Getting Started Day-Trading

By Richard Ilczyszyn ISSUE 810 | October 2009

If you are new to futures trading and are thinking about day-trading, it’s important to establish a plan of action even before you open your account. Many people have found success with this approach, but there are a few things to pay attention to first.

Setting up a Business Plan
Each person’s situation is unique, but no matter how you plan to trade, you should treat your trading like a business. If you are going into business for yourself, you need to set up a business plan. You can’t consider this a get-rich-quick scheme. You’ve probably heard statistics showing the majority of small businesses fail within the first six months, and futures trading is probably not an exception. To give yourself the best chance of success, I recommend you have a strategy in place first, and of course, adequate capital. If you are undercapitalized, you aren’t going to be able to stay in the game if you lose everything on your first few trades. Like any business, you often have to take some losses in trading futures until you learn the ropes.

I also recommend you have a coach, or mentor. I have seen a lot of individuals open an account and start buying and selling with no real strategy--and no support. Outline your goals, and how you plan to get there. Make sure you have the proper tools you need to trade, including market data, research, and the right trading platform to fit your needs. A professional can offer you advice getting started, and help give you some direction when you hit some bumps in the road.

Pick Your Market
There are probably 50 different futures markets you could potentially day-trade. I recommend you pick one market at first, and get comfortable trading it before adding other possible markets. CME Group E-mini S&P futures are popular with many day traders, so that’s a good place to start. I also have clients who day-trade crude oil, although it can be more volatile. Each tick value in the E-mini S&P is $50, and the margin is $5,625 (subject to change). The average range of this market per day in August was about 18 points, which represents a move of about $900. There are typically moves up and down within the day’s range, there are plenty of opportunities for day traders.

Lind-Waldock will allow you to day-trade at half the required margin. As you MUST be out of your position at the end of the day, I recommend you work with a professional such as myself if you’d like to do this. If you run into a snag or can’t closely monitor your position for some reason, there will be someone to help and keep an eye on your account.

How much capital do you need? That depends on which market you plan to trade and what your goals are, but I recommend starting with about $20,000 - $25,000 in your account. While you certainly can pursue day-trading strategies for less than that, one of the biggest mistakes I see new traders make is being overleveraged and undercapitalized. I recommend risking no more than 30 percent of your capital on any one particular trade.

Before you start trading, determine what your goal is in terms of potential profit, and how much you are willing to risk to (hopefully) achieve that goal. Be realistic. And don’t forget to include the costs of running your trading business, such as technological needs, data and other resources, fees and commissions.  

Prepare for the Day
Get into the habit of preparing to trade before the market opens. Scan the news. Print out the economic reports due out each day that may impact the market you plan to trade. Know what analysts are forecasting, too. Treat trading as an athlete would treat a competition. Prepare yourself mentally and physically before you trade. Explore various scenarios that could unfold in the markets, and how you will cope with them.

How you deal with losing trades can make or break you—in fact, it’s probably even more important than picking winners. Mental attitude is everything. If you’ve had a few bad days in a row, you are going to have trouble mentally pulling out of it. When you are in a negative mindset, it’s going to be a self-fulfilling prophecy and you’ll keep getting negative results. To be successful, see yourself as a winner, and act like a winner.

Stick to Your Plan
As mentioned, outline what your goals are in terms of your trading before you even start. If your goal is to generate $500 per day and you hit that number in the first 10 minutes of the session, quit. You’ve reached your goal, you are done trading. Many people feel if they just work harder, take more trades, and focus harder, they will be more successful. Generally, I’ve found it’s the opposite. If you force things, if you are staring at the screen, you can defeat yourself. Don’t turn a good day into a losing day because you are afraid you’ll miss an opportunity. There will always be another one.

Recap the Day’s Trade
When the trading session ends, your day doesn’t. Take a look at all your trades, your P/L and your time and sales. See which decisions you made, how you made them, and what resulted. Go back over your trading log and pick it apart; look for patterns that might improve your trading tomorrow. Maybe you should’ve gotten out of a trade sooner, or stayed in another one longer. It’s very important to keep your risk-reward ratio in line, so make sure each trade fits your chosen parameters. Don’t forget to include your trade costs when tallying up profits and losses.

Don’t be Greedy
You’ve heard that fear and greed drive the markets. Fear causes many traders to get out of a trade too soon, or causes them not to act and completely miss an opportunity. Greed causes traders to take too much risk, to stay in trades too long, and try to squeeze every dime out of the market. You will get burned by greed. Be honest with yourself. You won’t always be right about the market. As a strategist and former trader, I myself have had losing streaks where I would fight the market. I take some time to examine what happened, correct myself, and move on. If you have trouble pinpointing where you are going wrong or why, don’t hesitate to seek out the objective eye of another professional.

Take Losses When Necessary
Small losses can quickly turn into devastating events. Traders will often experience a string of losing trades, and get fed up when the market starts turning around again. Then they wind up staying in the next trade too long after the market starts moving against them, thinking the market will come back, eventually. Then it doesn’t—and they are forced to liquidate and have lost far more than they should have. Taking a loss should be just as easy mentally as taking a win. It shouldn’t be an emotional event, because you have your plan and you are sticking to it.

If my technical indicators tell me to sell at one point, I establish a short position. If the market breaks through another certain point that indicates it’s time to get out, I should get out. Remember, every trade doesn’t have to be a winner for you to be successful as a trader. If you are on the winning side 60 percent of the time, a little more than a coin toss, you can be successful as long as you let your winners ride and you keep your losses small and contained. It’s about managing your trades.

This is just a brief overview of some of the factors to consider when preparing to day trade, and doesn’t even scratch the surface. In future articles, I will examine more of the technical aspects of trading. I encourage you to contact me with any specific questions you have about this topic, or about the markets in general.

Richard Ilczyszyn is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 800-605-0095 or via email at rilczyszyn@lind-waldock.com. Follow Richard on Twitter at www.twitter.com/LWRIlczyszyn

Kristina Zurla Landgraf is editor of Lind eWire. She can be reached at editor@lind-waldock.com.

Futures trading involves substantial risk of loss and is not suitable for all investors.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

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