The Guts and Glory of Day Trading. Mark Ingebretsen

       Set realistic objectives. If you’re a trader you should really expect a minimum of 10 percent return on your capital every month. Or else you’re doing something wrong. Gains larger than 10 percent are unsustainable over the long term.

       Preserve your gains. Consider removing the monthly profits you make from your trading account and investing those funds more conservatively.

        Trade smaller positions on a longer time frame, versus large positions held for a short term.

       Only trade one thing at a time (for example, stocks, futures, bonds or options). But trade them intensely. “There are very few people who have the talent to trade in more than one market at a time.”

       Trade speculative stocks with limited floats. “As a former corporate financier, I knew that a great trick of the finance department is that if you limit the float, the stock can go up really fast. But it can also crash in about three seconds.” Therefore any stock worth trading must be speculative. “Stocks with huge floats, such as Ford Motor Company, require huge amounts of buying and selling in order to experience meaningful price moves.”

       Buy on dips; sell (or short) temporary highs. “If a stock has been rising in price for some time it’s possibly in an uptrend. If it pulls back, buy it and monitor it closely. If it’s still early in the uptrend, then it’ll move up again. If the stock does move, and it touches the old high, you’ve encountered a point of resistance. If the stock doesn’t blast right through the resistance point, exit your long position or consider selling the stock short.

       Find a chart-reading method that presents simple indicators you can interpret easily. “Chart reading in itself is very simple. There are only so many things that can be done with it, and all those fancy indicators are simply regurgitating the price with some math added to it.”

       Technicals work in the same way in every time frame. But there are certain vehicles that are more noisy than others. For example, if you try to do candlesticks on a 5-minute Treasury bond chart, you’re not going to get anywhere. Because it doesn’t fluctuate enough to draw any meaningful candlesticks. So you have to move out to at least a 15-minute chart. A 5-minute chart will create a series of candlesticks that all look the same.

       If you trade using candlestick charts, study the file intensely before acting on any of the more popular patterns. “Candlesticks are great because they let you see what’s happening from bar to bar. There’s a real struggle between buyers and sellers. The less-well-known candlestick patterns are better. Everyone knows what a hammer and shooting star are.” For that reason, these patterns can be dangerous. Beginners will see a hammer and decide to buy. And two bars later they’re gone. You have to look for things like “piercing patterns” and “dark cloud covers” that most people don’t really understand.

       Don’t be deluded into thinking you possess all the information about a stock, regardless of the quality of information about a stock, regardless of the quality of information appearing on your screen. “The whole idea behind Level II is that by looking at who’s trading what, you can figure out who’s doing what. However, the institutional traders and the market makers and specialists are truly in a superior position. If they have something in their hand and they don’t want to show you, I don’t care what kind of claims the day trading firms make, you won’t know.”

       Scalping is not cost effective. “A lot of day trading academies say you can scalp for an eighth and be just like the market makers. I don’t subscribe to that theory, because you have to risk a lot of capital to make very little money.”

       When buying options, large bets are necessary if you are to realize large gains. However, all of your option positions should represent only a small portion of your portfolio. That way a miscalculation won’t cause serious damage to your trading capital.

       Only about 10 percent of the option positions you maintain should be locked into a single expiration date.

       Buy options that are at the money and within one or two weeks of expiration. This minimizes the premium you pay for the option’s time value. If your position moves against you by a couple of strikes, sell the option. Don’t ride it to zero.

       Trade the market as a scientist. That is, you should observe and try not to affect the setting that you’re observing. Be impartial and see what is really there instead of what you want to see.