Stock Trading

Will stock always go up and down effectively netting gains and losses or can it really make money for you? or do you have to be an active daily trader to make the money? Can you please explain?

I would suggest that your question is wrong. If you want to lose money, the normal non-trained person does not have the time or the discipline to be a good day trader. So long term investing in the stock market is generally the best way to go.

Now the question comes, do you want to do the research to pick good companies. This can be a time consuming and long project. There are tons of good books out there. Authors that I would suggest Benjamin Graham and James P. O’Shaughnessy.

Now a much easier way for the average investor is to buy mutual funds. If you want to be very secure for the long rule buy index mutual funds. Go to Vanguard, Fidelity, T Rowe Price and look for index funds. If you want a little more action start reading in Yahoo Finance or Smartmoney.com and read up on the different types of mutual funds. Yahoo has a decent mutual fund screening tool.

The trick of all of this is education and learning.

I know that you should not make more than 3 trades in 5 days. Would you be able to buy a stock on Monday, sell on Monday and on Friday buy again and sell on Friday again?

Any other advice about day trading would be greatly appreciated.

The rule is 4 or more day trades within five business days.
Don’t think in terms of a week. If you make 4 day trades within any 5 consecutive business days, you are designated a pattern day trader.

Once you obtain this designation you must have a margin account and maintain a $25,000 minimum balance.

Also this is SEC rules. Your broker has no choice.

If I have less then $25,000 in an account, what is the most I can day trade without the accounting being called a day trading account?

you cant make more than 3 day trades (buy and sell the same stock within the day) over any 5 trading day period.

I live in an apartment and I day trade for a living. Do I need to get a business license?

You would technically be considered a small business…

So, you would pay taxes like a small business.

You can write off pretty much everything you use to help you day-trade.

As far as registering for a business license, no.

But, you would file your taxes on a Schedule D.

Edit: Anyone that pattern day-trades for a living (primary occupation), must file their taxes as a small business. I’ve been doing it since I was 20, does the negative response really need to see my tax returns??

I am already an investor in the stock market but wish to be a day-trader of the financial markets using spread betting. What I would like to know is what do I need to begin, i.e. what do I need to know if I am to be successful at it and make money on a consistent basis? Please help/advise with hints and tips. Thanks.

here are some helpful tips:

1. Actual trading is a lot different to paper trading.

2. Whilst you expect trades to sometimes hit your stop loss, it is extremely frustrating when they do.

3. It is difficult to go against your gut instinct and stick to your spread betting strategies.

4. Extremely glad I started small!

5. Even though you set your entry level and stops to manage your risks, you can always lose more if the stock opens above or below or even gaps during the day.

6. This is harder than I thought it would be.

7. Setting up many trades at the weekend and only 1 or 2 get executed is frustrating. Seems like all that hard work has
gone to waste.

8. When you have lost on a few trades I sometimes hope that I don’t get another contract note to inform me another trade has been executed.

If I don’t use a margin account, am I still at risk of being labeled a "pattern day trader" if I do 4 or more day trades in a 5 day period? I only intend to use cash to purchase stocks.

Pattern daytrade applies to all accounts. If you have under $25k in your account you are prohibited from doing more than 3 daytrades per 5 day trading rolling period. If you make 4 daytrades in this period you will be red flagged as a patern daytrader and must bring your account to $25k within 5 days. If you don’t then you will be restricted from opening new positions for 90 days or until your account meets $25k minimum balance whichever comes first.

It applies to all accounts even if you have more than $25k.
If your labeled a patern daytrader and lets say you don’t make any daytrades for 2 months and your account falls below $25k. You will still be restricted from opening new positions until you bring it back to $25k. In other words to clear yourself of a patern daytrader designation you must not make any daytrades what so ever for 90 straight days.

Some traders make a min of 1 buy/sell trade once a day. With commissions fee’s of even around 8 bucks, We’re talking about 320 a month if you just buy and sell one stock a day…..

In one year, you’re talking about 4000 dollars. Let’s say your capital is around 25k.

that is a 16 percent decrease in capital assuming you you broke even on all your trades for the year…

If you want to day trade an minimize commission fee’s your better off working for a brokerage firm. Even if you trade daily you don’t just buy an sell the same day usually you hold a day or so before you sell. Right now day trading might seem profitable because the market is so volatile, but you better off just holding.

Does it matter how many stocks I buy in one day if i I don’t sell more than one on the same day?

It doesn’t matter how many stocks you buy, you should not sell ANY within the same day.

I know very little about the stock market, but I am also reasonably intelligent and could learn it with the right tools. What is a good way to get started? I see infomercials that sell software that supposedly analyzes the market non stop throughout the day, but I’m always cynical of these too good to be true infomercials. Can anyone give me some insight and advice on this?

You need to open a brokerage account and start trading on a longer term basis. Then you can shorten your time frame if you want. Day trading is no way to learn because there is no time for mistakes.

Some people do make money, but most don’t because they don’t do proper preparation. Would you let someone do surgery on you because he was "reasonably intelligent and had the right tools" or would you expect him to have gone through years of training. Day trading is a profession like any other and requires preparation.

If you are prepared to risk thousands of dollars, maybe you will risk a much smaller amount, plus some of your time.

First, read —
“Market Wizards: Interviews with Top Traders” by Jack D. Schwager
The New Market Wizards: Conversations with America’s Top Traders by Jack D. Schwager
These will give you a window on successful traders who have really made the big time. From these, you should learn that trading is personal. These people are successful, but took vastly different routes to get there.

Then read —
Trade Your Way to Financial Freedom by Van Tharp
You should learn that trading is not about hot tips and secret formulas.

Then read —
Trend Following: How Great Traders Make Millions in Up or Down Markets, New Expanded Edition, (Paperback) by Michael W. Covel (updated edition not required)
The Complete TurtleTrader: How 23 Novice Investors Became Overnight Millionaires by Michael W. Covel
From these you will learn how the market really moves.

For reference —
Getting Started in Technical Analysis by Jack D. Schwager
or, if you want to jump in the deep end
Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy

What benefit (profit) does an institution’s head trader reap from trading on margin, selling short and buying to cover simultaneously?

In the United States, you are not allowed to "reserve" a borrow for a stock. So, suppose the borrow for a stock is tight and you want to lock it in. The way you can do that is by "shorting against the box". You sell the shares short (thereby locking in your borrow) and buying the stock against (so as to not have an economic position). When the price is right for you to short, you can sell your long position and not have to worry about whether the stock borrow is currently available.