Day Trading 101: A Beginner's Guide to Day Trading Stocks

1. Introduction: Hey, everyone. Welcome to day trading one oh one, a beginner's guide to trading stocks. First, I want to say thank you for checking out this course. Put a lot of very valuable information in here, and I believe that it's going to help you become a profitable and successful trader. So before we dive into the course itself, I wanted to give a quick background on me and tell you a little bit about myself. So, first and foremost, again, my name is Travis Rose. I've been day trading for about five years now, a little bit over five years, actually, and I've been profitably trading for about three years now. I was very stubborn when I first started and I learned everything the hard way because of that. The hard way, of course, being by taking unnecessary losses, ones that I could have very easily avoided if I would have just followed the footsteps of other successful traders. In that mindset led me to want to create this course in the hopes that I would be able to help new traders avoid the mistakes that I made at a very affordable cost. And that's very important to me because I see other services and traders charging 500 or even $1,000 or more for their courses, you know, and that's just way out of the range for most new traders to be spending on their education. So that's why I decided to put this here on Skillshare because many people can watch this for free or for just a few dollars a month if you're signed up for Skillshare premium. And this course was created to build your foundation of market understanding and lead you to profitability. And what I mean by that is simply we're going to cover everything from the very, very basics, all the way up to the slightly more advanced strategies and techniques that I use as a full time day trader. All these things will come together and hopefully lead you to being someone who fully understands the way the market operates and being able to trade in it profitably. 2. What Are Stocks?: All right, so as I mentioned, we're going to start with the very basics, and we're going to start off here with what are stocks? A stock is a share in the ownership of a company representing a claim in the company's earnings and assets. Now, for the purpose of this course, there are going to be three main types of stocks that I'm probably going to mention within this. The first being small cap stocks. Small cap stocks are shares of companies with a relatively small market capitalization. Generally, these companies are going to be worth between $300 million and $2 billion. So to find a company's market capitalization, you can go through the company's SEC filings, if you'd like, or simply look at the stock on your trading platform, whether it's Robin Hood or E trade or Think or Swim, whatever it may be, and under that company's information, it's going to tell you the market cap. And that's really what this represents. So, generally speaking, again, small cap stocks are going to be worth 300 million to $2 billion, and the price of a single share of that stock is generally going to be below $10 per share. The next size up is mid cap stocks, and these are shares of companies worth between $2 billion and $10 billion. And then, of course, we have the large cap stocks, and these are shares of companies worth $10 billion or more. So, to give you an idea of what a large cap stock may be, it's going to be your stocks like Apple or Amazon or Facebook. These really well known companies that are worth hundreds of billions of dollars. Those are, of course, going to be large cap stocks. 3. What Is Day Trading?: So now that we know what stocks are and the main types of stocks that we're going to be talking about here in this course, let's talk about day trading, the main focus of this course. So what is day trading? Day trading is going to be the act of selling your shares within the same day that you bought them, taking advantage of the short term market fluctuations. Day trading differs from investing because investors typically hold their positions for a year or more. Day trading also differs from what is called swing trading because swing traders usually hold their positions for a few days, all the way up to a few months. Okay so keep that in mind throughout this course, if I mention investing or swing trading, generally, I just mean longer term positions being held for a couple of weeks, all the way up to a year or more. And of course, when we talk about day trading and the different types of strategies and techniques that we use as day traders, we're talking about simply buying and selling within the same day. 4. Day Trading Pros & Cons: So as a day trader, I wanted to share some of the pros and cons of day trading as opposed to longer term trading or investing. The first one I have here is unlimited profit potential. So this is going to be true for any kind of investing really because there is no limit to how much you can potentially make as a day trader or a swing trader or even an investor. But the reason I put this as a pro for day trading as opposed to longer term trading is because of number two, the opportunity to make that unlimited profit potential really within just a few hours per day. As a day trader on the East Coast of the United States, the market for me opens at 9:30 A.M. And most days, I'm done trading by 11:00 A.M. Just an hour and a half after I started. And many times I make $500, $1,000 or even more within that hour and a half period. The third pro of day trading is that you can day trade from anywhere in the world as long as you have an Internet connection. Pretty common misconception is that you have to be in the United States or even in Canada to day trade or to get involved in the United States market. That's not true. You just have to have the right broker that allows you to trade from wherever you're at, if you are an international trader. But as long as you have Wi Fi or some kind of Internet connection from wherever you may be, you can day trade. And that's a huge pro for people that like to travel, because if you're someone who travels often, you can still trade from wherever you're at in the world, as long as you bring your laptop or some kind of smartphone for you to trade with while you're there. The next pro we have here is that you can start with a much smaller amount of money. And the reason for this is pretty simple because we're trading stocks that generally have a lot of volatility, meaning they go up and down much more quickly than the average stock, you may be able to make 10% or more on your trade within just, you know, an hour, 2 hours of time as opposed to longer term trading, which many times to make 10%, it could take weeks or months or even years. So because of this short term profit potential, you don't need as much money to start day trading as you would to start trading longer term and making the same results that you would while day trading. The next big benefit to day trading here is that there is no risk dealing with overnight unknown catalysts because you do not hold positions overnight or over the weekend. So again, as a day trader, you buy and sell within the same day, you don't have to hold over the night or over the weekend and you don't have to worry about whether or not the company is going to release some kind of news or some kind of press release that may negatively affect your position overnight leading you to simply hope that your position is okay when you get up the next morning. You simply buy and sell within the market hours and then you're stress free for the rest of the night, ready to do the same the next day. And the last pro that I have down here is less competition. I put competition in quotes because as a new day trader, you're primarily going to be focusing on small cap to mid cap stocks. And these are stocks that generally have less algorithms, less hedge funds, less investment firms, less multibillion dollar banks competing in them. So cintutrading these lower priced stocks as opposed to companies like Apple or Amazon or Facebook, you're going to be trading against more regular humans like you and I, as opposed to these multibillion dollar firms and these, you know, high speed algorithms that can execute trades in 1000th of a second. And that's a huge pro day trading small cap to mid cap stocks because you don't want to have to compete against them. Now, with those pros in mind, let's go over a few of the cons here of day trading as opposed to longer term trading and investing. The first is that day trading is a little bit more mentally draining and mentally challenging than longer term trading. The reason is simple. Again, as we mentioned, there's a lot more volatility. As a day trader. You're dealing with ups and downs much more quickly, and because of that, if you're on the wrong side of it, it can be a lot more draining, and just in general, it's a lot more mentally challenging. The second one is that, of course, with the reward potential that there is with day trading comes more risk potential as well. So because you can make a lot of money in a very short period of time, if you're not careful and if you don't know exactly what you're doing, you can also lose money in a very short period of time. And the third con that we have here is that if you're somebody that plans on doing this full time, as a full time day trader, there is going to be no guaranteed income. So you can essentially think of it as a 100% commission based salary. So just like a real estate agent who doesn't make any money if they don't sell any houses, as a day trader, you don't make any money if you're not trading profitably and if you're not at the top of your game every day going into the market. But again, that's just a downside to having the unlimited profit potential that comes with being a day trader. 5. Buying vs. Short Selling: Now let's talk about the two different types of trades that you're going to be placing as a day trader. The first is what you probably already think of when you think of day trading or any kind of investing, and that is simply buying shares. So when you're buying, what you're doing is purchasing shares with the expectation of the stock price rising and the position becoming profitable. After you buy, you close your position by simply selling your shares. One thing that many people don't realize is that you can actually profit from a stock moving down. The way that you would do that is by short selling shares. So when you're short selling or simply called shorting, in many cases, what you're doing is selling shares with the expectation of the stock price falling in the position becoming profitable. After shorting, you close your position by buying to cover, which is often just called covering. So in both cases, what you want to do is buy low and sell high. But with short selling, you're simply borrowing the shares from your broker to sell first and then later on buying them back. Again, short selling is going to allow you to profit from a stock moving down. Don't worry. There are many strategies we're going to be talking about here and a little bit in the course that will make you understand when you should buy and when you should sell and also when you should short sell and when you should cover your short sale position. 6. What Is Technical Analysis?: So now that we know what stocks are, we know the different types of stocks. We know the pros and cons of day trading stocks as opposed to investing or swing trading stocks. And on top of that, we know that you can both buy and you can short sell to profit from both upward moves and downward moves in the market. Let's talk a little bit about technical analysis. Okay? So technical analysis is a type of analysis methodology for forecasting the direction of prices based on past market data, trends and patterns. This is the main type of analysis that you're going to do as a day trader, and that is done by most day traders. And then you can see down here we have this little chart example. And again, don't worry, we're going to be going over these types of trade setups and these little patterns in more depth in the near future. But I wanted to include this to show you a little bit about what technical analysis involves and how it can help you understand when you should buy and when you should sell. So if we're looking at this chart, you see that I have these white lines drawn on the chart, one below the price action, and one above the price action. And the price seems to follow perfectly within this nice little channel of lines. By understanding where you should draw those lines, you can then determine the best prices to buy and the best price to sell by simply doing some very basic technical analysis like we have here. 7. Chart Reading Basics (Chart Styles & Patterns): Technical analysis is, of course, going to involve reading the chart, and that's going to involve understanding the different chart styles and the different chart patterns that we see very commonly as day traders. So there are three main types of charts that we're going to talk about. And these are the three most common charts that you're going to see people using when they're doing their trading. The first chart is called a line chart, and it's very self explanatory. It connects a series of data points by a line. Over here on the right side of the page, we have an example of what a line chart looks like. Notice that these three charts that we have on the right side of the page are all the exact same stocked at the exact same time. They're just three different types of charts. They have the same overall movement, but they look slightly different due to the different types of chart styles being shown. The second chart that we have, and this is the one that I use most commonly, and we're going to get into why that is and how you can use these candlestick charts to better understand the price action and get a better technical analysis of the price action in the near future. But what a candlestick chart is is a chart composed of candles formed by the open, high, low, close of a given time frame. So again, looking on the right side of the page of these charts here, we have three different charts. All of them are the same time frame, so they're all representing the chart for the symbol SPY over five days showing 1 minute at a time. So what that means is that each candle on this candlestick chart represents the price action over 1 minute. And that is made up, again, of an open, a high, a low, and a close within that 1 minute time frame. The third chart style we have down here is called the Haiken Ashi chart. So what Haiken Ashi means in Japanese is actually average bar. So what that means for us is that these candlesticks are going to open at the average price of every trade that went through within the previous candle. So there's really no need to make this as complex as it sounds. Basically what we use these charts for these Hikin ashy charts is to simply look for trends in the price action. So again, over on the right side of the page, if we look at the bottom chart, comparing it to the chart above the candlestick chart and the Hikin Ashe chart, you can see that the Hiken Ashe chart is just a little bit more clear when there's an uptrend or a little bit more clear when there's a downtrend, meaning that there's a little bit more red when it's going down, and there's a little bit more green on the chart when it's going up. So basically what I use these charts for if I use these charts at all, because, again, I do mainly use candlestick charts, is to simply look for overall trends to show me whether I think it is going up and the momentum is to the upside or if it's going down and the momentum is to the downside. So with your stock chart set to the style that you choose, you can then start to look for different patterns and different formations on the charts themselves. So now we're going to talk a little bit about support. So support is probably exactly what you already think it is. Support is going to be an area where historically, the price of a stock has a difficult time falling below due to increased buying. So if you think of anything being supported, most likely you're thinking of it being held up. And that's no different with the stock market. When we see a level of support, it's due to increased buying pressure and a limited amount of sellers because the stock market like the economy is based off of supply and demand, that's a level where historically, again, the price of a stock will have a difficult time falling below. Because of that, support on a stock can offer a great opportunity to buy. As you can see with this little diagram I have drawn below, support can be completely horizontal and very easy to spot on your chart. So again, with this diagram down here, we see a strong move down initially. We see it start to bounce a little bit right there at the one. It comes back down to that level, and at two, it starts to now form some support. Bounces back up again, comes down the third time, and then a fourth time, and then the fourth time, it starts to bounce back up and starts to actually trend upward. So again, support offers a great opportunity for us to buy stocks at the low and then later on sell them at the high. But what you should know is that you have to wait for the support to actually be formed before you buy into the stock. So you want to wait for at least number two on this diagram. At the bottom of the page here, do not try to predict the number one bounce because more often than not, you're going to buy into the stock too early and the stock price is going to continue to fall down. And many people call that trying to catch a falling knife. You want to wait for it to fall completely down and then find some support and start to bounce before you buy into the position. So again, on this diagram, you want to wait for at least two, maybe even three or four tests of that support level before you buy in. Support can also be a little bit slanted up or slanted down instead of completely horizontal. And in this case, we would refer to it as a trend line. So an uptrend is going to be an upward slanting trend line or a line of support. And again, just like any other support level, this is going to be an opportunity to buy at that support and then later on sell at a higher price. In a down trend is going to be a downward slanting trend line or line of support, but this is still going to offer us a buy opportunity as long as it's still holding above that trend line. So on the other side of the spectrum from support, we have what is known as resistance. Again, probably pretty self explanatory since we know what the definition of support is now, but resistance is going to be an area where historically the price of a stock has a difficult time breaking above due to increased selling. Resistance offers a great opportunity for us to sell after buying or for us to open a short position by short selling the stock in hopes that that resistance level will hold and that we'll be able to profit from the stock coming back down. Just like support resistance, again, can be completely horizontal. So in this example at the bottom of the page, we have a strong move up, and then right there at one, it seems to top out and come back down a little bit. Then it goes back up to that resistance level at two, again at three, and then again at four. And then after four fails at that resistance level, the stock price heads all the way back down. So going back to our support page here, we know that we don't want to buy support at one. We want to wait for at least two, maybe even three or four, because when you're trying to buy at one, you don't know necessarily that that is a support level yet. So the same is going to be true with resistance. We want to wait for at least two, maybe even three or four to open a short position or to sell our position that we recently bought because we don't know necessarily that that is a clear line of resistance until it's proven to be so, and more often than not, it takes a few tests of that resistance level for that to be the case. And just like support, resistance can also be slanted upward or downward. An uptrend is going to be an upward slanting line of resistance, and this is still going to be an opportunity to sell or open a short position just like any other resistance. And then a down trend is going to be a downward slanting line of resistance or trend line. And again, still a cell opportunity or an opportunity to short sell. One very important factor when looking at support and resistance is to know that support often becomes resistance, and resistance often becomes support. So what I mean by that is if the stock price falls below a past support level, expect that price to become resistance in the near future. Also, if the stock price breaks above a past resistance level, expect that price level to become support in the future. So looking at the little diagram here at the bottom of the page, we have a stock that breaks to the upside, and it seems to find a nice little level of support bouncing above that three or four times there. Then eventually it doesn't get the momentum that it needs to continue above that support and start trending upwards, so it breaks down below that support, and then later on once it starts to bounce back up, that past line of support is now becoming resistance. So you would treat that just like you would any other normal resistance line, and you would use that as an opportunity to potentially open a short position and profit from the stock moving back down. And then here, of course, is the opposite side of the spectrum here. We have a strong move down initially. The stock forms resistance. There's not enough selling pressure to force the price back down lower and lower for it to start trending down. And what happens is it breaks out above that resistance, and then later on comes back down, and that pass line of resistance now becomes support, offering a good opportunity for us to buy with the expectation of the price moving up from there. And of course, just like any other line of support or resistance, it doesn't have to be perfectly horizontal. So in this example at the bottom of the page, this is a real life example of an actual chart here, and this is on the symbol SPY. And again, we're looking at the five day 1 minute chart, meaning that each of these candles is simply showing us the price action over a 1 minute period. We see this trend line acting as a line of support initially. And what happens here at each of these three arrows pointed to the trend line, we see the stock come down to that level, test it, and then start to bounce back up from there. And eventually, right there in the middle of the chart, there's a breakdown below that trend line. And then what happens later on is that same trend line is now going to act as resistance, which we see up towards the top where those two arrows are shown, and the stock fails to break above and starts to pull back each time it tests that pass line of support. Alright, so it's important to note that support and resistance are the single most important and valuable chart formations used for any kind of trading or investing. They're also the simplest, but there is no need to overcomplicate your technical analysis. Keep it simple. Trading does not need to be nearly as complex as many people think, and myself and many other profitable traders are living proof of that. So yes, now that we've gone through these simple chart formations, looking at support and resistance, you may think that seems a little bit too easy to actually be profitable and to actually make you money in the stock market. But I can assure you that support and resistance are truly enough to base your trading off of once you understand exactly how to use them and once you understand how to manage your trades and manage your risk, which are, of course, things we're going to be talking about here shortly within the course. 8. Understanding Candlesticks: All right, so now that we know a little bit about the different types of chart styles that you can use and some of the basic technical formations that you're going to see within the chart, I want to talk about now candlesticks, what actually makes up the charts themselves, how you can use them and how you can understand the way that they work in order to improve your overall technical analysis and be able to use them to predict future price action. So first and foremost, as I mentioned earlier, while we were going over the three main types of chart styles, candle six are going to be made up of four main components, and that's going to be your open, high, low, and close. A single candle can represent the price action over a variety of time. It can be a 1 minute chart, five minute chart, daily chart, weekly chart, and so on and so forth. And what that means is, if you're looking at a 1 minute chart, each candle on the chart is going to represent 1 minute of price action. So it's going to show you where within that 1 minute period, the price opened where it hit as a high, where it hit as a low, and then where that 1 minute period closed. And the same is going to be true, of course, for the five minute, the daily, the weekly, or any other time frame that you choose for your chart. So not to state the obvious here, but candlesticks are going to be red when they close lower than they opened, and then they're going to be green when they closed higher than they opened. So if we're looking at the example down at the bottom, we can see that there are seven candlesticks down there, two of which, of course, are green. The other five are red. So you may also be noticing that there are sort of three main parts that make up the candlesticks themselves. Looks like there's a rectangular part within the middle of it. Then there's a straight line that sticks out from the top and the bottom of the candlesticks. So the line that sticks out from the top of the candlestick is going to be what is known as the upper wick. Again, since we're thinking of these as candlesticks, it's pretty self explanatory and a very easy way to remember the different parts of the candlesticks because on an actual candle, we know that the wick is the string that we light to actually light the candle. So the upper wick of the candlestick is going to be the straight line that sticks from the top of the candle, and this is going to show us the highest point that the price went within the selected time frame. The main part of the candle or the rectangular part, that's going to be known as the real body. This is, again, the rectangular part of the candlestick showing the difference between where the price opened and closed within the selected time frame. Then of course, the lower wick is going to show us the lowest point within the selected time frame, and this is going to be the line that sticks out from the bottom of the candlestick. Now, when you're looking at candlesticks, you probably notice that most of them look very different from the one before. And most of the time that's going to be true, but there are a few exceptions, and a lot of times these exceptions turn out to be what are known as dojies. So dojies are a type of candlestick with the open and the close being virtually equal. Dojies can indicate a reversal in the price of a stock. So down here at the bottom, we have five main doge styles. We have the doge star, the long legged doge, dragonfly doge, gravestone doge, and the price doji. So while you're watching a stock, if you see one of these dogees forming on the chart, again, a lot of times they can indicate that the price may be about to reverse. So if the stock is going up before you see a doge formation, that may be a good indication to sell your position that you previously bought or look to open a short position to profit from the downside reversal. Of course, as always, you want to validate this with some other type of indicator because no indicator on its own is going to be a perfect reason to buy or sell. So for example, if you're seeing a doge form maybe just above a level of support on the chart or just below a level of resistance on the chart, those two things can kind of work hand in hand to indicate that there's a good opportunity for a reversal in the stock price, so you can either buy or open a short position from there. 9. Level 2 and Time & Sales: Now, aside from the charts themselves in the candlesticks that make up the charts, one of the most important indicators and one of the most important tools that we use as day traders are what is known as the Level two and the time and sales. Basically, the Level two and the time and sales are going to show you real time price action of the stock showing you all of the trades going through, where people are buying, where they're selling. And these things when you know what to look for can help you understand where the price is likely to go next. One thing that I want to mention here before diving into what time and sales and Level two actually are is just that I know a lot of new traders, myself included when I first started, would have the time and sales and maybe the level two up while they're actually trading, but they don't necessarily know what to look for. So I just want to make sure that you really focus within this section here, because, again, the Level two and the time and sales can actually be one of the best indicators to use to tell you when you should buy and when you should sell. But many traders don't necessarily know what to look for within the information to know exactly what to do with it. So level two, level two provides real time price quotes displaying where people are buying and selling, as well as how many shares they're buying or selling at that given price. Really level two is going to be split up into two main sections. At the bottom of the page down there, we have an example of Level two and time and sales. Together, the far right side of that picture is going to show you the time and sales. But we're going to focus mostly here on the Level two for this section and for this slide. And you can see that there is a left side there and there's a right side. So the left side is going to be the bids, and the bids are people that are looking to buy the stock. The bids are shown on the left side of Level two while the asks or the sellers are shown on the right side of Level two. And again, each buyer and each seller is also showing how many shares they're looking to buy and how many shares they're looking to sell. So how exactly can you use this information to help you find your own traits? When you see a significant increase in bids or buyers appearing on your level two, that indicates that there may be more buyers at that price than there are sellers. This can be a great opportunity to buy. So as I mentioned earlier, within the course, the stock market, just like the economy, really is supply and demand. In the stock market, the supply is going to be the sellers, and the demand is going to be the buyers. How many people are trying to buy shares? If there's a large demand, something in the economy or in the stock market and there's a low supply, that's going to drive the price higher and higher, and again, making that a good opportunity to buy. And then of course, the opposite is going to be true. If you see a significant increase in asks or sellers appearing on your level two, that indicates that there may be more sellers at that price than there are buyers, and this can be a great opportunity to sell if you previously bought or to open a short sale position to profit from the downside. So again, going back to the supply and demand example, if there's a large supply of something and there's not many people looking to buy it, meaning there's no demand, a lot of times what happens is that price goes down, which is exactly what ends up happening in the stock market. And here's a quick example of that in real time. This is showing the level two of a penny stock, whether it be a penny stock, a small cap, a mid cap, a large cap, it doesn't really matter. It's the same principle if there's a large amount of buyers and a limited amount of sellers, or if there's a large amount of sellers and a limited amount of buyers. A lot of times that's going to affect the short term price action that will allow you to get in and profit. So here on the bid, we have 50,000 shares being bought at 0.0 045. And then over on the ask, we have 368,000 shares being sold at 0.0 046. So obviously, that's a pretty big imbalance between the supply and the demand of the stock. And because there's a much larger supply of 368,000 shares being sold as opposed to only 50,000 shares being bought, most likely what's going to happen in this scenario is that bid at 0.0 045 is going to get broken through, and the price is probably going to go down from there. Now, hand in hand with level two comes time and sales. So what is time and sales? Time and sales is going to display the price, time, and size of every single transaction that goes through on a selected stock. So anytime you or your friend or anybody that you know buys or sells a stock within the stock market, it is shown somewhere on the Level two. And below, you can see generally what time and sales is going to look like. You can see the price of the trade. You can see the share size. You can see the time. You can also see the exchange that the trade went through and the type of trade it was. But what we're mostly going to be focusing on is simply the price, the size, and the time of each trade. So an important thing to keep note of is that unfortunately a lot of advanced trading software that most hedge funds and investment firms and large banks and very wealthy retail traders like you and I probably have allows them to hide their orders from level two. So although this sounds like manipulation, and technically, it probably is, believe it or not, we can actually use it for our benefit when we know what to look for, and when we're able to spot where these people are buying and where they're selling, even though their orders aren't showing up on Level two. So in this scenario, what you may see is that on level two, there's only maybe 100 shares of stock, ABC being bought at $10. But if you're looking also on the time and sales and you see thousands and thousands of shares being sold or being traded at that price of $10, you can assume that somebody is actually buying a lot more than 100 shares and that there's actually a lot of hidden buyers there at $10. So spotting a hidden buyer can be a great opportunity to buy into a position because it would have the same exact outcome as it would if there was, you know, a large buyer sitting on level two that everybody else can see. But in this scenario, the only thing that's different is that inexperienced traders that don't know exactly what they're looking for on the time and sales and on the level two aren't able to see this large hidden buyer and what happens is they end up missing out on the opportunity to buy at that price, whereas people like you and I, now that we know exactly what to look for, and we know that we can spot these hidden buyers and we can spot hidden sellers as well, we're still able to treat this exactly like we would any other large buyer or any other large seller that we see on level two. And just like hid in buyers, there can also be hid in sellers, as I mentioned. So alternatively, you may see that Level two is showing only 100 shares of stock XYZ being sold at $5. But on the time and sales, you see thousands and thousands of shares being traded at $5. You can then safely assume that there is a large hid in seller at $5, and this is likely to cause the stock's price to fall as long as the price stays below that $5 level. This is why when reading price action, it is very crucial to pay attention to both the orders on the Level two and the trades that are being shown on the time and sales. Most new traders, if they use these two tools at all, will probably just pay attention to one or the other rather than both at the same time. And by only looking on one of them, a lot of times, you're going to miss out on these opportunities to spot hidden buyers and hidden sellers, and you're really only getting one half of the story when it comes to the price action of the given stock you're looking at. 10. The Best Chart Indicators/Studies: Now, aside from the price action and the charts themselves, there are actually a bunch of different indicators or studies that you can put within your chart to help you indicate where the price is likely to go in the near future. However, as I mentioned earlier, I do like to keep it simple when it comes to trading and a lot of these indicators can be very overcomplicated. And if you're ever looking on Twitter or StockTwits or even Instagram or YouTube, and you're seeing these other traders with these charts that have 1,000 different lines on them that look way overcomplicated. You're probably right. It's probably way too overcomplicated, and there's no need for there to be that many different indicators and that many different studies on their charts because at the end of the day, what's most important is the actual price action itself. And the way that you find that is by looking at the charts and by looking at the Level two and the time and sales. With that being said, there are a few different types of indicators that I do like to use every once in a while to mostly just confirm an idea that I had about a stock based on the price action or based on the chart. So instead of using these indicators to tell me when I should buy and when I should sell, I like to use them to just kind of confirm an idea that I may have had based solely on the price action and solely on the chart itself. The first one that I pay a lot of attention to is going to be the RSI. RSI stands for relative strength index, and this is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought and oversold areas. It's a zero to 100 ranking system telling you where the stock is overbought and where it's oversold. When a stock's RSI is over 70, it is considered to be overbought. Overbought stocks have recently had a strong move up and are likely due for a pullback or a reversal to the downside. On the other side of the spectrum, we have oversold stocks, and this is going to be a stock with an RSI of 30 or below due to recently having a strong move down, and a lot of times these stocks with an oversold RSI are likely to bounce or reverse back up in the near future. A very important note about the RSI that a lot of people won't tell you about is that stocks can remain overbought or oversold for a long period of time. So this should not be the only reason that you're looking to buy or sell. I see a lot of people on social media who claim to be gurus or giving out trade alerts, and many of them actually have strategies based solely on the RSI. So if it's gone up a lot in a short period of time, it's overbought and they'll look to short sell based solely on the fact that it's overbought. And if it's gone down a lot recently and the RSI is oversold, they'll look to buy expecting it bounce back up solely again for the fact that the stock is oversold. This is not how you want to trade because, again, they can remain overbought or oversold for very extended periods of time. So the way that I like to use them is, for example, if I'm looking at a chart and maybe there's a very strong level of support on a stock at $5 even, and the stock is coming down strong and quickly towards that $5 support, and maybe I see that the RSI is down in the 20s or even below 20s while it's at that support level, that can be a good indicator that maybe it's time to buy for a quick bounce back up. But the trade idea is based on the fact that there's support and then confirmed by the fact that there's also a very oversold RSI, not the other way around. And then here we have a quick example showing us the chart in the RSI of the stock. And as you can see, within that box on the chart itself, the price continues down for quite a while, even though it's oversold before bouncing back up. So that again shows us that we shouldn't be basing our buys and our sells off of the RSI on its own, but instead looking for them to confirm our ideas that we already had based on the price action and based on the chart. The other indicator that I use on a day to day basis is called the VWAP. VWAP stands for volume weighted average price, and the VAP is shown as a line or lines representing the average price of each trade weighted by volume. So if we go back to this example here showing the RSI, this purple line going through the chart in the middle there is actually the VWAP. The VWAP is simply used to spot market trends and for intraday support and resistance levels. So again, going back here, we see that although the RSI is oversold, the second that it gets into this box here on the chart, it still continues to go down further from there. So knowing that the VAP is often support and resistance within the day, you may be seeing that the RSI is getting oversold, and you may look to buy just above that support level or that VWAP level, and that trade idea would be confirmed by the fact that there is an oversold RSI. Then here is another example showing us the VWAP within the day acting as a very strong resistance line. Each of those arrows pointing down is another time that resistance level was tested and it held as resistance. So you would treat the VWAP, whether it be support or resistance, the same way that you would any other resistance or support level. You can use it to find good buy opportunities, and you can use it to find good short selling opportunities. And you also have to keep in mind that it can be both. It doesn't need to be just support or just resistance if it's acting as support early on within the day, and then maybe in the middle of the day, the stock breaks below that support line and breaks below the VWAP. Later on, as it gets back to the VWAP, that same level that was past support can now be a strong level of resistance, and the same is going to be true. If early on in the morning, the view app is acting as very strong resistance, midday it breaks through that resistance, and then at the end of the day it comes back down. That past resistance can now be a strong level of support, offering you a good buy opportunity, just like any other support level would. 11. What Is Fundamental Analysis?: Alright, so now hopefully you should have a good understanding of technical analysis. You should know the different types of chart styles, a little bit about chart patterns and formations, support and resistance, the actual candlesticks themselves that make up the charts. Level two, time and sales, how to use them, and how to pair them together, and some of the best chart indicators and studies to help you with your trading. Now it's time to talk about another type of analysis that we do pretty frequently as day traders, and that is the fundamental analysis. So this type of analysis is going to be more common when you're investing or swing trading, but it can still be used at times for your day trading as well. So I wanted to go over it and just explain to you a little bit about what it is and how you can get started doing it. So fundamental analysis is the measure of a security's intristic value by evaluating related economic and financial factors. Again, this is used much more for swing trading and investing than it is day trading, and this really just involves analyzing the company's products or services, their profitability, revenue, assets, liabilities, and so on and so forth. So things that make up the actual company itself, how much money it's making. There are different types of products and services, whether or not they have good reviews and good customer relations, things like that are going to involve fundamental analysis. So it's definitely different from technical analysis, which focuses on the charts and the price action itself. And it's a little bit more about the company itself rather than the stock. Get started with fundamental analysis, you simply have to search a company's name or the stock symbol on this website, bamsc.com. So I'm actually going to go ahead and go over to Safari real fast onto bamsc.com and show you a little bit about how you can start analyzing a company's fundamentals. So I'm going to type in the symbol, AAPL, which is, of course, Apple symbol. And once you search a company's name or symbol, what's going to pop up is the different sections here. We have financials, news, prospectuses and registration, proxies, ownership, and then other. So if you're looking to do fundamental analysis based on the company's earnings, maybe they recently had a quarterly earnings report, and you want to see if their revenue or profitability increased over the past year, that's going to be under financials. And what you'll do is click on the ten Q or the ten K, the ten Q being the quarterly report and the ten K being the annual report. Once you click on that, it's going to pull up the actual filing itself. And from there, you can do any type of fundamental analysis you need. You can see their different product sales, their total net sales, cost of their sales, operating expenses, anything else you could possibly want to know about the company's financials are going to be within their quarterly and annual earnings reports. So as a day trader, the main type of fundamental analysis you'll be doing is simply analyzing recent news or press releases put out by the company. And then common sense here tells us that if the news is negative, you'll know that the stock is likely to be a better opportunity to short sell rather than buy, and if the news is positive, you'll know the stock is likely to be a better opportunity to buy rather than short sell. So if you're looking at a stock maybe in pre market and it's having a big open for the day, it's up maybe 30% in pre market, probably nine times out of ten, the reason for that is going to be because of news being put out by the company, some kind of press release or maybe it's even an earnings report. And rather than just simply trading that stock based on the technicals, based on the charts and the price action itself, you want to know what kind of news was put out by the company that caused that big spike up in the price of the stock. So that's when you'll do your brief fundamental analysis before diving into the technicals themselves and finding the prices that you may want to look to buy or the prices that you may want to look to short sell. 12. Controlling Emotions (Trading Psychology): Now, one thing that many new traders don't really realize until they get into the market and start trading live themselves is that trading is much more about psychology and the controlling of your emotions than it is analysis and strategy. In my opinion, trading is about 80% psychology and only 20% analysis and strategy. So with that being said, it's very crucial that you're able to learn how to control your emotions in order to succeed as a day trader. Think about it. One of the big reasons that Wall Street is mostly computer algorithms now is because computers don't experience greed, fear, or stress in general. That, and of course, they're lightning fast. But without having to deal with emotions, these computers are simply able to execute trades based solely on the strategy, based solely on the price action, and they don't have to experience any stress or anxiety that's involved with trading. So before getting more into the psychological side of trading, I want to say that you have to know, no matter how many times I tell you that it's very important to cut your losses quickly and to avoid getting greedy and all these other things, at the end of the day, these are things that you're probably going to have to learn on your own from your own experience. That's just the way it is. That's the way the market operates, and that's the way that people are able to adapt to the market conditions. But I am going to give you some tips on how to avoid these emotions, and I'm going to go over the main emotions that you're probably going to feel while you're trading that can cause you to make some costly mistakes. The first of those emotions is greed. So greed is going to take over mostly when you're in a profitable position, and you still want more. It's very important to avoid greed by simply buying and selling based off your analysis and not letting your emotions take over. An important part about greed is that if you're in a trade and it's going in your favor and everything is lining up nicely, it's not being greedy to let your profits get larger and to let that winner run a little bit. It's only getting greedy if you're in a position and you're at a nice profit, and the chart and the price action is kind of telling you that it's time to lock in your profits because the stock looks like it may reverse soon, and you're still fighting that urge to sell because you want to make more on the trade. That's when greed takes over, and that's something that you need to avoid to succeed long term as a trader. Now, a very helpful tip to actually avoid getting greedy when you're in a trade is to not look at your profit and loss. So when you're in a trade, you can see how much you're up or down within the trade. So if you're in a trade with maybe $1,000 position and you're up 5% on the trade, you'd be up $50, but you still haven't sold or locked in that profit yet. By avoiding looking at how much you're up or down on the trade, you're able to focus solely on the price action and the chart rather than how much you're up or down, which can really affect your emotions. So, in my opinion, it's very beneficial to hide your unrealized P&L, which is your unrealized profit in moss and to not look at how much money you made or lost until you're out of the trade based on your analysis and your strategy. The second very common emotion that we experience as day traders that you're probably going to feel pretty frequently when you start to trade is called Fomo. Fomo stands for fear of missing out. And Fomo is something that you probably have experienced at some point in your life. You know, for example, if you have friends or family that went out or did something fun without you, you may experience Fomo wishing that you were there hanging out with them. And the same thing kind of happens with us as day traders in the market. You experience FOMO when you're not in a trade, but you feel like you're missing out on making profits. A lot of times this can lead to forced trades with mediocre trade setups. In other words, a lot of times this can lead to you taking trades that otherwise you probably wouldn't want to trade because they're not necessarily the best risk reward. Maybe you're risking a lot more than your potential reward is going to be. And ultimately, they should be avoided. So a very helpful way to actually avoid flmo is to actually walk away from your computer to avoid trading when you feel like there are no great setups. In this way, you're able to avoid that feeling of missing out. You're not looking at stocks that you think maybe you should be in and you're not feeling like you're missing out on profits. And this also lets you trade only the best setups and avoid getting into the ones that are not so great. And this is going to lead us to the third very common emotion that we feel as day traders, and that is going to be fear. Believe it or not, there should really be no fear involved in trading. Even though you're putting your money at risk and there's potential for losses, you shouldn't be afraid to get into any trades and you shouldn't experience any kind of fear or anxiety while you're involved in any trading. And the reason for that is actually pretty simple. Before each trade, you should have a trade plan, and you should know exactly how much you're risking if the trade moves against you. So instead of getting into a trade without knowing where you're going to cut your losses and without knowing exactly how much you're going to lose, which can, of course, cause a lot of fear and a lot of anxiety. You want to only get into trades after you have formed a trade plan and after you know exactly how much you're going to lose if the trade moves against you and how much you're likely going to make if the trade moves in your favor. So, of course, an easy way to eliminate your fear in trading is to have a very clear trade plan before you get into your trade and, of course, follow that trade plan once you're in the position itself. 13. Managing Risk: Alright. This is going to be a very important section of this course because managing risk is the number one most important factor in trading. Think about it. You can be profitable nine times out of ten, but that tenth trade that you end up taking a loss on could be a large enough loss to wipe out all of the previous nine profits. So it's very crucial to manage your risk and to make your losses smaller than your gains are in order to succeed long term as a day trader and in order to consistently profit from the market. So in this section, I want to talk about some ways to manage risk. Very importantly, we're going to talk about how to create a trade plan, which we talked about briefly in the last section of the course, which helps take some of the fear out of your trading. And instead of worrying about how much you're going to lose, if the trade goes against you, you already have a trade plan set out, so you know exactly how much you're going to lose in that scenario. And that way, you're not anxious or nervous getting into the trade, and you're simply able to trade based on the chart itself. So first and foremost, managing risk simply means knowing where to cut your losses and then doing so when the time comes to do that. Again, forming a trade plan with a risk price and a reward price is the best way to manage your risk as a new trader. So of course, your risk price is going to be the level where you cut your losses, and the reward price is a level where you're likely to take profits if the trade does move in your favor. So how do you form a trade plan? It's actually pretty simple. You really just have to use the chart and use some of the simple chart patterns and formations that we talked about earlier in that section where we went over support and resistance and a few of the indicators that we talked about. So one way to manage risk is to buy at support with your risk being just below that support level and your profit target or your reward being just below the nearest resistance. And the reason for this is simple because if a stock breaks below support, we know that that's the time that we want to cut losses if we recently bought because the stock is likely to continue down until a new level of support is formed. And we don't want to guess that that's going to be a small amount, and we don't want to wait for that stock to possibly bounce back up. Instead, we want to simply cut losses and then look for a better opportunity to buy at a lower price. So if we're looking at the example here at the bottom, we see that there's a clear level of support, and then we have a clear level of resistance form as well. Ideally, what you want your trade plan to look like is having a reward potential that is at least two times what your risk potential is. So in the example below, we would be buying at exactly $10 just above that support line, with our risk being about $0.10 below that support line at 990, risking, again, only $0.10 a share. In our reward, in this case, it is going to be just below that resistance line that formed above, which is $0.20 away from where we bought at, making our reward to risk ratio two to one, meaning, again, that our risk is only half of our reward potential. So this would be a good trade plan. And if you're watching a stock and looking to possibly trade it, and you have a trade plan, something like this where the risk is less than the reward, then you know that it's probably going to be a decent trade to possibly take. On the other side of the spectrum, if you're watching a stock and you're forming your trade plan, and you see that based on the support and resistance on the chart, you would be risking twice or even three times or more what your potential reward is. You know that that's a trade that you probably want to just avoid and just wait for a better setup. Don't let FOMO kick in because a lot of times that leads to very unnecessary losses that you can simply avoid taking. Now, that, of course, was an example of managing risk on the long side by buying above support and cutting losses below that support. But if you're somebody who likes to short sell, then you would simply use your resistance level as a risk level and your support as a possible reward level. So if you're short selling now at $10 because you have some overhead resistance, you would want to set your risk level about $0.10 above that resistance. Because just like when a stock breaks below support, and we know that in that case, we want to cut losses quickly because the stock is likely to continue down until new support is formed. Stocks can also break above resistance. And when they do that, if you're short selling, you want to cut losses quickly because they're likely to continue up until new resistance is formed. So in this case, we would be risking about $0.10 a share with our short at $10 and our risk level at $10.10. And because we have some support down there at about 980, we would be making about $0.20 a share if the trade moves in our favor, making our reward to risk ratio again two to one. So this would be another good trade to possibly take with a solid trade plan and a solid reward to risk ratio. 14. Placing Trades (Order Types): So now that we covered a lot of the basics in technical analysis, we know some of the basic chart formations. We know of the different chart indicators we can use. We know about the candlesticks that make up the charts themselves, and so on and so forth, it's time to talk a little bit about how we can actually place our trades. So no matter which brokerage you use, there's going to be a variety of different order types that you can use to actually place your trade. And there are quite a few, but in this course, we want to just focus on the top three or the main three that you're probably going to be paying attention to, and likely the ones that you're also going to be using for your own personal trading. And the first one of those three is going to be a stop order. And this is also known pretty commonly as a stop loss, and this is something that allows you to automatically cut your losses on a trade when it gets to a certain price. So these order types are very beneficial, especially for new traders that don't necessarily have the discipline yet to manually cut their losses because in reality, cutting losses is a lot easier said than done. So by having a stop loss order or simply a stop order in place, it allows you to automatically cut your losses without having to actually click any buttons when the stock gets to the price that you want to cut your losses at. So if we're looking at this trade entry box here down at the bottom, we can see, I'm going to go ahead and exit out of this real fast so I can show you. We see here the last price of the stock AMD was at $27.70. This up here is the bid, and this is the current ask. So the current bid is $27.69, and the current ask is $27.70. Our order type is going to be set down here under type, and then we have our stock price as well. So in this case, let's say, for example, we recently bought the stock at about $27.60, and we're currently up about $0.10 a share. So if we bought that at $27.60 because of there being support at $27 and let's say, $0.50, we know that when the stock gets below $27.50, if we didn't already lock in some profits, what we want to do is cut our losses because, again, stocks breaking below support are likely to go down until they find a new level of support. So what we would do is we would set our order type to stop, and then we would set a stock price below that support line below $27.50 in order to have the order automatically cut our losses for us when the price gets down below that support level. So in this case, I have the stock price set at $27.45 $0.05 below the $27.50 cent support line. So what would happen is when the price gets down to 27 45, this stop order would automatically execute, and we would simply be out of our trade, and our losses would be cut for us without having to execute any other trades. The next order type is a pretty common one, and this is the market order. So a market order is one that is executed immediately at the current market prices. In my opinion, market orders should only be used in urgent trades. The reason for that is because say, for example, you were trading 1,000 shares of stock, and let's say you wanted to sell 1,000 shares at exactly $5. But on the bid, the current bid is at $5, and there's only 100 shares being bought at $5. The next best bid is at $4.99, and again, there's only somebody buying 100 shares there and so on and so forth. So what would happen is if you executed 1,000 shares to sell at market, you would get 100 shares filled at $5, 100 shares filled at $4.99, and so on and so forth. So you wouldn't necessarily get the best executions, and you wouldn't be selling at the best prices. A lot of times when there's a lot of volume in a certain stock and maybe there's tens of thousands of shares being bought and sold at each price, you don't really have to worry about it too much, and you'll be fine using market orders. But again, a lot of times there are also stocks that have very thin volume. And just like the example I just gave, there may be only 100 or 200 shares being bought or sold at a time on the level two. And if you're using market orders on stocks like that, you're likely going to have some slippage, and you're likely going to get filled at worse prices than you expected to get filled out. So that's really why I like to use these only in certain situations and only when I'm trying to get in or out of a trade very quickly without being too worried about the price that I'm getting in or out at. That's going to lead us to the limit order. So limit orders are what I primarily use for getting into trades, and a limit order allows you to place an order to execute only at a specified price. So going back to the example I gave while we were talking about stop losses, when we had some support at $27.50, and we had our stop loss set at $27.45, let's say the stock is trading just above that $27.50 cent line. Right now, the current price of the stock AMD, in this example is $27.64. So now that we know that there's support at $27.50, if we wanted to wait for the stock to get down to $27 and let's say, $0.55 to buy just above that support line, one way to do that is to use a market order like we just talked about, and simply wait for the bid and ask to lower down towards that price. Or what we could do is we could set a limit order to buy once the price gets down to $27.55. So in that case, if we're using a limit order to do that, the only way we would get into this position and the only way we would buy shares is if the price came down to $27.55 and all of our shares got filled at that price. If the price just happened to continue up without filling us at $27.55, we would simply miss out on the trade, and we would have to cancel that order. But in my opinion, the limit orders are the best order types to use when getting into trades because you're able to simply set your prices that you want to get in at. And if you don't get in, then you know that it's probably best because you didn't get filled at the best prices anyway. And if you did get in, you know that you set that limit order at a certain price for a certain reason, whether it be a key level on the chart of support and resistance or maybe it's right at the VWAP, something along those lines, you know that there was a reason that you set your limit order at that price. So now once the price gets there, it will get you into the trade without you having to second guess yourself and without you having to manually get into the trade before it's too late.