Learn Day Trading – Full Tutorial for beginners

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Daytraders are the kings of the financial markets. They know the market inside and out. No wonder that more and more private investors want to learn day trading – the opportunities are simply too promising and attractive.

Whether Forex, CFDs or shares: trading these securities and prices is a worthwhile business for many professional investors. They often act as so-called day traders, who make a series of transactions every day and at the end of the week can close the deal with profit and satisfaction. Learning professional daytrading is for beginners a complex undertaking, which is connected with a lot of discipline. The prospects, however, are almost unique: high and almost unlimited earning opportunities await dedicated traders. The liberal financial market is the perfect place to live the American dream.

What is Day Trading?

The principle of so-called intraday trading or day trading is very simple: A position (a trade) is opened and closed a few seconds, minutes or hours later. If possible, when the trade yields the highest profit. The important thing here is to get out of the position before the end of the day. Otherwise, further fees will be charged by the broker. Depending on the security being traded, the price at the beginning of the next day can make huge jumps, which can lead to enormous losses for the investor. This should be avoided with day trading.

With day trading, the earlier positions are closed with profit, the better. Professionals do this several times a day and thus generate an attractive and lucrative additional income. At night, they can then sleep peacefully without having to worry about their positions.

Myths about Day Trading

“Is day trading actually a real profession” – such and similar questions are asked above all by those who have not yet been at home on the financial market. For day trading, neither training nor studies are necessary. By definition of the legislator, however, day trading is still to be regarded as a real profession, which serves to provide a living. Many prejudices and myths are still circulating about day trading and especially day traders.

MYTH 1: THE HYPERACTIVE

In popular belief, day trading is the supreme discipline in securities trading. Ten hours of work in front of several screens with share prices, lightning-fast trades within a few seconds, each of which brings in a few euros and daily earnings of 500 euros upwards are often predicted for day trading. There may be a few traders around the world who do the same. But this is the exception.

The modern trader of today takes a more relaxed approach to trading. The difficulty is to enter a position at the perfect time and exit with the highest profit. Professional traders usually do not get over five trades per day. They trade smart and intelligently and enter when the probability of high profit is the highest.

MYTH 2: THE LAZY

Who doesn’t have rich financial geniuses in mind when day trading, who can do a few trades on the side with their legs in the pool via mobile phone before escaping the Spanish sun with a walk to the bar? This picture is also completely outdated. Of course: some soldiers of fortune can also earn money on the side. But the everyday life of a daytrader looks completely different. Speculators on the foreign exchange and stock markets have to focus fully on the price developments. Their gaze pierces the screens like a laser beam – often for hours. Attention and topicality is the top priority in day trading!

THE LIFE OF A DAYTRADER

Every trader trades differently and takes care of his trades individually. But one thing is certain: Being a daytrader is a difficult and exhausting job. Most professionals work between 50 and 60 hours per week. They have to keep up with the latest news from the financial and business world and regularly adjust their strategies and tactics when trading. What works one year can’t work the next year. In addition to trading, a trader has to take care of his technical equipment and taxes.

Day traders are under enormous pressure. A wrong decision costs cash money. At the same time, traders have to turn over certain sums of money each week in order to keep themselves and their families financially afloat. Daytrading is a full-time job, there is no time left for work with a regular income.

LEARN DAYTRADING – THAT IS CRUCIAL

If you learn how to trade properly, you can trade all your life. Before the first ideas about odds of winning, it should be all about becoming a really good trader.

SWITCH OFF EMOTIONS!

The biggest obstacle in day trading is emotions. In order to trade profitably, it is absolutely necessary to participate in trading free from excitement and emotion. It takes years of work to get rid of emotions completely. Learning day trading is the easy part, difficult is overcoming psychological challenges. Day traders must consistently ignore their instincts.

AWAY FROM THE FINANCIAL PURSUIT OF PROFIT

Emotionlessness is crucial in day trading. The head must be free from further thoughts and the own goals. It is therefore recommended to say goodbye to all financial goals and to keep your concentration strictly on trading. If you don’t have to achieve any financial goals every day, you will be much more successful in using your money wisely. Discipline is the key to success in day trading. At the beginning the focus is exclusively on knowledge and experience.

EXTENSIVE TRAINING

Probably the most important aspect on the way to becoming a successful trader is knowledge of markets and how they work. However, various literature on the subject of day trading usually only introduces the exact requirements and looks less at the individual markets. Before the decision is made to want to earn money in the future with day trading, investors must have a good command of the trading itself and be well versed in the field of CFDs, shares or foreign exchange. This is the only way to ensure that they can interact successfully in the market in the long run.

ATTENTIVE NEWS MONITORING

Daytrading learning is not limited to the information about text sources to basic knowledge. Not to be neglected is the consequent inquiry about current economic and financial policy issues of international diplomacy and governance. Traders know the important dates on which interesting and groundbreaking figures are published. They can adapt to these and adjust their trading strategy accordingly. Tip: Put together a feed using an RSS reader that provides you immediately with the latest news from the sectors and branches that are important to you.

PROFESSION DAYTRADER: THE ADVANTAGES

Those who get involved, love their work and follow their trading strategies in the long term without emotion, have earnings opportunities in day trading that are largely open at the top. In addition, there are advantages such as free time management, working without superiors and of course trading from home. A success in trading is doubly satisfying: Besides the feeling of having done something right, the day trader directly sees the positive change on his account. Any place in the world can be used for trading with foreign exchange, stocks and futures. Provided he has an internet connection.

DAYTRADING: HOW MUCH MONEY CAN BE EARNED?

The goal of daytrading is one thing above all: earning money. Some people set themselves goals even before the first trade, which they want to achieve in the long term. Values of 200 to 300 euros per day are thrown into the room. Figures that professional day traders achieve every day. The goal of beginners should not be the fast increase of their own capital. But it must be considered that one only trades if chances and probabilities are in favor of the trader. It is therefore partly not possible to reach the presented sums. Financial goals are laudable, but for beginners they are absolutely secondary.

BETWEEN PROFIT AND LOSS

How much money can you make? Better ask yourself how much you can lose. Only then can you decide whether day trading is a possibly long-term profitable venture that is responsible in your risk area. It is essential to trade in the right way. Otherwise the capital is lost faster than the trader has understood what has just happened with his money. The story of “making money through day trading” is always the story of the total loss caused by that day trading. Many negative examples have put the profession of the daytrader in recent years in a bad light.

“1.000 EURO A DAY GUARANTEED”

Advertising on television and the Internet promises: day trading is worth 1,000 euros and more per day – simple, easy and fast. A real money printing machine. To make a long story short: These ideas are wrong. Resourceful advertising (specialists) people would like to deceive unsuspecting speculators. Often unfortunately with success.

Not that we misunderstand each other: it is quite possible to earn 1,000 euros per day. Real professionals sometimes get much more out of it and earn more than 5,000 euros per day. But even with 100,000 euros in your account, it is still a challenge to earn 500 euros a day. That would correspond to a yield of 0.5 percent. In today’s world, this would be a sensational performance, but one that even the best fund managers usually fail to achieve.

Learn Daytrading – The most important questions at a glance

The extensive catalogue of questions on the subject of Daytrading! In order to be successful on the stock exchange, you should know in advance what you are getting into. The following questions have been asked again and again lately – and could also help you.

It is to be noted that the interest in the subject of trading in general and day trading in particular is surprisingly high. Questions are also repeatedly asked about aspects of the analytical approach and their implementation possibilities and reliability are discussed.

Since I am always noticing that enthusiasm for the topic, but also partly still missing knowledge and great curiosity collide, I would like to take up with this FAQ (Frequently Asked Questions) the most important questions of the last weeks and try to answer them to the best of my knowledge and conscience. I believe that in this way we will achieve two things: on the one hand, these questions will be explained once again in peace – and not in the “heat of the moment”. On the other hand, all the important questions and answers are bundled together to give us a better understanding of “what we do every day”.

Because one thing seems extremely important to me: Everyone should know what works and what doesn’t work – perhaps the clarification of what doesn’t work is the most important aspect that every trader must be aware of if he wants to be successful on the stock market. Because in the end only one thing counts: How much more money do we have on our trading account in the evening than in the morning. This is the only thing a trader measures.

Not all questions were asked in exactly the same way. I take the liberty of rephrasing them a little, perhaps to get a little closer to the core of the matter, but on the whole I have picked them out of the day trading stream. First you will find an overview of the questions asked, followed by the answers in detail. Furthermore: At the end of the article a free and exciting e-book is waiting for you!

Questions of principle

  • What is day trading anyway? And how does it differ from position trading?
  • Is it possible to do daytrading “on the side”?
  • Is day trading the right thing for me at all?
  • Will I get rich with daytrading?
  • Can anyone become a good daytrader?

Daytrading for beginners

  • What about knowledge and experience? Do I need less know-how as a position trader than if I was active in day trading?
  • Do I have to know a minimum of rules and regulations or can I get a “quick start” on the stock exchange?
  • Which technical literature should I have read?
  • Can I avoid trading errors and shorten the learning curve?
  • Why are there so many losers and only few winners?
  • Why does everything go so slowly? There is too little action in it.

Technical day trading questions

  • What importance does fundamental analysis have in day trading?
  • And what about technical analysis?
  • How reliable is technical analysis? Can I even rely on their forecast statements?
  • Does it make sense to “follow up” recommendations, even if they are very reliable?
  • What are triggers?
  • What is a directional filter?
  • HC, LC, pivot point – what is that again?
  • What is a “core position”?
  • What are resistors and supports really good for?
  • Are trend lines as important resistors and supports as horizontal lines?
  • How long do resistances and supports remain valid?
  • Are there fixed rules on how to apply resistances, supports and trend lines in a chart?
  • Do resistances and supports in short-term chart windows have the same meaning as in longer-term chart windows?
  • Which chart type is “the best”? And which time window should I trade?
  • What is day trading anyway? And how does it differ from position trading?

Day trading is defined as a trading strategy where the opening and closing of a position takes place during a trading session. As a matter of principle, no positions are held overnight in day trading. This means that a position can never remain open while the exchange is closed.

Within the category “day trading” there are subdivisions into subtypes of trading. For example, positions can remain in the market for only a few hours, but also only a few minutes. In high-frequency trading, there are sometimes only a few seconds between opening and closing a position. This type of trading is also assigned to the “Day Trading” category.

Scalping or scalp trading is also a subtype of day trading. Here it is only about the realization of a few points, in FDAX the price targets can be half or a whole point. In order to be able to achieve meaningful returns from it nevertheless, scalpers work with comparatively large positions (here it is the “mass” that does it). So-called market makers are counted among the classic scalpers.

In contrast, position trading is a longer-term business. It involves building up a position (which can take some time if the position develops in the expected direction), maintaining a position (which can be days or even weeks) and closing a position (e.g. by selling it off in slices).

Is it possible to learn and do day trading “on the side”?

Trading as a hobby? On the side, to improve the household budget a little or to have fun, thrills or “something to tell”? Why not? I know somebody who has a lot of money at his disposal and loses some of it on the stock market every year. He’s been doing it for a few years and has never gotten beyond small profits, mostly he gives away in the round. But he enjoys it. He says: “This is my hobby. Whether I sink my money into other things or here on the stock exchange, where I get the thrill in return, I prefer it here.” He regards the losses he accepts as a cost of his hobby.

But if you want to make a living out of it, the thoroughbred trader, who is serious about the matter – no, you can’t do it on the side. Trading is a vocation and a profession. Can a doctor operate on the side? Can a roofer cover a roof professionally every now and then?

I’m going out on a limb: anyone who considers trading in general, but specifically day trading in particular as a hobby and does it on the side will sooner or later be one of those who make deposits to banks and counterparties.

Is day trading the right thing for me at all?

There is a common statement among traders: “Daytrading is the king of trading”. This is not meant to sound aloof, but it shows the real problem. Day trading is like the Formula 1 sport of driving a car. Mistakes are not forgiven, but cost money. I often experience that beginners at the stock exchange want to start their trading career with daytrading because they underestimate the demands this kind of trading makes on them. I ask you: how do you become a good driver, pilot, doctor or similar? By learning it from the bottom up. It is no different on the stock exchange. It has developed in such a way that short and short-term trading has become the hardest discipline, where profits or losses are realized in the shortest time, where merciless “points are cut”, where most fully automated systems are used because they calculate faster than we do, do not tire and react more consistently than we do.

Everyone should ask himself if this is what he wants. I don’t think any trading method captures a trader as much as day trading does. If you want to do it right, there is no “and”, there is only “either/or”. You have to ask yourself and answer yourself honestly: do I want to look at the market every day for as long as I am physically able to do so, and try to get the returns for myself? Do I want to adjust my lifestyle to this way of trading? I can only repeat it again and again: trading is the best job in the world, there is nothing comparable that demands high mental demands and flexibility and knowledge from you, while at the same time giving you the highest degree of personal freedom, with the chance to live independently and comfortably, than trading on the stock exchange. But there is also almost no job that is more merciless – if you want to do it right, mind you.

Will I get rich with day trading?

I once read in a trading book: “The position trader gets rich, the day trader earns his living”. Is it really true? I think it doesn’t matter what kind of trading you prefer, you can win or lose in both cases. It is more a risk consideration. The position trader is at risk for long periods of time, but then cashes in well when the markets perform as expected. The day trader is on the ball every day, keeps the risk tight, but sometimes misses the big trend. But that is not what matters. The daytrader ideally earns extra money every day, the position trader sometimes waits longer and naturally has a higher risk, combined with a good chance for a decent trend. If we have continuous strong and reliable trends over months, the position trader is certainly at an advantage. In rather unsettled markets with sudden changes of direction etc. the day trader should have better cards, at least with regard to the risk of the position.

Can everyone learn day trading and become a good trader?

Counter question: Can anyone become a good doctor? Or a good interpreter? Can anyone learn to dive or climb mountains and become a good diver or climber? The basics of trading I believe anyone can learn. In the end, what counts is the will to discipline, the willingness to make all the necessary sacrifices for one’s dream. Trading is not witchcraft, so anyone who really wants to should be able to make a living as a trader. But the last difference is probably shaped just like between a doctor and a good doctor, between a lawyer and a good lawyer or between a roofer or a real expert in his field.

What about knowledge and experience? Do I need less know-how as a position trader than if I were active in day trading?

Again a counter question: Do you as a doctor need to know less than if you want to be a good doctor? Certainly not – hopefully not. Knowledge and experience is essential in trading, this applies to every time window. And every good trader should have knowledge and experience and should be willing to learn every day to become better and better and better. But in my personal opinion there is one difference: the speed of the call. The position trader thinks in different time categories. He can practically “compose” his position structure. The dayrader can’t do that. Here everything goes faster, related to much shorter distances, in which “the noise” makes up a percentally larger part of the distance. Here in dayrading we think differently than position traders. We are “finished”, there the strategically oriented actor is still building up his position.

So: No! The position trader needs the same basic knowledge as his short-term acting colleague. But in the end, knowledge and experience are matched and specialised for the respective trading area.

Do I have to know a minimum of rules and regulations or can I get a “quick start” on the stock exchange?

This question can be answered quickly: No, you cannot go to the stock exchange in the “Quick Start” and yes, you must know a minimum of rules. You also cannot drive a car if you do not know the minimum of traffic rules. If you do, you will be shaved faster than you think possible. You are confronted with other market participants who have done nothing, but trade on the stock exchange their entire professional life.

I am sometimes amazed when players work with products they do not understand, in markets they hardly know. Of course, everyone starts at some point and everyone has to start learning the whole thing at some point. And yes, everyone must then, for better or worse, be one of those who make a contribution. So, so that I am not misunderstood, not the fact that the stock market works with unknown, little penetrated products is surprising, but the self-confidence and dealer aggressiveness, with which buying and selling is done and that the reasons for this are usually supplied later. In order to learn how to trade correctly and seriously, it is important to go through the whole range of the training and this does not only include buying and selling. Honestly: in the end, anyone can “press the button”. The work and learning must happen first, in the mind. And this is also where learning, matching and repeating must take place. And then, in retrospect, mistakes have to be recapitulated, named and eradicated. Only then you have a chance to reach your goal faster and above all BILLIGER.

Which technical literature should one have read?

“What literature is useful for acquiring necessary foundations?” This question is asked very often and can only be answered individually. There is a lot of really good literature, but a lot of books can also be put aside with confidence. I haven’t read everything, so my recommendations can only be selective and based on the works which were really helpful to me personally. From the direct technical literature four books have influenced me, although there are some more, which “are really good”. Nevertheless I would like to recommend the following four works.

At concrete technical literature I suggest

  • Stock Market Analysis with the Computer (Charles LeBeau and David Lucas, Hoppenstedt Publishing)
  • Day Trading (Howard Abell, FinanzBuch Verlag, Börse Online Edition)
  • Trading is a business (Joe Ross, Ross Trading Germany)
  • Psychology of stock exchange trading (Lars Tvede, Gabler Verlag)

Very interesting suggestions and a healthy view over the edge of one’s own nose can be obtained by reading the following (in my opinion) recommendable works:

  • Die Logik der Unvernunft (Laszlo’ Merö, Rowolth Taschenbuch Verlag)
  • Against the Gods: The History of Risk and Risk Management from Antiquity to the Present (Peter L. Bernstein, Gerling Akademie Verlag)
  • Antifragility (Nassim Nicholas Taleb, Knaus)
  • The calculation of the future (Nate Silver, Heyne Verlag)
  • Fools of Chance (Nassim Nicholas Taleb, Wiley)

Can I avoid trading errors and shorten the learning curve?

Personally, I don’t think so. You will make mistakes whether you are pointed out or not – and you should, you must. It’s the only way to make it all flesh and blood. But you may be able to keep the pain down by knowing what’s coming to you when this or that happens. When I was trained as a market maker in options in Chicago, we were taught “the put is your friend”. That means: out often he money puts are not sold, but rather bought to secure the bottom. They (the instructors) told us a lot. Did it help? No. We sold the expensive putts from month to month and were happy about profits, which could be realized in the end. Until it … you can imagine … crashed. The prices of the underlyings plummeted, the short puts developed into Semtex plastic explosives of the finest kind. What I’m trying to say is, it was that bloody nose that got us into this – keep the sh… putts and never give them away.

So: You can certainly shorten your learning curve, but a short other way, past the fat footsteps, up to the fat barrels with a diameter of 20 meters, unfortunately there is no such thing.

Why are there so many losers and only a few winners?

It is said that 90 to 95 percent of all active market participants usually lose their money on the stock exchange or are only lucky once in a while (there is no question of ability). 10 to 5 percent earn steadily on the stock exchange. I can’t judge whether these percentages are correct, but they don’t seem to me to be completely fictitious.

But why is it that the majority of players are not successful or only slightly successful over the long term? I think the main reasons for this are overconfidence, lack of discipline, greed, lack of self-control, lack of knowledge and/or experience, lack of motivation. The order is random.

How many players in the market, especially among private investors, i.e. non-professionals, approach the market too laxly and lack the necessary awe? I know a pilot of a large German airline, a top person in his field, extremely well trained, extremely experienced in flying – so literally “no fool”. And yet – if it weren’t for the stock exchange. There he moves like someone who seems far less educated than in his profession. Why is that so? Why do many, too many players not accept that trading is also something you have to learn? Something where you have to be trained, gain experience and what is an activity that you have to approach with at least as much respect as any other profession in the world? There are psychological studies on this subject and they come to the following conclusion: in the stock market you feel unobserved and subject to the thrill of adventure. You bear the consequences for yourself and only let the information you want to let out to the outside world.

But even among the “professionals” there are “these and such”. Here again we distinguish between discipline, attitude, knowledge and experience and again discipline, discipline and discipline. Trading and war have one thing in common: nowhere are mistakes punished as quickly, consistently and irrevocably as in the field or on the stock exchange. Those who accept this and embrace the necessary virtues that put them on the side of the winners in both areas will ultimately achieve the corresponding success.

Why is this all happening so slowly? There is not enough action in it!

With these statements, I always ask myself what motivation an actor brings with him when he makes such statements. It can only be the desire for adventure, for the game. And if that’s what it is, then it’s okay as long as it stays with the game. Let’s be honest: if I am trading with a CFD that loses or returns 1 Euro per point, then the whole thing doesn’t go beyond playing. Why should I worry about a sensible stop-course management if I can run 100 points against me and then only have 100 Euros in the minus? What sense does 10 points profit make if I only earn 10 Euros? It gets even crazier with denominations, which cause a 0.10 euro change in value in the portfolio. Anyone who works like that should be allowed to have fun, that’s what I mean honestly and amicably.

The situation is completely different when we have products on the market that are used in professional trading. A single FDAX, for example, has a change in value of 25 euros per point. Four points of imbalance results in 100 Euro, 10 points result in 250 Euro. 100 points cost 2,500 euros. If you trade this with 2 contracts, the amounts double (on both sides). Do you see what I am getting at?

Of course it is nonsense to want to tell someone about day trading, discipline, risk control and 10 point price targets when we are talking about risks in the 10 Euro range. Probably this player is already paying 4 points spread to the broker, which he first has to bring in to be plus / minus zero. But if this is the case, then this player must honestly ask himself the question whether day trading is really the field in which he wants to become active. Perhaps he is then actually better off in position trading. I also mean that honestly and amicably.

How important is fundamental analysis in day trading?

Fundamental analysis is of secondary importance in day trading. This is due to the short time window, which the day trader has in mind. Nevertheless, there are aspects which one must never lose sight of even as a day trader: the so-called “Big Picture”. He must know the monetary framework data, must see through the intentions of the central banks (should at least try). The day trader has to know the day’s dates and should consider scenarios in which direction the market could react if the respective figure turns out how. If we know what the big investors are looking for and can guess in which direction the investments will be made, we are not going to oppose this in day trading – are we?

Always keep in mind: the stock market is NOT about having RIGHT. It’s about quickly grasping where things are going and then quickly rethinking if it doesn’t match the original scenario. And if the fundamental environment is bullish, the bearish side can only be traded highly speculative.

And what about technical analysis?

Technical analysis is the tool par excellence in day trading, if we also include the reading and interpretation of the order book.

How reliable is the technical analysis anyway? Can I even rely on their forecast statements?
I wrote an article on this topic and posted it on day-traders.net under the title “Technical Analysis – does it all make sense? Therefore, I do not want to repeat it here completely, but rather address a few quintessences.

  • Technical analysis is not (!) a forecasting tool. It is not, it never has been and it never will be. We can only use Technical Analysis to diagnose the market. We can say: this is what it looks like now. This is how it has developed up to this point. And since one of the key premises of technical analysis is the price development in trends, scenarios can be developed and expectations can be outlined. Basically, we do nothing else, like a weather researcher who uses the available data to diagnose the weather for today, determines from the past how it has gotten this far and how it can be projected for the next few years. And then he (the weather researcher) has to come up with his instruments and compare his scenario with reality. And make corrections if necessary. Nothing else we do. Anyone who assumes that technical analysis has the character of a forecast and sticks to it is acting negligently.
  • Technical analysis has one single advantage, which it has on its own and which distinguishes it from all other methods of analysis: it tells us when we were wrong. It allows us to define price levels at which we say: “Stop – we have to activate scenario B”.
  • The market is a living construct. We are all the market and we live. All our expectations, investment goals and concerns are reflected in the price trend. This is why a price is also called a “collective stimulus-response scheme”. When used correctly, technical analysis can facilitate the establishment of a road map, it can provide road markers, and technical analysis can be used to define and, if necessary, test sets of rules to calculate probabilities for certain events. But courses are ultimately made by people and not by will-less creatures. Consequently, we must preserve the human ability to react flexibly, but in the sense of a substitute scenario that has been thought through in advance.

Does it make sense to “follow up” recommendations, even if they are very reliable?

I think stubborn follow-up is very problematic. If you lose money, it is extremely annoying. But even if you make money with such a trade, it doesn’t really help. It’s just like driving with a navigator and not keeping the route in your head. I still remember times when there was no navigator in the car. So only the map and “eyes open” helped. And then, after the second time at the latest, you had saved the route in your head and were able to drive it safely without any aids. And today? When I drive with navigator, I am sometimes “stuck” if this help is missing, if it is a strange long route, even if I have driven it maybe 5 times with navigator.

I would like to advise you not to go along with it one to one. It is much more important to understand why one should act here or there. Why what is set where and how. This way you learn much faster to find your style and to become more confident. And you learn humility towards the market and towards yourself. Because then you have thought through, planned and successfully completed the trade yourself.

What are triggers?

A trigger is a price level defined in the chart, which when exceeded or undercut triggers a trading activity (buy or sell). As a rule, formation limits, trend lines, indicator lines etc. are defined as the trigger point. If a trigger is exceeded, a long position (see long position) or a short position (see short position) is closed (depending on the definition and market positioning). If a trigger is not met, a short position is built up (depending on the definition and market positioning) or a long position is closed.

What is a directional filter?

A directional filter is a set of rules that defines under which conditions an upward trend, a downward trend or a neutral price trend exists in the respective time window. The most common variant is the use of a combination of two or three moving averages, whose arrangement and course smoothes the trend direction. A combination of a 10 and a 20 daily average is preferred, but a combination of a 4, 9 and 18 daily average is also common. The directional filter shows a valid upward trend if the short average is above the long average (and as a supplement possible) both averages are aligned upwards. The directional filter has a valid downward trend if the short average is below the long average (and can be supplemented) and both averages are down. In the triple combination, there is an upward trend if the short average is above the medium average and the medium average is above the long average. In the triple combination, we speak of a downward trend when the short average is below the medium average and the medium average is below the long average.

HC, LC, pivot point – what is that again?

An LC (also called Low Connection) defines a rising trend line in a market where rising reaction lows are connected. The counterpart is the so-called HC (also called High Connection). Here a falling trend line is connected to the falling reaction highs.

The so-called pivot points have their origin in the floor traders in the USA. Meanwhile, these are also used by more and more traders in Europe to calculate potential turning points or intra-day chart marks.

Pivot points are preferred by short-term oriented day traders in futures markets. Their calculation is used to help the trader to find out on which price levels (in addition to the resistances or supports that can be derived from the chart) resistance or support could lie. Pivot points most probably belong to the category of technical instruments for whose existence there is no rational explanation. However, especially in very actively traded futures markets, these calculated chart markers are sometimes very important. Therefore every daytrader should at least know the current pivot points for the day.

Calculation:

The conventional calculation of pivot points provides five different price levels which should be considered as day relevant chart marks. The starting point for the calculation is the respective daily high, daily low and daily close of the previous day. This means that at the close of trading, the potential, daily valid (subordinate) resistance or support for the following day can be calculated.

Pivot = (High + Low + Close) / 3 

The pivot point is determined by the mean value of the three prices mentioned. This quantifies the psychological market behavior of the previous day. Since a fundamental thesis of technical analysis is based on the assumption that the development of the previous day’s prices forms the basis for the price behavior of the following day, the pivot point represents an equilibrium price. The above mentioned daily resistances and supports are calculated on the basis of the pivot point according to the following formulas:

  • resistance = 2 * pivot – lowest price
  • Resistance = pivot + high – low
  • support = 2 * pivot – maximum price
  • support = pivot + low – high

What is a “core position”?

A “core position” is a position that is opened in the direction of the daily trend. It is practically the “front ship” of all daily positions and is intended to exploit the daily trend as far as possible. After a market analysis and the definition of the most probable daily trend, an entry is sought for the opening of a “core position”, if possible by breaking out of an entry formation. If a “core position” is closed again after its opening by reaching the stop price, it is effectively out of the market and consequently a trader will only focus on short-term intraday positions for that day afterwards, because the timing or even the basic orientation of the “core position” was wrong. However, if a “core position” goes into profit, the stop price is pulled up to the initial price as quickly as possible, so that it can no longer produce a loss. From then on, a stop price adjustment can then be “generous” or “restrictive”, depending on the CRV perception. It is advisable to close a position if (a) the expected and analytically defined price target of the day has been reached or (b) a sustained impulse exhaustion or impulse reversal is imminent and completed. In addition to an entered “core position”, it is advisable to enter into further day trading positions which are traded along with a “core position” and thus hedge or even leverage it. As a rule, a “core position” is closed out before the close of trading at the latest.

What good are resistances and supports really?

First of all, we want to define what resistances or supports really are:

  • Resistances (supports) are characterized as areas where there is a higher concentration of supply (demand) and thus the balance of power against demand (supply) is selectively changed in favor of supply (demand). Resistances (supports) thus “disturb” the “flow of things”, here the opposite side of the market is formed “to counterattack”.
  • Resistances or supports are areas in which the probability that intact price movements will at least stumble, if not be reversed, is highest. Resistance and support are the results of real development processes in the market and are the result of emotional activities of market participants.

In this case, “emotional activities” means in concrete terms that resistances or supports are usually price levels that were negotiated in advance, which were followed by a sudden impulse reversal, which led to some position imbalances at or near this level. This means that resistances are characterized by open buy positions at or near this turning point, which slid into negative territory with the subsequent price decline. In the case of support, at the turning points of the price trend, there will consequently be supply-side imbalances, which will go into the red as the price rises. Every buyer now becomes a potential seller and every seller now becomes a potential buyer who is emotionally more tense the deeper the position slides into the imbalance. If the price repeatedly approaches a previous impulse turning point, the market participant on the opposite side becomes active, whose position was previously in an imbalance and who now has a chance to get out of this position.

Thus it should become clear that the origin of a resistance or support is to be explained in real position imbalances and not in the fact that possible lines can be applied there.

Supply or demand overhangs, which can be defined from positional imbalances, can be classified as relatively “reliable”, because there are buyers or sellers in the market who have “pain” with their position and therefore want to close their imbalances. In contrast, market participants who position themselves “without emotional distress” at such marks are considered “unreliable”, as they could delete their order at any time, while orders to close position imbalances usually remain consistently in the market.

This leads to the following follow-up question:

Are trend lines as important resistances and supports in day trading as horizontal lines?

No, it’s not them. They cannot be, because trend lines cannot be explained by positional imbalances. Sometimes trend lines run in areas that were not traded in advance and therefore cannot be positional imbalances. Consequently, only “unreliable” suppliers or buyers position themselves on trend lines (if at all). As old charts from the 30’s and 40’s of the last century confirm, resistances and supports, which could be explained out of imbalances, proved to be comparable to today’s chart technical hurdles. Trend lines, on the other hand, hardly played a role as possible resistances or supports at that time. Only with increasing popularity of the trend lines, their effect as support or resistance increased, which shows that these signal lines hold, because they are “recognized” by market participants and are used for order placement. Consequently, the more obvious they are in the chart, the more important they become.

How long do resistances and supports remain valid?

A resistance or support remains “reliable” as long as a position imbalance remains in the market. If this is “eliminated” by pulling a stop price, because the price has either gone too far (and the pain has become too great for the player) or has simply been in the market for too long for anyone else to maintain their position imbalance at that level, a resistance or support loses its “reliable” orders and thus increasingly becomes just a point of reference.

There are fundamental findings that resistance and support in institutionally dominated markets lose their function as price hurdles earlier and more quickly than in markets that are primarily dominated by private investors. This is due to the fact that the institutional side reacts more quickly to imbalances and consequently closes out imbalances more quickly and consistently than a private investor does. Statistically speaking, the latter holds on to “lazy” positions for longer, formally holds on to them and is still in the market after months or years and becomes active when the price moves back close to this mark.

Consequently, it is pure nonsense to speak of sustained support or resistance in large index markets (which are usually institutionally dominated), if by this one means brands from which the price has already moved several percent or which are already months (or even years) old. I know an old analysis where the Nikkei 225 was defined as a support at a price level in the press that had not been traded for years and from which the price had already temporarily moved away by a high double-digit percentage. One must seriously ask oneself here: who should have entered a selling position here years ago, in order to let it run massively against itself over years, in order to cover it sometime again with plus / minus zero? Complete nonsense.

Are there fixed rules how to apply resistances, supports and trend lines in a chart?

Yes and no. Tom de Mark once developed a set of rules for determining and applying trend lines, resistances and supports. Here it is not about applying corresponding lines at the respective extreme points, but rather where as many intersections of a trend as possible occur. He justifies this approach by the fact that not all potential positional misalignments lie exactly on one plane, but are placed “around a level”. Consequently, he looked for a possible mean value of the range within which the positional misalignments (which define resistance or support) could primarily lie.

Statistical tests show, however, that no “better” supports or resistances can be found with this method. Rather, we consider it irrelevant which approach is used to apply resistance, support or trend lines. What is important is that the same approach is always used to get consistency into the analysis.

Do resistances and supports in short-term chart windows have the same meaning as in longer-term chart windows?

The importance of resistance and support rises or falls with the importance of the respective time window in which it occurs and which ones are acted upon by as many actors as possible. Thus, it can be clearly stated that corresponding marks in larger time windows always occur in the smaller time windows as well, but never the other way round, all resistance or support can be derived from small chart windows in the large time windows. Consequently, we attach greater importance to the chart marks in the daily and hourly charts than in the 5 or 3 and 1 minute charts.

Which chart type is “the best”? And which time window should I trade?

A chart is a graphical representation of the price development of a commodity traded on the stock exchange. There are basically two types of charts:

  • The time-dependent charts, which are displayed on the basis of a tick, in minutes, in hours, in days, in weeks, in months or in years. A time-dependent chart is a way of displaying the course of a price, in which each price is plotted on a price/time scale depending on when it was made.
  • The second display option is the time-independent chart. Here, the time of price formation is not taken into account, only the degree of change of a price compared to the previous price.
  • Charts basically represent so-called “stimulus-response patterns” of market participants, and are thus intended to show the change in the general supply/demand relationship in the market over a certain period of time (time-dependent charts) or at certain price levels (time-independent charts). While the former reflect an overview of the market development in predetermined time sequences, the latter are particularly suitable for finding superior and inferior resistance and support levels.

Among the most well-known time-dependent chart models are the line chart, the bar chart and the candlestick chart. The best known time-independent chart model is the point & figure chart. Furthermore, the three-line breakthrough chart, the kagi chart and the reko chart, three display methods of the old Japanese analysis tradition, are also included.

Consequently, it becomes clear that there is no really “best” chart. Every form of presentation, like every indicator, has its strengths and limitations. Consequently, you need to be clear in advance about what information you want to filter out of the chart in order to make investment decisions. Consider a chart like a battlefield map. It should give you as much information as possible, but also not overload you with information, which would impair clarity.

We prefer the candle display, as it allows you to quickly grasp a lot of information at a glance. But be assured that every representation has its weaknesses and limitations with regard to its expressiveness, so that the preferred type of representation must be searched for individually.

Which day trading premium services are available at day-traders.net?

Day-traders.net currently offers at least three noteworthy premium services, which basically focus on day trading.

Conclusion

I hope that this overview of the most frequently asked questions about day trading could answer the respective topics in detail and exhaustively. Further questions can be asked in the comment function below. On day-traders.net articles are published in addition again and again approximately around the topic Trading and/or in particular Daytrading.


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