Day Trading Blog by Markus Heitkoetter

Why You MUST Stay In Contact With Other Traders

Markus — Thu, 30 Oct 2008 14:40:27 -0400

Today I finally found some time to read Adrienne Laris Toghraie's excellent newsletter "The Discipline Perspective of Trading". Adrienne is a Trader's Coach and has taught hundreds or maybe even thousands of traders emotional control and discipline.

In the latest issue of her newsletter, Adrienne talks about "Excellence Versus Mediocrity in Trading". She explains the relationship between excellence and competition. In a nutshell: Without competition you won't be able to achieve excellence.

The Power Of Weekly Profit Goals In Day Trading

Markus — Mon, 27 Oct 2008 13:50:08 -0400

For many years we have been teaching the power of weekly profit goals in our Day Trading Coaching Program.

We help our students to determine a weekly goal that is attractive for them and realistic. Once this goal is achieved, we tell them to stop trading for the rest of the week and start fresh the next week.

At first glance this sounds weird and traders ask me: "Why should I stop trading when I am ahead? If I keep trading, I will make more money".Ã‚Â

Let me show you proof:

This morning I received a trading log from a trader who has been taking 138 trades in the past 4 weeks. Unfortunately the past couple of weeks have been challenging for him: he realized a loss of $1,365.

How Many Markets Should You Trade?

Markus — Wed, 22 Oct 2008 16:09:32 -0400

This morning I received an email from Michael in Australia. He has been following our Simple Day Trading Strategy for trading multiple markets and wrote:

"I only trade the e-mini S&P".

Here's my answer: BIG mistake!

Never trade only one market. There are some times when a market is trending and easy to trade, and there are times when markets are just moving sideways. Take a look at the 5 min chart of the e-mini S&P on 10/20/2008:

Let Your Profits Run...

Markus — Fri, 17 Oct 2008 11:54:29 -0400

In our Simple Day Trading Strategy I use a stop loss and a profit target based on the volatility of the markets. This means that I am using a larger stop loss and profit target in more volatile markets and a smaller stop loss and profit target in quiet markets.

This morning I received an email from a trader asking me:

"Why do you use profit targets? I heard that you should let your profits run."

Using a profit target will help you controlling your emotions. Just think about it: When you exit a trade, it is usually too early or too late. You won't be able to pick tops and bottoms, at least not consistently.

Our Live Day Trading Webinar - A Complete Disaster?

Markus — Thu, 16 Oct 2008 22:00:26 -0400

Today we conducted a Live Day Trading Webinar. It was really exciting: We received more than 900 registrations for this event.

The agenda was simple: In the first 30 min I presented our Simple Day Trading Strategy and at 9:30am EST, when the markets opened, I would use this strategy to trade several markets live. Sounds like a great plan.Ã‚Â

But before the webinar I was a little bit worried:

If I achieved excellent trading results, then most of the participants would wrongly assume that day trading is easy and jump right into it. It's human nature! If I would make $1,000 in the first 30min of trading, then it would have been difficult to teach aspiring traders that trading is a profession and needs to be taken very seriously.

Finding Trends And Trading Them

Markus — Tue, 14 Oct 2008 20:51:36 -0400

Hi guys,

In this short video I discuss briefly how to find trends. The video was recorded a few weeks ago at the Forex Trading Expo in Las Vegas:

http://www.moneyshow.com/video/video.asp?t=3&wid=2605

Don't expect too much from this short video. I just posted it since many traders asked me to post an updated picture of me. Well, here you go!

Enjoy and leave your comments about this handsome guy.

The Sky Is Falling - Time To Panic, Or Is It?

Markus — Mon, 13 Oct 2008 19:03:05 -0400

No doubt: The markets are crazy!

On Friday the Dow Jones Index dropped 700 points and then rallied back 900 points. Today the markets opened with a huge gap, and after a lackluster morning the Dow Jones then rallies in the afternoon, closing almost 1,000 points higher than Friday.

Does this scare you?

Here's are some great thoughts on what to do from Glen Larson, President of Genesis Financial Technologies:

The $700 Billion Bailout Plan - A Good Idea?

Markus — Fri, 03 Oct 2008 11:53:45 -0400

These days you hear a lot about the $700 Billion Bailout Plan. Actually, I just heard that is has been renamed to "Rescue Plan" or "Economic Stabilization Plan". You can't escape the discussion: It's all over the news, the internet and you might even receive emails asking you to contact your representative to vote for or against it. It's getting confusing, and many people wonder if investing $700 billion to rescue the US Financial System and ultimately economy is really a good idea.

Let me put it in perspective:

$700 Billion sounds a lot, but in 2008 the US Treasury Department and the Federal Reserve already committed more than $900 billion dollar to bailouts, but since they occurred throughout the year you might not have noticed the magnitude.

Here's the list:

"Does The SEC Ban On Short-Selling Stocks Affect Your Day Trading?"

Markus — Thu, 02 Oct 2008 10:55:36 -0400

As you know, a few weeks ago the Securities Exchange Commission (SEC) temporarily banned the short selling of a large number of stocks.

Thie morning the SEC announced that it has extended its ban through October 17, 2008.

How does that affect our day trading? - Not at all.

Here's a short articles that Rockwell Trading's Head Coach Mark Hodge wrote on that subject last week:

As the markets digest the recent events on Wall Street, federal intervention and regulation have been used to stimulate an environment for growth and recovery. One of the most recent policies to be introduced is the SEC's Short Sale Order, but how does this affect you?

Black Monday Part 2? - Or Even Another Great Depression?

Markus — Mon, 29 Sep 2008 21:52:26 -0400

No doubt: Today was a black day for stock markets all around the world.

The Dow Jones Industrial Average Index fell 7% and the S&P 500 dropped by 8.8%.Ã‚Â

The Dow's declines were the largest since the September 11 attacks, and the S&P 500 posted its worst day since the Black
Monday in 1987.The media jumped on the news and did not hesitate to draw comparisons to "Black Monday 1987", "Stock market crash", "Crash of 1929" or even "The Great Depression".

But is it really that bad?

Let's look at the facts:

Before the US stock markets opened this morning, bad news hit the wire: The financial crises reached the Old World. Three EuropeanÃ‚Â governments bailed out Belgium bank Fortis, the U.K. nationalized mortgage lender Bradford & Bingley and Germany's Hype Real Estate Holding.Ã‚Â

Day Trading in Today's Volatile Markets

Markus — Mon, 29 Sep 2008 16:30:51 -0400

Hi everyone,

Two weeks ago I attended the Forex Trading Expo in Las Vegas and conducted a seminar on how to trade today's volatile markets. Thanks to the folks at Intershow this session has been recorded and is available for FREE.

If you would like to view this recording, just click here.

And as always: Leave your comments and let me know if you enjoyed it.

How Many Day Trading Strategies Do You Really Need?

Markus — Thu, 25 Sep 2008 12:24:54 -0400

One of the biggest mistakes of novice day traders is to follow only one trading strategy.

Let me explain:

A trading strategy is either a trend-following strategy or a trend-fading strategy.

A trend-following strategy means that you buy when the market is going up and you sell when the market is going down. You follow the acumen of Jesse Livermore, the world's greatest trader, who once said: "Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend."

What You Should Know About Forex Trading

Markus — Wed, 24 Sep 2008 16:40:05 -0400

Forex Trading has become extremely popular these days. Unfortunately most Forex traders have no idea what forex trading is all about. So let me explain.

Why do currencies move?

You need to understand that Forex Trading is all about interest rates. If you are trading the EUR-USD, then you are BUYING the Euro currency and SELLING the US Dollar. In Forex trading, accounts are settled every day at 5:00pm ET, and at this time you EARN interest rates on the currency that you bought and PAY interest rates on the currency that you sold.

Let me give you an example:

The Importance of Rules in Trading

Markus — Thu, 18 Sep 2008 12:02:45 -0400

Last weekend I met Adrienne Toghraie at the Forex Trading Expo in Las Vegas. Adrienne is an internationally recognized Trader's Coach, focusing on emotional control and discipline. As Adrienne says: "You cannot trade a proven system without discipine".

In her latest newsletter Adrienne talks about the importance of rules in trading. Here's what she says:

Although many traders stumble along without rules, anyone who succeeds at trading has them. Rules are the foundation of self-discipline and self-discipline is the real Holy Grail of trading. Some of the best traders would argue that they trade by the seat of their pants and earn a very good living doing it. Yet, if you were to sit these people down and ask them what criteria they have for entering and exiting a trade, they would eventually come up with their answers and those answers are their rules.

Day Trading and Black Jack - My Plan To Bust The Casinos

Markus — Mon, 15 Sep 2008 17:58:20 -0400

This weekend I was invited by Intershow and the CME Group to speak at the Forex Trading Expo in Las Vegas. I've only been to Las Vegas once before, and all the gambling and casinos fascinate me.

I don't gamble. As a trader, I want to control my risk and - even more importantly - have an edge. If you are playing roulette or the slow machines, you definitely don't have an edge, but what about Black Jack? As far as I know Black Jack is the only game with changing probabilities throughout the game, so I asked myself: Is it possible to apply solid trading techniques to the game to gain an edge?

When I am playing the money game, I am playing it to win, so I approached my "Black Jack Adventure" in a systematic way:

1.) Learning the rules

"How Do You Come Up With These Trading Strategies?"

Markus — Wed, 10 Sep 2008 11:56:06 -0400

Over the past couple of years I have been conducting countless webinars. In many webinars I presented a simple day trading strategy based on Bollinger Bands and MACD.

Many traders asked me if they can watch me trading this strategy LIVE, and therefore we opened our Live Day Trading Room two weeks ago. We have been trading this strategy every day, and haven't had a losing day thus far. As one of the traders in the room said: "This strategy is a money-making machine!"

Today one trader in the chat asked me: "How do you come up with these trading strategies?"

Actually, I am doing exactly the same things that I have been teaching for years:

Warren Buffet Is Not A Stock Trader

Markus — Sun, 07 Sep 2008 11:12:55 -0400

On September 29, 2008 a new book will be released called "The Snowball: Warren Buffett and the Business of Life".Ã‚Â

Warren Buffet is a legend. Before he gave almost his entire fortune to charity, Warren Buffet was the richest man in the entire world. In 1962, when Buffet began buying stock in Berkshire Hathaway, a share cost $7.50. Today Buffet is Berkshire' chairman and CEO, and one "Class A" stock is worth more than $118,000.

No doubt that Buffet is a genius and many try to follow his advice to become rich.

But there's a common misconception:

Buffet is NOT a stock trader.Ã‚Â

He does NOT invest in stocks!Ã‚Â Ã‚Â

Buffet invests in companies.

Let me explain. Warren Buffet says: "If, when making a stock investment, you're not considering holding it at least ten years, don't waste more than ten minutes considering it."

The High Cost of "Free"

Markus — Wed, 03 Sep 2008 12:49:52 -0400

Did you know that "free stuff" can actually be quite expensive?

Let me explain:

A few days ago we started our Live Trading Chat Room. In this room we are trading several markets using a simple day trading strategy. In order to trade this strategy, you need to have a charting software that fulfils the following three criteria:

The Holy Grail of Day Trading

Markus — Tue, 26 Aug 2008 22:46:16 -0400

Do you know the story of the Holy Grail?

In Christian mythology, the Holy Grail is the dish or plate that Jesus used at the Last Supper. It is said that Jesus' blood during his crucifixion was caught in this vessel. It's supposed to possess miraculous powers. The search for this cup became the principle quest for the Knights of King Arthur - and the main theme of the movie "Monty Python and the Holy Grail".

When it comes to trading, the Holy Grail is loosely interpreted as a trading system or strategy that can't fail. Many aspiring traders devote countless hours and dollars to the quest of "The Trader's Holy Grail".

Why am I telling you all this?

Because I don't want YOU to become one of these traders. The "Modern Knights of King Arthur" fall into the following trap:

Where Will The Dow Be At The End Of 2008?

Markus — Sun, 24 Aug 2008 21:31:54 -0400

Today I received an email from an investor with the following question:

Markus, right now the Dow Jones Index is at 11,600.
What do you think: Where will the Dow Jones be at the end of the year?

I thought I'd share my answer with you. Here's what I wrote:

Raj, to be honest: Predicting the Dow for the end of the year is like throwing a dart.

Most traders would be happy if they could predict the Dow for a couple of minutes or a couple of hours.

I assume you're asking this question because you need this information for your investment decisions.

Keep it simple:

1.) Buy when the market is going up and sell when the market is going
down.

Great Tips For Traders

Markus — Fri, 22 Aug 2008 11:15:04 -0400

This morning I received a newsletter from Glen Larson, President of Genesis Financial Technologies. Glen and I have known each other for years, and I always enjoy his insights.

In this issue of his newsletter he had some great tips for traders that I would like to share with you.Ã‚Â

Here's what Glen wrote:

The Art Of Growing A Day Trading Account - Part 2

Markus — Tue, 19 Aug 2008 00:37:38 -0400

$72,400.

That's the correct answer.

If a trader would be able to consistently make $100 per week per contract, and applied proper money management techniques, then his trading account would grow from $10,000 to $72,400 in only two years.

Here's the spreadsheet:

Too good to be true? Impossible?

For most traders - unfortunately yes.

There's nothing wrong with the logic: Even if a trader would not achieve his goal of making $100 per week and miss it 2-3 weeks in a row, it would simply take a month longer to grow his trading account to $72,400.

The Art Of Growing A Day Trading Account - Part 1

Markus — Sat, 16 Aug 2008 16:36:22 -0400

This week I received an email from a trader, who was very unhappy with his trading results:

He has been trading a $10,000 for 6 weeks and made $600 in profits. He was disappointed, because he thought he could make more money with trading. Just as a background: This trader is day trading the e-mini S&P, and he has been trading 1 contract.

$600 in six weeks means that he made $100 per week. That's really not a lot, is it? He could be flipping burgers at McDonald's and make more money, right?

Wrong!

When it comes to day trading, it is all about consistency. This trader is already making a fortune, he just doesn't know it yet. Once he learned how to make consistent profits with day trading consistently - even if it is just $100 per week - he need to apply sound money management strategies and achieve stellar results.

Let me run it down for you:

Day Trading At The Beach - Can It Get Any Better?

Markus — Mon, 11 Aug 2008 11:59:10 -0400

There's a lot of hype around day trading. Sneaky vendors make you believe that you can trade whenever you want and whereever you want.

You probably have seen this picture a hundred times: You are sitting somewhere at a beautiful beach and make tons of money with day trading:

Yeah, right!

I just returned from a vacation on the beach. Let me tell you: There's no way that you can actually trade on the beach for the following three reasons:

Will Japan Crush The US Economy?

Markus — Fri, 01 Aug 2008 22:49:27 -0400

Today I received an interesting email:

"Hi Markus,

My research indicates that Japan is the single largest investor in US Treasury securities to the tune of some 25% of a foreign holder. In view of the the fact that the invasion of Iran is pending & a possible oil price rise to $250/B ( CEO Gazprom) what is the likelyhood that Japan will call for early redemption?"

My answer: I don't know. I am a technical trader and not a fundamental analyst.

The main difference between a fundamental analyst and a technical analyst is as follows:

The fundamental analysts looks at micro- and macro-economic data to determine whether the price of a financial instruments is overvalued or undervalued. As an example, he might look at the following data when analyzing a stock:

Day Trading and Pivot Points

Markus — Thu, 31 Jul 2008 21:04:15 -0400

Tomorrow I am conduction an Open Question-and-Answer Session. I invited 40-50 traders and asked them to submit their questions in advance so that we can use our time tomorrow in the most efficient way.

I received more than 20 questions, and one of the frequently asked question is

"How do I use Pivot Points in my day trading?"

Let's first of all answer the question "What ARE Pivot Points?"

When talking about Pivot Points, most traders refer to the so-called "5-point-system". This system uses the previous day's high (H), low (L) and close (C), along with two support levels (S1 and S2) and two resistance levels (R1 and R2). The pivot points are calculated as follows:

If You Are Day Trading, You Must Watch This Movie

Markus — Wed, 30 Jul 2008 21:42:27 -0400

After finishing my blog post yesterday evening I kicked back and watched the movie "21". This is a great movie, and it has some fantastic lessons for day traders.

This movie is inspired by the true story of MIT students who mastered the art of card counting and took Vegas casinos for millions in winnings.

The main character of this movie, Ben Campbell, is looking for a way to pay for tuition into Harvard Med. His brilliant statistic professor, played by Kevin Spacey, reveals a plot in which he and some of the most giftes MIT students try to bust Las Vegas by counting cards at the Blackjack table. After some initial hesitation Ben decides to join the crew.

In a key scene Mickey, the statistic professor, asks Ben: "Are you in?" Ben answers: "Yes, I am in."

Then Mickey looks Ben straight in the eyes and says:

Here's The Dumbest Mistake You Can Make When Day Trading

Markus — Tue, 29 Jul 2008 22:16:18 -0400

Unless you are a compulsive gambler, your goal is to make money with day trading. And every day there are people who make money. But the there are even more people, who give the money right back to the market.

Don't make this mistake!

Once you made money, your main goal must become to protect your profits.

Let me give you an example: This morning we received an email from a student who told us that he did two great trades yesterday and made more than $1,000 per contract. He was very happy and wrote: "I'm done trading for the week". However, this morning he was back in our daily live chat, and instead of taking the week off and enjoying the profits he made, he entered the next trade and sure enough: He gave back some of his profits.

Watch These Support and Resistance Levels When Day Trading

Markus — Mon, 28 Jul 2008 22:45:11 -0400

In my opinion the two most important support and resistance level for day traders are the previous day high and the previous day low. Just look at the charts of the past three trading days and you see what I mean:

The above chart shows 15min bars of the e-mini S&P. The red lines are the previous day high and low.

Do you see how prices move down to the previous day low on 07-25-2008 and then bounce back?

We saw a similar behavior on 07-23-2008:

Day Trading The Grain Markets - Watch Out For Limit Moves

Markus — Mon, 28 Jul 2008 11:44:32 -0400

On August 1, 2006 the agricultural futures started trading side-by-side, and a few months later the volume in the electronic grains surpassed the volume of the pit traded contracts.

The volatility and nice trends attracted many traders, and today day trading the grains is more popular than ever.However, when trading the grains you should keep in mind that these markets "lock limit" when there are strong moves.

A lock limit occurs when the trading price of a futures contract
arrives at the exchanges predetermined limit price. At the lock limit,
trades above or below the lock price are not executed. As a trader you want to avoid these situations, because especially in 2008 there were several days when the grain markets were locked limit. If you are in the wrong side of a trade when the markets are locked, the consequences can be disastrous.

Here's an easy way to calculate the limit level to avoid being trapped in a trade:

What Day Traders Can Learn From Sesame Street

Markus — Fri, 25 Jul 2008 11:52:58 -0400

I am getting up at 7:00am in the mornings. While enjoying a coffee I usually join my kids in the living room watching Sesame Street. They LOVE the show, and I am always amazed what stars show up there. This morning they had the Dixie Chicks performing.

Anyways, I am sitting there on the couch with my coffee in my hand and try to wake up. On the TV a kid tried to learn how to skate, but after 2-3 steps it falls down. The kid maintains a positive attitude and says "Practicing tomorrow I'll be better than today".

The next day the kid manages to take 3-4 steps before falling down and says "Practicing tomorrow I'll be better than today."

Will Uncle Sam Eat Your Day Trading Losses?

Markus — Thu, 24 Jul 2008 00:00:00 -0400

Today was an exciting day: We hosted a webinar for tax guru Robert Green from www.greentradertax.com. More than 400 trader registered for this event, and Robert delivered an awesome webinar.
(If you missed it, you can request the recording of the webinar here)

Please understand that I am not a tax professional, and you should really consult with Robert to take full advantage of all the wonderful things you can do if you qualify for Trader Tax Status, but there's one thing that really stands out:

The concept of "Net Operating Losses".

A Day Trading Strategy With A 90% Winning Percentage?

Markus — Wed, 23 Jul 2008 00:00:00 -0400

Today I received an email:

Hi Markus,

I bought your "The Complete Guide To Day Trading" book. In your book you said you have a setup that produce 90% winning trades. What is your setup for day trading?

It seems that this reader misunderstood what I wanted to say. I used this as an example for a highly curve-fitted trading strategy that will fail in real trading.

Here's what I say in the book: