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Avoid Inactive Markets

I have already given you guidelines on which markets to day trade and how to determine if a market should be day traded. Follow those rules. By trading active markets only, you will avoid the problems that come with thinly traded markets and the relatively poor price executions that are so common in such markets. As a day trader, you must have liquidity in order to move into and out of your positions easily and without too much slippage. Moreover, if you intend to trade large positions, then liquidity is absolutely essential for success. As a day trader, you do not have the time to wait too long for price executions to be reported to you, nor will you have the time to go back and forth with different price orders in an effort to have your positions either entered or closed out.

Since markets wax and wane in terms of trading activity, you will need to evaluate this on an ongoing basis in order to make certain that you are participating in actively traded markets. If you find yourself trading thin markets and experiencing all the difficulties that go along with such markets, then I assure you that you have no one to blame but yourself, since you have violated one of the cardinal rules of day trading.

As this book is being written, the active futures markets are as follows: S&P 500, Treasury bonds, Swiss franc, Deutsche mark, yen, British pound, crude oil, and heating oil. Coffee has spurts of activity. Some of the European markets also make good day-trading vehicles. As you can see, the number of vehicles open to the day trader is rather small. But this, I assure you, is a blessing in disguise.

Don't Run with the Lemmings

Some of the largest intraday moves occur when they are least expected. The general trading public and a vast majority of professionals will be on the wrong side of the market when these moves happen simply because they get blindsided by their collective lemming instincts. Mob psychology is a very important factor that may be used to the advantage of the day trader. If you find that the market sentiment is skewed to one side of the market or another, then watch closely for timing indicators that will give you market entry on the opposite side of majority opinion.

Watch for Day-Trading Opportunities Following Major Events or News

Many outstanding day-trading opportunities occur on the heels of a major news event such as a political upset, a financial panic, unexpected news, natural disasters, the threat or actuality of armed conflict, or other emotion-provoking news. When these events occur, the markets are highly emotional, and opportunities for the disciplined day trader abound.

The Value of Correct and Timely Price Data

Some traders will attempt to save money by subscribing to delayed price quotes or to low-cost real-time quotes. My advice: don't do it. Day trading is difficult enough with good data. Why decrease your odds of success by using incorrect data or delayed price quotations?