98
 quotes, 98                                   RealTick, charting service, 122
 relative to National Best Bid/Offer, 277     recommendations, equipment, 108–112
 research, 119–21                             regulations, tax reporting, 91
 strike, 245                                  regulatory agencies
 updates, 230–231                              corporate bond market, 83–85
price indicators                               derivatives market, 85–87
 momentum, 220–222                             foreign exchange (forex), 87–88
 overview, 220                                 overview, 83
 tracking the trin, 222–223                    stock market, 83–85
 trading on the tick, 222                      treasury bond market, 85
Pristine, training class, 117                 relative strength, calculating, 270
probability of ruin, calculating, 142–144     Reminiscences of a Stock Operator
profit and loss statement, 179                    (LeFevre), 128, 312
profit goals, types, 35
330   Day Trading For Dummies

      Report of the Day Trading Project Group     long-term capital management, 240
           (North American Securities Admin-      managing, 80, 297
           istrators Association), 21             overview, 72–75
      reporting, investment expenses, 171         rewards, 75–76
      reports, day trading, 21–22                 to your return, 188–190
      research                                  risk arbitrage
        charting strategies, 121–122              derivatives, 257
        due diligence, 124–126                    leverage, 257–258
        functional versus technical, 195–196      overview, 256–257
        fundamental, 290                          short selling, 258
        newsletters, 122–123                      synthetic securities, 258–259
        overview, 119                           risk-free rate of return, 75–76
        price, 119–121                          risk-reward tradeoff, 76
        systems, 298–299                        Robbins, Anthony, Awaken the Giant
        techniques, 196–199                          Within, 310
      resistance level, 201                     round lots, 52
      resources, 114–116, 307–315               rules
      retail brokerage, direct access brokers     at-risk, 168
           versus, 98                             trading, 40–44
      retracement, 204                            wash sale, 163–164
      returns                                   Russell, Richard, Dow Theory Today, 309
        assessing, 249–250
        calculating, 182–187
        capital gains, 182–183
                                                •S•
        compound, 183                           S&P 500 Index, 65, 226, 262
        dollar-weighted returns, 186–187        safe deposit box rent, 166
        expected, 188                           sales updates, 230–231
        income, 182                             sample
        Modified Dietz method, 184–185           business plan, 30–31
        percentage change, 183–184               trading plan, 38
        risk, 188–190                           scalping
        time-weighted rate of return, 185–186    defined, 119–120
        types, 182–183                           overview, 254–255
      reversal, 204, 207                         strategy sample, 254–255
      reversion to the mean, 265                Schneider Tradercourse, training class,
      revising, business plan, 29–31                117
      risk. See also volatility                 School of Gann, newsletter, 123
        arbitrage, 256–259                      schools of price theory, books, 309–310
        assessing, 249–250                      Schultz, Paul, Trading Profits of SOES
        capital, 22, 89                             Bandits, 22
        defined, 72, 232                        ScottradeELITE, 105
                                                                           Index    331
SEC (Securities and Exchange              Small Order Entry System (SOES), 82–83
     Commission)                          smart money, 224
 overview, 84                             Social Security Administration, online
 research, 125                                calculator, 162
 Web site, 35                             SOES bandits, 83
Secrets of Traders, training class, 117   SOES (Small Order Entry System), 82–83
securities                                software
 defined, 54                               simulation, 177–178
 stocks, 54–59                             tax preparation, 161, 164
Securities and Exchange Commission         TradeStation, 46
     (SEC)                                software-based, platforms, 100
 overview, 84                             sold, 11
 research, 125                            speculation, 79
 Web site, 35                             speculators, hedgers versus, 10–11
Security Traders Association, 312         spot market, 88
self-employed, 32, 161, 171               spread, 55
sell orders, 37                           spreadsheets, setting up, 178–179
selling, short, 241–242                   standard deviation
setting                                    calculating, 145, 188–190
 boundaries, 293                           volatility, 51
 limits, 35–37, 273–275                   stastical arbitrage, 265–266
 profit goals, 34–35                      state income taxes, 166
 targets, 273–275                         State of Alaska Permanent Fund, 160–161
short                                     stochastics index, 270
 defined, 241                             stock index futures, 27
 interest ratios, 229–230                 stock markets
 selling, 241–242                          exchanges, 85
 squeeze, 243                              leverage, 244
short selling                              purpose, 11
 assessing risks and returns, 249–250      regulation, 83–85
 choosing shorts, 242                     stockholders’ meetings, 167
 defined, 229                             stocks
 how to sell short, 241–242                common, 16
 overview, 241                             high-beta, 75
 risk arbitrage, 258                       low-beta, 75
 short squeezes, 243                       overview, 54
short-term                                 U.S. trades, 55–56
 investors, 275–276                       stop limit order, 36
 trading, 238, 284                        stop loss order. See stop order
shorts, choosing, 242                     stop order
simulation                                 defined, 16, 274
 software, 177–178                         overview, 36
 trading, 176–177                         stress, managing, 127–139, 286–287
332   Day Trading For Dummies

      stress management                           TradeLog software, 164
       controlling emotions, 129–135              trader versus investor, 157–158
       having an outlet, 132–133                TD AMERITRADE, 105
       overview, 127–129                        technical analysis. See also technical
       support systems, 133–134                      research
       trading plan, 135–137                      approaches, 210–213
      strike price, 245                           changing trends, 204–206
      strips, 60                                  defined, 34, 308
      success rates, 23–24                        Dow Theory, 210–211
      support level, 201                          Elliott Wave, 211
      support systems                             Fibonacci numbers, 211
       overview, 287                              finding trends, 200–204
       stress management, 133–134                 Gann System, 212–213
      swing trading                               guides, 308–309
       as an alternative to day trading, 304      Japanese Candlestick charting, 212
       defined, 10, 197                           overview, 197–200
       overview, 39                               pitfalls, 213–215
      switching, research systems, 298–299      technical research. See also technical
      synthetic securities, risk arbitrage,          analysis
           258–259                                functional research versus, 195–196
      system testing, 173–178                   technology, importance, 282
                                                teeny, 35
      •T•                                       Terra Nova Financial, 105
                                                testing, your system, 173–178
      Tape Reading and Market Tactics           theta, volatility, 145
          (Humphrey), 309                       thinkorswim, 107
      targets, setting, 273–275                 Thomas, Kaye A., Capital Gains, Minimal
      Tax Guide for Traders, The (Green), 308        Taxes, 307
      tax preparation center, 159               tick
      TaxCut Premium, 161                         defined, 35, 222
      taxes                                       indicator calculations, 222
       advisers, 158–161                          trading on the, 222
       attorneys, 159                           ticker symbols, 56
       estimated, 171–172                       time
       income, 161–164                            committing, 297–298
       investment expenses, 164–169, 171          updates, 230–231
       IRS-Qualified traders, 169–170             value of money, 75–76
       paying, 171–172                          time-weighted rate of return, 185–186
       reporting, 91                            tools, arbitrage, 259–265
       self-directed IRAs, 172                  top-down research, 196
       software preparation, 161                TotalView quotes, 100
       tax adviser, 158–161
                                                                                 Index   333
tracking                                       insider, 92
  investment expenses, 164–169                 leverage and short–term, 238
  stock, 260                                   overview, 78–79
  trades, 178–181                              pairs, 264–265
  the trin, 222–223                            part-time, 13–14
Trade-Ideas, charting service, 122             position, 40
Tradecision, simulation software, 178          problems, 37–38
TradeKing, 105                                 proprietary, 301–302
TradeLog, tax software package, 164            psychology books, 310–311
Trader Mike, 314                               resources, 114–116
TraderInterviews.com, 314                      rules, 40–44
traders                                        short-term, 284
  categories, 10–11                            simulation, 176–177
  investors versus, 157–158                    in the spot market, 64
  prop, 301                                    swing, 39, 197, 304
Traders Laboratory, 46, 314                    on the tick, 222
trades                                       trading arcade
  losing, 299–300                              defined, 17–18, 97, 249
  planning, 31–39                              learning, 118
  tracking, 178–181                            overview, 111–112
TradeStation                                 Trading Forum, conference, 116
  charting software, 46                      trading plan
  overview, 105                                importance, 296–297
  simulation software, 178                     sample, 38
trading. See also day trading                  stress management, 135–137
  as a hobby, 14–15                            troubleshooting, 137
  for agricultural, energy, or commodities   Trading Profits of SOES Bandits (Schultz
     companies, 302                               & Harris), 22
  bonds, 61–63                               trading room. See trading arcade
  capital, 248–249                           Trading Rules that Work: The 28
  cash and currency, 64–65                        Lessons Every Trader Must
  commodities, 65                                 Master (Jankovsky), 308
  contests, 306                              TradingSchool.com, training class, 118
  defined, 78                                traditional investing, 303
  in demo accounts, 305–306                  training classes, 117–118
  derivatives, 65–69                         transaction costs, 255–256
  diary, 179–181                             traps
  discipline, 268                              contrarian, 233
  futures, 245–246                             defined, 232
  gambling versus, 292–293                     types, 232–235
  guides, 307–308                            treasury bond
  indicator, 222                               futures trading, 27
                                               market regulation, 85
334   Day Trading For Dummies

      treasury dealers, bonds, 62–63             VIX (Chicago Board Options Exchange
      Treasury Department                            Volatility Index), 226–227
        Financial Crimes Informant Network, 90   volatility. See also risk
        Web site, 62–63                           asset, 51–52
      Trending 123 (newsletter), 123              average true range, 225–226
      trendlines                                  Beta, 226
        defined, 201                              defined, 74, 182
        drawing, 201                              measuring, 225–227
      trends                                      overview, 225
        changing, 204–206                         valuing, 144–145
        finding, 200–204                          VIX, 226–227
        phases, 204                               volatility ratio, 227
      trin                                       volume
        defined, 222                              changes, 199
        tracking the, 222–223                     defined, 223
      troubleshooting, trading plans, 137         force index, 223–224
      True Range, 225–226                         liquidity measure, 50
      TurboTax Premier Investments, 161           measuring, 223–225
      two-percent limit, 169                      on-balance volume, 224
      Tyson, Eric                                 open interest, 225
        Investing For Dummies, 3, 289, 303
        Mutual Funds For Dummies, 3
      Tzu, Sun, Art of War, The, 310
                                                 •W•
                                                 walk-away money, 135
      •U•                                        Wall Street Journal, 190, 210, 309
                                                 want-to-make number, 131
      uncertainty, 232                           warrant, 67
      The University of Trading, training        wash-sale rule, 159, 163–164
          classes, 118                           web-based, platforms, 100
      uptick rule, 242                           Web sites (asset management)
      upward bias, 27                             iShare, 63
                                                  Pink Sheets, 59
      •V•                                         Treasury Department, 62–63
                                                 Web sites (brokerage firms)
      Value Line, investment research service,    Charles Schwab Active Trader, 103
          271                                     ChoiceTrade, 103
      valuing, volatility, 144–145                CyberTrader, 103
      variance, volatility, 52                    E*TRADE, 103
      vega, volatility, 145                       Fidelity Active Trader Pro, 104
      video games, day trading, 305               Fimat PreferredTrade, 104
      Vince, Ralph, New Money Management:         Interactive Brokers, 104
          A Framework for Asset Allocation,       Just2Trade, 104
          The, 308                                MasterTrader.com, 104
                                                                            Index   335
 ScottradeELITE, 105                       Institute for Financial Markets, 115
 TD AMERITRADE, 105                        Investor’s Business Daily, 315
 Terra Nova Financial, 105                 IRS, 157, 160
 TradeKing, 105                            The Marlin Newsletter, 123
 TradeStation, 105                         MarketDelta, 121
 Zecco, 106                                Marketwise, 117
Web sites (contests)                       Metastock, 121
 Beat the Street Contest, 306              Money Show, 116
 Forbes Stock Game, 306                    MyPivots.com, 314
 Million Dollar Portfolio Challenge, 306   NASD BrokerCheck, 125
Web sites (day trader organizations)       NASDAQ, 115
 Market Technicians Association,           National Association of Investors
    312–313                                   Corporation, 304
 Meetup, 313                               National Futures Association BASIC,
 Security Traders Association, 312            125
Web sites (forex brokers)                  National Futures Association Investor
 CMC Markets, 107                             Learning Center, 115
 Gain Capital Group’s FOREX.com, 108       New York Stock Exchange, 116
 GTForex, 65, 108                          news announcements, 33
 InterbankFX, 108                          NinjaTrader, 122
 MG Financial Group, 108                   OmniTrader, 122
Web sites (information research)           O’Neil, William, 271
 Barron’s, 314–315                         Pristine, 117
 Broadband Reports, 110                    RealTick, 122
 Cara, Bill, 313                           Schneider Tradercourse, 117
 Chicago Board of Trade                    School of Gann, 123
    Classes/Training, 114                  SEC, 125
 Chicago Board Options Exchange, 66        Secrets of Traders, 117
 Chicago Board Options Exchange            Securities and Exchange Commission,
    Learning Center, 114                      125
 Chicago Board Options Exchange            Social Security Administration, 162
    Volatility Index (VIX), 226            Trade-Ideas, 122
 Chicago Mercantile Exchange               TradeLog, 164
    Education Center, 114                  Trader Mike, 314
 CNBC, 315                                 TraderInterviews.com, 314
 CQG, 120                                  Traders Laboratory, 46, 314
 DTN, 120                                  Trading Forum, 116
 Elliott Wave, 123                         TradingSchool.com, 118
 eSignal, 120                              Trending, 123, 123
 IndexArb.com, 313                         The University of Trading, 118
 InstaQuote, 121                           Value Line, 271
336   Day Trading For Dummies

      Web sites (options and futures brokers)    TaxCut Premium, 161
       Infinity Brokerage, 106                   Tradecision, 178
       Man Futures, 106                          TradeStation, 178
       MB Trading, 106                           TurboTax Premier Investments, 161
       OptionsHouse, 107                        Web sites (stress management)
       optionsXpress, 107                        Buddhist mindfulness meditation
       thinkorswim, 107                             practice, 133
      Web sites (regulation)                     International Coach Federation, 134
       Commodity Futures Trading                 Psychology Today, 134
          Commission, 124                       West, George, Electronic Day Trader:
       Commodity Futures Trading                    Successful Strategies for On–line
          Commission (CFTC), 86                     Trading, The, 308
       National Association of Securities       wick, 212
          Dealers (NASD), 84                    win-loss percentage, calculating, 188
       National Futures Association (NFA), 86   win ratio, calculating, 188
       SEC, 35, 84                              withdrawals, regular, 155
       Securities and Exchange Commission,      wrote, 11
          35, 84
       Treasury Department Financial Crimes
          Informant Network, 90
                                                •Z•
      Web sites (software)                      Zecco, 106
       AmiBroker, 177                           zero-coupon bond, 60
       AnalyCorp, 150                           zero-sum
       CompleteTax, 161                          defined, 27
       CyberTrader, 177                          games, 74
       Decisioneering, 150                       markets, 11–12
       RapidSP Day Trading Simulator, 305

								
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