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Day Trading Definitions

Market Trends

Markets exist in one of 3 states:-

  • Trending Up (also known as Bull Markets)
  • Trending Down (Bear Markets)
  • Trendless (Consolidation)

Interestingly, most markets spend the majority of their time in a trendless state, despite the opinions of the general public.The S&P 500, for example, spends as much as 65% of its time wobbling randomly up and down. Or so it appears to the outside world! These trends are fractal in nature, in other words whatever timescale you examine a market in, it looks pretty much the same. A 5 minute day trading chart of the Dow Jones or the Nasdaq is almost indistinguishable from a 5 day chart, and appears as good upside down as right side up. This has led many people to espouse the 'Random Walk' Theory.

Random Walk Theory

Random Walk theory states that it is impossible to predict what any market (e.g the S&P index, or an individual stock) will do from moment to moment, as market movements are entirely random. Any successful day trader could tell you that this is not so; there are instances every day that basically 'signpost' themselves to those with eyes to see, and enable major money to be made in a day trading timeframe. Notice that this is NOT the same as 'prediction'. To predict the markets IS impossible, as is predicting any kind of future event. The proof of this is that were it possible, the person with that ability would very rapidly acquire all the money in the world. And as far as I am aware, that hasn't happened yet, although Bill Gates made a good stab at it towards the end of the 20th Century...

What IS possible is to make statistical judgements about likely market direction, over short time frames. A lot of technical analysis is based on this concept - by studying 'chart setups', a day trader can gauge the likelyhood of such a setup having an identical outcome to last time. Needless to say, this kind of technical analysis involves a lot of work, and therefore probably isn't of much interest to the average day trader. We want something simpler, more consistent; something that will enable us to make money trading within the timeframe of a day.

So can money be made day trading the markets?

Yes. Everyday, the top 5% 'in the know' day traders take some money off the other 95%. The purpose of SureFireThing's Camarilla {b} Equation Calculator is to enable you to rapidly join that 5%. To short circuit the years of pain and loss you would normally have to suffer in order to become a 'savvy' day trader. Done right, day trading is the best business there is - you can work from home, set your own hours, and quit whenever you like. Here's how.

 

Day Trading Definitions # 2

Day Trading Definition

Different day traders operate on different timescales. Warren Buffet, for example, may think holding a stock for 25 years is 'short term'. At the other extreme, a day trading 'scalper' on the NYSE might think 25 seconds is 'long enough'. Generally, holding for a few days is termed 'swing trading', while holding for less than a day is 'day trading'. A day trader holds no position overnight. If you stop to think about it, this is the best way to trade. The less time your money is at risk (read: invested) the less chance there is that something bad will happen (read: you will lose money).

Using the Camarilla {b} Equation will typically involve you in holding a position for less than 30 minutes; trading perhaps once or twice a day. This reflects the fact that during intraday stock trading, the vast majority of the profits are made in a disproportionately small amount of time. In other words, on a daily basis, markets tend to wobble, then suddenly zoom to a new level, where they wobble some more. The Camarilla {b} Equation is designed to highlight those points where the 'zoom' is likely - where there is a very strong possibility of a sudden move in the direction you want, with only a small probability of a move in the other (wrong) direction occurring. These Camarilla {b} moves happen most days, and are extremely simple to trade (in the sense that day trading is EVER simple, of course!).