As a trader you need to understand why it is that you enter a particular position, what is your own specific reason for position entry, the answer can't be "It looks like it's going up". You can't put down money based on a gut feeling; you have to be motivated by a technical reason found in the chart that you are observing. Another factor that will influence your trading is volume. The average daily volume of a stock that you choose to trade should be at minimum 1M shares. Be very cautious when risking your equity, make sure you have spent sufficient time paper trading, otherwise you will pay a lot of money in market tuition... and that can be quite costly.
Something else that will have to be considered is your personal workstation. Keep your work area clean, and uncluttered. A messy desktop will not allow you to think clearly, and will prove to be distracting. You will need a good monitor setup (2-3 monitors minimum) so that you have ample real estate to view charts, level 2, etc. You will also require high-speed Internet connection and a good direct access broker. This is a serious profession based on mathematics and market psychology, so act professional. If you trade with a budget day trading casino mentality, you will quickly gamble away your entire account.
A Few Words About Charts
It took me a few months of experimenting to find my personal g-spot for my own personal chart setup. I'm going to offer up some tips on how you can best manage your own charting.
- Keep it simple, and uncluttered. Have only the essential information displayed because you will spend a lot of time just waiting for a healthy setup to present itself. If you have a complex window to look at with a lot of flashing colours and numbers, you will only get eyestrain.
- To reiterate on the first point, don't have too many technical indicators on your charts, especially indicators that conflict signals.
- Have at least one broad market chart and one sector chart, are they making new highs today compared to yesterday? It is important to gauge the market relative to the previous trading day's range.
- Have a time and sales window for your stock, is there a buy or sell pressure?
When reading your Level 2 window use it primarily for order routing only. You can't always base a trading decision on what information you see there, because there is a lot of bluffing and intentional manipulation that happens in Level 2. You need to focus on the big picture of the market first and foremost, is it a red or green day? Is it a volatile day or is it very choppy with deadly whipsaw like activity? After you have performed this initial diagnosis, then you can use the individual chart patterns to identify a profitable entry and exit point. A common beginner mistake is just jumping in and out whenever and where ever-an entry and exit point must be determined BEFORE you place the trade.